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How to Avoid a Lawsuit When Terminating an Employee

Written by Zana Tomich on November 30, 2022 Category: Employment Law, General Counsel and Advice

The economy is slowing and while the job market remains relatively stable, the headlines are filled these days with stories of companies such Meta, Microsoft and Twitter laying off thousands of employees. We’ve shifted pretty quickly from the days when businesses big and small were desperately trying to hire workers to today, when many leaders are enacting hiring freezes or reducing workforces.

Letting go of employees is difficult for workers and business leaders alike, and it’s also an action that’s fraught with risk. Whenever an employee is terminated, even when they’re an employee “at will,” there’s a chance there will be a lawsuit.

But there are steps that businesses can and should take to mitigate the risks, as we’ll discuss below.

At-Will Employment

Most Michigan employers are familiar with and utilize an at-will system of employment. At-will employment means that either the employer or the employee can terminate the employment relationship at any time, for any reason, or for no reason at all.

However, the reality is that employees are typically terminated for some reason, which may include a downturn in business or due to some performance reason or violation of company policy. Regardless of the reason (or lack thereof), an employer runs the risk of a lawsuit. And while there is no way to completely eliminate the possibility of a lawsuit, there are ways to lessen the risk of one arising, and increase the likelihood of success in defending a lawsuit that is initiated.

Best Practices for Reducing the Likelihood and Risk of an Unlawful Termination Lawsuit

There are a number of steps employers can take to shield themselves against unlawful termination lawsuits.

  1. Get it in Writing from the Start

Mismatched expectations between employers and employees are the source of many employment disputes. Accordingly, when hiring, it’s a good idea to have a new employee sign an offer letter that describes their pay, benefits and responsibilities to avoid later misunderstandings regarding these issues.

  1. Conduct Periodic Reviews

Many unlawful termination lawsuits are brought because an employee feels blindsided by their termination. In most cases, it shouldn’t be this way. Employers should make employees aware of any performance issues in advance through periodic reviews.

The primary purpose of an employee review is to help an employee become aware of and remedy any performance issues. It’s better to be proactive and upfront about such issues than to let them fester—after all, it’s typically easier and less costly to help an existing employee improve their performance than to try to find a new one.

In addition, performance reviews can help employers mitigate risk. If you ever have to justify an employment decision or termination after the fact, such as in a wrongful termination lawsuit, having comprehensive records from performance review discussions about the issues underlying a termination—with a focus on behaviors not personality traits—can make a big difference in the outcome.

When conducting a performance review, be specific and accurate about performance issues, put it in writing, and have all parties in attendance (an employee’s supervisor or an HR representative may sit in on the meeting) sign the performance review summary document. Keep in mind that if a review of an underperforming employee isn’t accurate—that is, reviews are positive and don’t address performance issues—then that information may be used against the company in a lawsuit.

  1. Take the Appropriate Steps Before Proceeding with a Termination

The fear of triggering a lawsuit shouldn’t stop an employer from terminating an employee when the circumstances call for it, such as a business downturn or poor performance. However, before taking that action it’s important to run through several steps, and it’s a good idea to consult with experienced legal counsel at this point in the process.

First, review whether you’ve followed company policies, such as those documented in a company handbook. You don’t want to learn after the fact that an employee was fired for a reason that the handbook says should result in some lesser disciplinary action, or that the employee is being treated inconsistently from how other employees were treated in similar situations.

Second, consider whether the employee is part of a protected class under federal or state law. It is generally illegal to fire an employee due to race, sex, religion, national origin, sexual orientation, gender pregnancy, ethnicity, or age. When an employee is unclear about the reason for their termination, or feels blindsided by the process, it’s more likely that they will allege that they were discriminated against. Again, the fact that an employee is part of a protected class doesn’t mean they can’t be or shouldn’t be terminated, however it’s incumbent on an employer in such situations to take all appropriate steps to ensure they don’t trigger a discrimination lawsuit in the process.

Finally, after taking these steps, conduct a brief meeting to proceed with the termination process. When possible, do it in-person with a third party, such as an HR representative, present. Be compassionate but clear, state the reason for the termination and communicate that the decision is final. Offering some sort of severance package can also reduce the risk of a subsequent unlawful termination lawsuit.

Consult with Your Lawyer

Employment law issues often lead to litigation. When it becomes clear that you have to terminate an employee, it’s important to consult with experienced employment law counsel. Better yet, work with a lawyer in advance to put in place effective and compliant employment law policies and practices. If you have any questions or require assistance, please contact Zana Tomich, co-founder of the law firm Dalton & Tomich.

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