Most small business owners in California are familiar with the “employment-at-will”1 doctrine and the “wrongful discharge” limitation on it. Most know their legal rights to discharge any employee at any time, arbitrarily, in a pique, for no reason at all, or even for a bad reason—but not for an illegal reason. Small business owners, however, often do not have a Human Resources Department charged with effecting righteous terminations. A “righteous termination”2 is a discharge that is not merely legal; it is also prudent. To accomplish a righteous termination, a nondiscriminatory business decision to discharge is made after a cost-benefit analysis. Then, the act of discharge must then be properly planned and executed.
Just because an Employer has the legal right to discharge for a bad reason, or no reason, does not mean it is good business to do so. Moreover, discharging for an illegal motive, thereby becoming exposed to the risks of governmental review and liability from lawsuits, is simply not prudent. Finally, the cost of recruiting, hiring, and training a replacement, not to mention the damaged employee morale and wasted investment, makes the capricious discharge of any employee far too expensive to ever be confused with good business judgment. So, “righteous termination” always begins with a sound business decision that the discharge is warranted.
The calculus for deciding whether any individual’s employment should be continued is easy enough to state: Is it more or less likely the Employer’s business will be improved overall by the employee’s departure? The formula is harder to apply. At the very least, the Employer must consider the…
- Short term effect on productivity if employment is terminated
- Cost of obtaining, installing and training a replacement
Transaction costs (severance, potential litigation, charge to unemployment account) weighed against…
- Effect on productivity if employment continues
- Loss of investment already incurred by hiring dischargee
- Cost and likelihood of success of rehabilitating the employee
- The difference between discharging in an “employment at will” situation and the “for cause” required by contract is that the latter requires the Employer to prove it had sufficient cause, while the former does not, unless and until the dischargee alleges before a government agency or court that the Employer’s motivation was illegal, as evidenced by the absence of a sufficient business reason.
- Permanent layoffs and terminations caused by reductions of force or plant closures, create different problems and are not addressed here.
Sometimes, making the decision is easy. Termination is mandated, for example, when the individual has engaged in repeated racial or sexual harassment. Not only is workforce morale already damaged and productivity impeded, but also the Employer is vulnerable to lawsuits and governmental administrative action should it fail to remove the wrongdoer from the workplace. In other cases, it may not be so easy. But whenever the Employer has conducted a cost-benefit analysis3 and made a legitimate business judgment that the Company would be better off without a particular employee, discharge of that employee is warranted.
Implementing the Decision
Having made an appropriate decision to discharge, it must be implemented properly to be a “righteous termination”. Planning and preparation are essential, because each case involves different personalities interacting in a potentially volatile situation. Best practices include a checklist for determining: the content of the termination statement; the time and place of the termination interview; the number and identity of Employer representatives to be present; and, whether severance should be offered or releases sought. In that regard:
- All the necessary forms, final paycheck, termination statement, and other paperwork should be gathered in advance of the termination date. If the dischargee engaged in egregious misconduct that requires immediate removal from the work area, the better practice is to “suspend pending completion of the investigation”, thereby delaying the termination decision until the incident can be reviewed and preparations completed.
- Thought should be given to the selection of management participants, as well as the time and place of the termination meeting. Some think it is a good practice to schedule the termination at the beginning of the shift, thereby eliminating possible resentment caused by working all day just to be fired. It is usually a good idea to have the immediate supervisor, a higher-level decision maker and an attorney conduct the termination meeting in a private office where they can present a short, conclusory written statement of termination, provide the final paycheck (including pay for that day) and other required notifications.
- If the cost-benefit analysis revealed any grounds upon which the dischargee might base a wrongful discharge claim, the Employer might negotiate for a waiver of claims in exchange for a small severance settlement. That should not be attempted until after the final paycheck has been delivered, but before the end of the meeting.
Each step is fraught with legal peril, and the Employer will usually benefit from the assistance of legal counsel. In any case, when the termination is: (1) properly motivated, (2) based on sound business judgment, and (3) carefully implemented—so that the workflow is not disrupted and the
3. Remember the cost-benefit analysis involves considering potential litigation, so a decision to fire an older worker, or one with a disability, only because a younger, healthier replacement might be more efficient would be illegal, and therefore not be prudent. Dischargee leaves without any unnecessary resentment—it is a “righteous termination”. It is much cheaper than defending a lawsuit.