Oftentimes, companies are compelled to terminate employees who are not performing up to the company's legitimate expectations, and terminated employees are more inclined to resort to wrongful discharge litigation. To minimize the risk of litigation for potential terminations down the road, companies should take the following steps from the inception of the employment relationship:

The Hiring Process

It all begins with the hiring process. If care is not taken at the beginning, mistakes could impact a later termination.

Applications. By now most companies are aware that direct questions asking an applicant's race or age are unlawful. However, other questions also may be seen to elicit similar improper information indirectly. For example, generally asking about membership in organizations, without limiting it to job-related organizations, could elicit information on race, sexual orientation, etc., and asking for dates of graduation could elicit information that correlates with age.

Interviews. Avoid chatting and asking personal questions. Asking a female applicant about her family or plans for children could be seen to suggest a gender/pregnancy bias. Asking about prior workers' compensation claims is unlawful, and might be seen as an indication of bias toward persons with disabilities.

At-Will Employment. If (as in most cases) a company does not want to provide guaranteed employment for a specific period of time or require "cause" for terminations, its applications, offer letters and Employment Agreements (if used) should contain express statements and an agreement by the applicant/employee that the employment is at-will.

Employee Handbook and Personnel Policies

These documents should clearly state that, with the exception of the at-will nature of the employment relationship (and an Arbitration Agreement, if applicable), they do not establish a contract, express or implied, but are meant as guidelines for the employment relationship. The company should weigh the pros and cons of an Arbitration Agreement. Performance evaluations must be honest and accurate, and must reflect the true value of the employee in each of the evaluation categories. Vacation policies must not have unlawful "use-it-or-lose-it" provisions.

Dealing with Employment Issues

Strong policies against discrimination and harassment (including sexual harassment), a complaint process where an employee can get an impartial and full investigation, with appropriate redress, and sexual harassment training (including the mandatory supervisory training, where applicable), are essential.

Companies must make sure that they have the proper wage/hour classifications in place. Treating a non-exempt employee as an exempt employee, or misclassifying an employee as an independent contractor, could have costly repercussions. If these claims do not arise during employment, you can be virtually certain that they will arise (perhaps on a class basis) when a disgruntled employee is terminated.

Leaves of absence deserve particular attention, particularly when they involve a medical condition, a workers' compensation injury or pregnancy. The interplay of various statutes in these types of leave creates a potential legal minefield. With respect to conditions that constitute statutory "disabilities" that impede the employee's ability to work, it is particularly important to engage in an "interactive process" with the employee to determine whether there is a reasonable accommodation that will enable the employee to perform the essential functions of the job without undue hardship to the company. The EEOC has been aggressive with respect to its stance that a company may not have a policy that automatically terminates a disabled employee after a specified leave period (e.g., a year), since this is contrary to the individualized assessment required by law.

Reductions in Force

Companies faced with the necessity of a staff reduction should ensure that they have an objective business reason for the RIF, and for each of the selections for termination in the RIF. Care must be taken to instruct decision makers on impermissible criteria in the selection process, such as age, race, national origin, sex, sexual orientation, religion, disability, medical leave status or internal complaints of discrimination or harassment. The company should establish appropriate selection criterion, such as job elimination, performance or seniority (i.e., retaining the more senior employees). Selections based on performance should be consistent with existing performance evaluations.

The company must determine whether there are notification requirements. Federal law (the WARN Act) requires 60 days notice in certain circumstances where 50 employees are affected in a 30- or 90-day period. Some states, including California, also impose notice requirements.

The company should consider providing severance packages to employees who are terminated in a staff reduction, in return for their execution of a Severance Agreement that contains a General Release. The costs of helping employees in their transition should be considered as a way of avoiding the higher costs of lawsuits from terminated employees.

The Termination Process

After progressing with care from the hiring process through the entire period of employment, a company should consider the following as it moves toward terminating an employee:

  • Is termination warranted? Did the company follow progressive discipline? Did the company give the employee a chance to tell his or her side of the story, such as where the termination is for alleged misconduct?
  • Does the company have proper documentation supporting the termination? Are the performance evaluations consistent with the termination? Are there documents that are inconsistent with the termination decision?
  • Is termination consistent with the treatment of other employees?
  • Should the company offer the employee a Severance Agreement?

When terminating an employee, the company should note and do the following:

  • California law requires payment of wages due on the day of termination (within 72 hours for a resignation). This includes payment for accrued but unused vacation. Generally speaking, deductions (apart from the normal deductions) may not be made from the employee's final paycheck.
  • Take steps to cut off the employee's access to the company's email and computer systems, and to retrieve any confidential information and equipment in the employee's possession. Conversely, make arrangements to return the employee's personal belongings.
  • Conduct an Exit Interview where appropriate.
  • Have a company policy in place for neutral references (i.e., dates of employment, position at termination, and confirmation of salary if requested in writing), and follow it.
  • Treat the employee with dignity and respect in the termination process. It is not just what you do, but how you do it. For example, unless there is some special justification, do not have a security guard escort the employee out of the building in front of the other employees.

There is no sure-fire way to avoid employment litigation when terminating an employee, particularly in the litigious climate in California. However, following the steps outlined above will minimize the risk of litigation, and will put your company in the best position to defend itself if the terminated employee chooses the litigation path.

Paul Bressan is a Shareholder in the Los Angeles office, and Chair of the firm's Labor & Employment Practice Group.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.