Avoiding Employee Litigation
March 21, 2005
Sooner or later, your business will likely be sued by one of your employees. These lawsuits often contain a common thread: a motivated employee and a triable case. This article will summarize some steps that you can take to prevent employees from believing that your company has treated them poorly and also help you in defending any claim that may be made by a former disgruntled employee.
It should be rather obvious that the better choices you make during the hiring process, the fewer problems you may have down the line. Therefore, one of the most important ways in which to avoid employee litigation is to not hire a “marginal” employee with the hope that things might work out later.
At the inception of hiring an employee, you can avoid contractual liability by hiring employees on an “at will” basis. Any offer letter sent to perspective employees should specifically protect that employment relationship. The “at will” employment doctrine means that you do not need to show that you have a good reason to discharge an employee. The “at will” presumption can be rebutted only by evidence that there is an agreement, or in other words, a contract. Therefore, any offer of employment to perspective employees should state something to the effect of:
“This offer of employment should not be construed as an agreement, either expressed or implied, and shall in no way alter the company’s policy of employment at will, wherein either you or the company will remain free to terminate the employment relationship, with or without cause, at any time, with or without prior notice. Additionally, nothing in this letter should be construed as an agreement to pay you any compensation or grant you any benefits beyond the end of your employment with this company.”
The “at will” doctrine should be reiterated in your company employee handbook, which should be reviewed at least once a year. You should also provide periodic written acknowledgements of the “at will” relationship. This written acknowledgement should also be included in the job application, the employee manual, periodic written reviews, and in a written acknowledgment that each employee should sign annually then be retained in the employee’s personnel file. This annual signed acknowledgment could be your most powerful tool in defending any future litigation.
Once an employee is hired, it is important to communicate any performance deficiencies in writing. It is critical to evaluate all employees regularly, thoroughly and honestly. You should conduct annual performance reviews in writing. Oftentimes employers want to be “nice” and are not honest in written performance reviews. This opens the door for an employee who receives raises, bonuses, or any other incentive compensation, to reasonably, although inaccurately, conclude that he or she is meeting your company’s performance expectations. Conversely, you should not rely solely on the formal evaluation cycle and should document any poor performance throughout the year. The documentation retained is your best defense that you acted fairly and properly.
However your company’s own written documentation can frequently be the most damaging evidence in defending a lawsuit. Any internal documentation should be factual in nature only. Your company should not document unspoken fears, conjectures, speculations and doubts. For instance, a note taken in a meeting that says something like, “we may have a problem here,” can be harmful to the company if it must be turned over to opposing counsel.
Unfortunately, even though you may have been careful during the hiring process, there are times that an employment relationship needs to be terminated.
Avoid procrastination when terminating an employee. An individual who has been working for your company for a significant period of time is more likely to sue you upon termination. Moreover, procrastination in terminating an employee gives you more time to make a mistake. The best time, by far, to terminate an employee is during the initial introductory/probationary period right after hiring. If, after fair warning, the employee fails to bring his or her performance up to a specific standard, end the employment relationship and avoid dragging a bad situation on longer.
Exit interviews are useful and should be done whenever an employee leaves the company, whether the termination was voluntary or not. However, exit interviews can also be dangerous if not conducted in the proper manner. Because employees who are terminated are the ones most likely to sue, it is best to have at least two employees present during the exit interview in case there is a dispute about what was discussed.
A departing employee should be told exactly why he/she was terminated, whether it be for unsatisfactory performance, tardiness, reduction in workforce, or any other reason that has been pre-approved by your company’s attorney. You should consult with an attorney for any reason that is not on the list specified above to make sure that the reason is not improper or suspect. Tell the employee, if applicable, that as a result of his or her failure to improve in the relevant work areas, the employment cannot be continued. If you are offering the employee any type of severance package, it should also contain a release of liability for the company. The employee also needs to be given his/her last paycheck upon termination and be sent the appropriate COBRA notices within 14 days. The employee should also be given documentation on how to file for unemployment benefits.
During the exit interview, your company’s representative company should listen carefully to what the employee has to say, including any complaints. Do not argue with the employee, but simply state that you do not agree with him or her and make arrangements for the employee to remove his or her belongings at your mutual convenience as soon as possible. It is important to not argue with the employee at the exit interview because that only creates more bad feelings, and it may cause the company representative to say something that will be regretted later. Do not promise the employee a good recommendation or assistance in obtaining another job if they are terminated for poor performance. Most importantly, do not give a false reason for the termination or deny the true reasons, which is often tempting to do out of a desire to avoid hurting the employee’s feelings.
Careful hiring and proper documentation of employee performance issues can go a long way in preventing costly employee litigation. They also contribute to a greater likelihood of a successful outcome in the event that an employee or former employee files suit against your company.
by:
BusinessWest
March 21, 2005
