Labor: Firing Employees in a High Unemployment Environment

The unemployment rate is hovering at an all time high despite signs in the business sector that things are looking up. Many employers have let employees go over the past several years, either through group or individual lay-offs, and fewer employers are hiring employees to fill job openings.

While a laid off employee might conclude that larger economic factors motivated a termination decision, many have taken steps to sue their former employers, claiming wrongful termination. Labor agencies are reporting a significant increase in employment claims. Earlier this month, the United States Equal Opportunity Commission (EEOC), the federal agency charged with investigating employee claims of discrimination, reported that the number of charges of discrimination filed from September 2009 through September 2010 rose by more than 7 percent, compared to the prior year, and are up 21 percent from 2007. For the one-year period ending September 2010, that translates to more than 100,000 additional claims.

Similarly, employment law firms have reported increases in excess of 10 percent in the number of 2010 court filings for claims filed under federal employment laws, including Title VII, ERISA and the FLSA. While many of those claims are still working their way through the costly litigation process, 2010 settlements of major employment discrimination lawsuits totaled a record breaking $346.4 million. Clearly, a myriad of employment settlements from 2010, not considered major cases, would not be included in those figures.

With an increase in terminations and a rise in employment litigation, what should employers do in this climate to reduce the risk of employment lawsuits relating to termination decisions driven largely by economic forces? One reality affecting the risk of litigation of which employers should be aware stems simply from the length of time it takes for a terminated employee to re-engage in the workforce. Employees who otherwise might not sue may turn to an attorney or a governmental agency to file a claim because of the serious challenges they face finding substitute employment quickly. Businesses should never underestimate the impact idle time and financial stress has on the decision to sue.

There are concrete steps an employer can take in connection with a termination to mitigate the likelihood of employment litigation:

  • Use even-handed business reasons in selecting the individuals who will be laid off, and communicate those reasons to the employees who are selected. Employees who do not understand why they were terminated will be more likely to conclude later they were selected for the wrong reasons.
  • Ensure all internal and external communications consistently report the same reasons for an employee's termination. Inconsistent statements cause employees, their attorneys, governmental agencies and jurors to conclude the employer is not credible.
  • Consider offering a modest separation payment and/or continuation of health benefits in exchange for a full and complete release of claims when employees terminate for reasons other than wrong doing. An appropriate release will eliminate the risk of legal action, while the separation pay and will ease the transition.
  • Consider not challenging unemployment claims most of the time while unemployment is high. Often the ability to receive government benefits will make the employee less desperate to sue.
  • Take special care to counsel underperforming employees about performance issues as they arise in advance of any termination decision to give them a fair opportunity to improve. Employees who understand why they are falling short are less likely to conclude their discharge was based on unlawful reasons.
  • ? Consider making outplacement services available to laid off employees to prepare them to reenter the job market. Outplacement services are surprisingly inexpensive and may help reduce the period of time of unemployment.
  • Treat employees with respect and professional courtesy throughout the termination process. If appropriate, keep open lines of communication after a termination. Even though it is affecting millions, the involuntary loss of a job is a major life event in terms of its emotional impact.

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