How to Terminate an Employee Without Getting Sued

How to Terminate an Employee Without Getting Sued

It’s hard enough to terminate an employee, but if you have to do it, learn how to minimize the risk of a lawsuit.

It’s a conversation every manager dreads and many don’t even know how to have. To terminate an employee who isn’t performing well may be one of the most difficult tasks a supervisor faces. It’s no easier to let an employee go due to budget cuts. Generally speaking, no one ever wants to terminate an employee, but sometimes it can’t be avoided. And while there’s no way to make it a happy conversation, there are best practices to follow in order to shield yourself and your company from potential lawsuits.

Keep in mind this article is not meant to be legal advice, and you should seek legal counsel if you think you need it.


The two most common reasons for terminations are performance issues and reductions in force. There are different ways to handle each of these, and the one where employers get tripped up the most is performance-related separations.

How to terminate an employee: Performance terminations

If you terminate an employee for poor performance, the most important thing to do—and the most common thing employers fail to do—is to create a paper trail. If employees aren’t living up to expectations but they’re never informed of that, they can’t be expected to improve. Terminating for performance at that point becomes unfair at the least and in some states may border on illegal.


When an employee isn’t performing after you have provided clear expectations, you will need to talk with them directly about their performance and create a Performance Improvement Plan (PIP) or other type of disciplinary document such as a written warning. This document should clearly outline what the employee needs to do to meet expectations in order to be successful. It’s also a good idea to have the employee sign the document indicating they understand the requirements they must meet.


If the employee doesn’t show immediate and sustained improvement, it is best to issue one final written warning  which shows there was follow-up and multiple chances given. In some cases the employee’s offense may be so serious (like theft or workplace violence) that you skip these steps and move straight to termination.  In those situations, it is best to partner with your legal counsel. 


How to terminate an employee: Reductions in force

Reductions in force are a little different. To terminate an employee because of revenue doesn’t require any previous documentation. This type of termination is usually rather sudden and only needs to be attributed to a downturn in revenue. Don’t ever bring an employee’s performance up during an RIF termination. It isn’t about performance, but money. As long as you keep the conversation about money, you’ll be in safe territory.

When separating with an employee due to a reduction in force or in specific situations related to a performance-based termination, you should consult with your legal counsel and consider having them draft a separation agreement. A separation agreement is a legal document wherein the employee typically agrees to release the employer of all claims that may arise following the termination. Separation agreements usually include an incentive to sign, such as severance pay, subsidized COBRA coverage, or other considerations. You cannot force an employee to sign a separation agreement, and they have the right to review it with an attorney. You should encourage them to do so before they sign.



How to terminate an employee: More best practices

It’s also good practice to say as little as possible when you terminate an employee for any reason. You may feel like justifying the decision or saying something to ease the pain, but the reality is that you can’t and you’re better off saying nothing. The more you say, the more there is to use against you. Think of it as your employer’s right to remain silent.

Consider heavily whether or not it’s in your best interest to contest an unemployment claim. Usually, it isn’t. A contested claim results in a hearing, which almost always rules in the employee’s favor with the exception of gross misconduct. Save the time, energy, and money you’ll spend on a hearing by allowing the unemployment claim to go through.


How to terminate an employee: What not to do

Never, ever terminate an employee for anything related to age, race, gender, religion, or any other protected class. These classifications should have nothing to do with whom you decide to terminate.

Never terminate an employee by yourself. Always have a witness in the room, preferably an HR representative. When you’ve said your piece, leave quietly and let HR handle any fallout that might take place.

Never say you’re laying someone off when you’re terminating them for cause. They will likely find out the truth when you hire a replacement and that can get you into trouble.

Finally, never be defensive. Regardless of whether an employee deserves to be terminated or not, it does you no favors to defend the action. Explain the circumstances, and if an employee has further questions, they should consult with HR or with their attorney.


How to terminate an employee: Utilize human resources; demonstrate compassion

If you have an HR department, use them to your full advantage. They are trained professionals who know the ins and outs of employment termination. Let them handle the aftermath. Your job is already hard enough. They are there to help both you and the employee through the transition.

Most of all, treat exiting employee with dignity and compassion, regardless the circumstances. Not only is it the humane thing to do, but it will drastically reduce the risk of legal or other retaliation.

Is your business covered in the event of an employee claim? Talk to a Pekin Insurance agent today to see what coverage you might be missing.

Have you had to have a difficult conversation with an employee? How did you handle it? Would you do anything differently? Share your thoughts in the comments below.

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