Need to fire an employee? Tread lightly, legal experts warn

Owning a business comes with a tremendous number of pluses and perks, but it's safe to say firing an employee isn't one of them. No one wants to hand a worker his or her walking papers, but due to poor performance, routine tardiness or something more serious – like lying about qualifications, which three-quarters of managers say they've come across, according to a recent poll – terminating an employee is a dirty job that someone has to do.

Necessary though it may be, it's an unenviable task that's fraught with landmines, and hitting one has the potential to backfire, legal experts warn. Perhaps the biggest risk employers run is being sued, said Ben Mathis, an Atlanta-based labor and employment attorney.

"We clearly are in a litigious world, and some states and jurisdictions are particularly litigious and that makes terminations high risk for legal costs," Mathis told Business Insurance.

Indeed, according to figures and calculations conducted by Hiscox, the states with the greatest employee lawsuit risk include New Mexico (66 percent higher than the national average), Nevada (47 percent) California (40 percent) and Mississippi (39 percent). There are several potential reasons as to why, but a leading one is the fact that state laws – some more than others – tend to be stricter in terms of what employers are required to adhere to versus what federal law necessitates. For example, even though there is no federal statute barring employers from running a criminal background check, it's illegal to do so in Illinois and the District of Columbia.

Mathis warned that no firing occurs in a vacuum, especially when the fired party contends his or her rights were infringed upon.

"I tell people that when you're making a termination, particularly one you deem to be high risk, it's almost like making a capital expenditure decision," Mathis told the publication. "You have to take the time to make sure what you're doing makes sense and can be defensible."

Six-figure judgments the norm
Most complaints terminated employees have about being fired never see the inside of a courtroom. However, when they do, the costs can be considerable, especially when the judge rules in favor of the plaintiff. Data from Hiscox says the national median judgment is roughly $200,000, which doesn't include defense costs or legal fees. Additionally, roughly a quarter of employment practice liability awards top $500,000.

This type of judgment can be crippling, to the point of forcing a business to close their doors.

"For a small business, a lawsuit can bankrupt you, depending upon the nature of the lawsuit and how expensive it gets," Shauna Wall, a compliance attorney based out of Florida, told Business Insurance. "There are trials and appeals, and all that takes time and money. And if you're a small business owner, that's two things you may not have a lot of."

Writing everything down
Wall said in addition to consulting an attorney, the best thing employers can do before, during and after a termination is to keep impeccable records. This will allow the proper authorities to determine if the appropriate t's were crossed and i's dotted, because the documentation is all there.

Headquartered in Arizona, the Law Offices of Donald W. Hudspeth P.C., is represented by a team of experienced business law attorneys based in Phoenix. But don't let our mailing address fool you – we have hands-on experience in dealing with federal and state courtroom procedures in all levels of litigation. We also offer alternative dispute resolution, serving as a neutral third party to avoid the rigmarole that can come with going to trial. For a free consultation, send us an email.

Categorised in: Asset & Liability Protection, Business Law, Dissolution & Partnership Disputes

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