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Labor: Managing a down economy--Individual terminations

How to assess risks when terminating employees for performance-related issues

Human resource managers and the legal counsel working with them likely know who the worst performers are at the company. They likely have a good sense of which employees they would terminate first for performance-related issues if it ever came time to make that decision. When the time does come, it is advisable to consider the following items before implementing the termination decision.

First, an unsurprising caution: all terminations come with risk. The quip that every employee falls into some protected characteristic, including even the white male employee who is under the age of 40 and without any disability, is technically true. There are, of course, degrees of risk associated with terminations. Knowing the contractual obligations a company has with an employee, as well as which protected characteristics are applicable to individual employees, will help quantify and manage that risk.

It is important here to re-emphasize the importance of objective and strong performance evaluations for employees. I have commented on the elements of an effective performance evaluation process in a previous post. The employees that the company considers the worst performers should not necessarily be surprised to hear it.

The greatest amount of friction—and the greatest amount of risk for litigation resulting from a termination—comes when an employee is terminated for performance problems, but those performance problems are a surprise to the individual employee. In those situations, the terminated employee rejects the company’s purported reason for termination and looks to other reasons (such as race, disability, whistleblowing activities and the like) as the suspected reason for the termination. Consistent, strong and effective performance evaluations can mitigate this risk.

Once the decision has been made to terminate employees for any reason, it is important to consider the contractual obligations the company has with that employee. A collective bargaining agreement may govern the termination decision and process. An employment agreement may call for certain termination procedures, notice or severance payments.

Companies also should be mindful of offer letters, correspondence surrounding initial employment negotiations with the employee and employee handbooks. Employee handbooks should contain express language making clear that the handbook is not a contract of employment, and should contain clear language that all employees are, by default, at-will employees unless they have a written employment agreement signed by a designated officer of the company.

In addition to understanding and managing contractual obligations, it is important to know the protected characteristics which might apply to an individual employee. Common protected characteristics include age, race, creed, color, disability, sex (gender), national origin, ancestry, arrest record, conviction record and membership in military services. Some states may have other protected characteristics specific to that jurisdiction, such as marital status, sexual orientation and transgender identity. Individual municipalities may also have unique protections (e.g. prohibition against discrimination based on “student status” in Madison, Wis.).

Companies also must be cognizant of whistleblowing activities in which an employee has engaged. If the employee has complained about financial practices, health and safety issues, discrimination, harassment or any other kind of alleged inappropriate or illegal activity, the employee is likely protected from retaliation for those complaints.

After discerning what contractual obligations the company may have to the employee as well as which protected characteristics an individual employee may have, the human resource manager or legal counsel will have a good sense of what risks and obligations the company will have associated with the termination. Once the risks are identified, the risks can be properly mitigated and/or managed.

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Tom O'Day

Tom O’Day joined the Milwaukee office of Godfrey & Kahn, S.C. in January 2006 as a member of the Labor and Employment Practice Group. Tom’s...

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