December 16, 2019 Employee Management en_US When you feel like it’s time to fire an employee, how do you know whether firing is the right decision? And if firing is the right course of action,... https://quickbooks.intuit.com/cas/dam/IMAGE/A0vjdpGcM/2debedab9b338e4260b1ecce3cf96e3c.jpg https://quickbooks.intuit.com/us/article/when-and-how-to-fire-an-employee/ How to fire an employee: A guide for small business owners
Employee Management

How to fire an employee: A guide for small business owners

By Eric Carter December 16, 2019

When you feel like it’s time to fire an employee, how do you know whether firing is the right decision? And if firing is the right course of action, what’s the best way to go about it?

Firing someone is never fun, even if the person has hurt your business. The firing process can drain you emotionally and mentally. In this article, we’ll outline everything you need to know about how to fire an employee.

Firing an employee the right way may not make it easier, but it can protect your company’s reputation and keep you out of future legal trouble.

Questions to ask when considering how to fire an employee

Before you fire employees, you should ask yourself a few questions. If you consistently ask these four questions when you’re considering firing, you better your chances of making the right decision and protecting your business:

  1. Is termination the appropriate action?
  2. Are you following company policy?
  3. Are you complying with employment laws?
  4. Is your company’s reputation protected?

Below we’ll give you an in-depth look at how to analyze these questions so you can fire someone in the best way possible.

When is termination the appropriate action?

If there was a single formula to answer this question, every business owner and HR professional would know it by heart. Unfortunately, no such formula exists. The best we have is guidelines.

Generally speaking, there are three broad categories of behavior that deserve termination. They are when the employee:

  • Is in violation of a core company value or damages the company’s reputation
  • Doesn’t learn from mistakes
  • Doesn’t meet the communicated performance standards

Violates core company values or damages the company’s reputation

Your core company values serve as the foundation of your company culture and reputation. While they are unique to each business, you should define them in your company handbook and make them explicitly clear to employees.

Some common values shared across businesses and industries include:

  • Honesty and integrity
  • Compliance with the law
  • Respect for customers

Other values are more unique to specific companies, but they are core to the individual company’s operation. Here are some examples of core values from several different companies:

  • St. Jude Children’s Hospital (detailed in their mission statement): “…no child is denied treatment on race, religion, or a family’s ability to pay.”
  • Southwest Airlines (detailed in their hiring values): “Warrior spirit (strive to be the best, display a sense of urgency, never give up), servant’s heart (follow The Golden Rule, treat others with respect, embrace our Southwest family), fun-LUVing attitude (be a passionate team player, don’t take yourself too seriously, celebrate successes).”
  • Zappos (detailed in their core values): “Deliver WOW through service, embrace and drive change, create fun and a little weirdness, be adventurous, creative, and open-minded, pursue growth and learning, build open and honest relationships with communication, build a positive team and family spirit, do more with less, be passionate and determined, be humble.”

Core values are in place to help set workplace culture, defining how employees should treat themselves, coworkers, and customers.

If an employee violates a core company value and puts your company’s reputation at risk, termination is a no-brainer.

Warren Buffett — often considered the greatest investor of all time — puts reputation above investment, saying, “Lose money for my firm, and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless.”

Doesn’t learn from mistakes

Mistakes are inevitable. In fact, many argue that employees who don’t make mistakes aren’t taking enough risks. However, employees who don’t learn from their mistakes will harm your business in the long run.

You have a responsibility in helping employees learn from mistakes. Your average employee will not self-identify mistakes. Identifying mistakes and helping employees learn from their mistakes requires you to consistently review and provide transparent feedback to your employees.

As we’ll detail more below, the review and feedback should be done to help improve the employee’s performance. If the employee continually makes the same mistake over and over again, even after your guidance, then firing may be necessary.

Doesn’t meet the communicated performance standards

Of the three reasons for termination listed above, not meeting performance standards is the most difficult to create a rule around. Your performance standards are unique to your business.

Successful business builders vary greatly in their approach to performance standards.

Consider Netflix’s approach to performance, which states, “Unlike many companies, we practice ‘adequate performance gets a generous severance package.'” Essentially, this company has no time for average workers and if you are one, the company will quickly show you the door for failing to meet their above-average performance standards.

On the other hand, Richard Branson avoids termination at all costs. He states, “I think that you should only fire somebody as an act of last resort.

If someone has broken a serious rule and damages the brand, part company. Otherwise, stop and think.”

Are you following company policy?

This is another important question to ask yourself before terminating an employee. You set your performance standards based on the culture you want to create.

Once you determine the standard, communicate it to your employees and be transparent with your employees regarding their progress toward achieving such standards.

The best way to ensure your employees know a firing is coming is to follow a standard set of company policies. Company policies relevant to employee terminations include:

  • Performance management
  • Employee handbook policies
  • Termination protocol

Here’s a look at each type of company policy in action.

Performance management

Performance management is an on-going process. A quality performance management system allows you to provide feedback to employees about their performance.

Three elements are critical to a good performance management policy:

  • Record-keeping
  • Honesty
  • Consistency

You should keep written records of all performance evaluations. This includes both formal reviews, and disciplinary actions taken between formal reviews. The written record provides evidence to support your termination for poor performance.

If an employee challenges your termination as unlawful or sues you for wrongful termination, a written record showing a history of underperformance is your best defense.

Too often, managers claim they told the underperforming employee numerous times that the work needed to improve. Inevitably, the employee claims the warnings never happened.

If there is no written record, the dispute is based on the manager’s word against the employee’s word. A written record of performance evaluations is your best evidence, but only if it’s an honest record.

Dishonest employee performance evaluations will doom any performance management system.

Unfortunately, many managers fail to give negative feedback because it’s uncomfortable. If you or your managers give underperforming employees satisfactory reviews, this will hurt your company when terminating these employees for poor performance.

If you fire an employee for poor performance, but that employee has a history of positive performance reviews, the employee — and the employee’s lawyer — will conclude that the termination is based on something other than performance.

If the termination isn’t for performance, the employee could think that it’s based on a protected characteristic like race or age.

Your business will likely face legal consequences if dishonest performance reviews lead employees to conclude that you terminated them based on age, race, or another protected characteristic.

Finally, you need to conduct honest, recorded performance evaluations on a consistent basis. Employees and their managers should expect and plan for a scheduled performance review cycle. You should complete at least one performance review a year at a bare minimum.

If you don’t start documenting performance reviews until you see poor performance, this suggests that you’re targeting a particular employee in preparation for firing them.

Targeting claims provide disgruntled employees with a wide range of potential legal claims (e.g., discrimination, harassment, retaliation, etc.)

An honest written record can actually work against you if you fail to conduct performance reviews on a consistent basis. Implement your performance management system consistently across all employees at a common time schedule. This ensures your performance policies work to your benefit in the event that you need to terminate for poor performance.

Employee handbook policies

Your company policies should work to your advantage in firing an employee. Company policies allow you to set expectations with employees regarding acceptable behavior, use of company property, and interactions with business partners.

Fireable offenses not addressed in performance reviews should be addressed under your company policies. Policies that might be applicable to a termination include:

  • Anti-harassment policy
  • Core values
  • Code of conduct
  • IT policies

Company policies should be required reading before an employee joins your workforce. As you update the policies, employees should be notified of changes.

Require employees to sign off on having read and understood your company policies. The goal is to create a record that each employee has read your policies and verified that they understand the policies.

If you need to terminate an employee for violation of any company policy, that employee’s sign off will be a useful piece of evidence in defending your decision to fire the employee.

Termination protocol

Implement and follow a termination protocol when making the decision to fire an employee and when terminating the employee. If you’re a new or small business, your termination protocol might be simple. The larger your employee base becomes, the more details you will need to consider.

The goal of the termination protocol is to ensure you handle each termination consistently and lawfully. Common elements of a termination protocol include:

  • Assign a decision maker: Determine who makes the ultimate decision that termination is the correct course of action. You may decide that one person, like the hiring manager, makes the final decision or that a team in your HR department must vote on termination.
  • Have a witness: Have a witness present who can take notes and verify any events that take place during the separation process.
  • Use a script: Read a simple and straightforward script when terminating an employee. Give the lawful reason, and avoid irrelevant facts.
  • Limit discussion: You must control the conversation. The broader the conversation becomes, the more likely the employee is to expose a potential liability to your company.
  • Allow the employee to ask relevant questions: Employees often feel personally attacked in a termination. Allow the employee to ask relevant questions. Redirect all your answers to the reason for termination. Tell the employee that you will follow up regarding questions not directly concerning the termination.
  • Conduct terminations at the beginning or end of the day: This will help avoid disruption to the rest of your business.
  • Discuss post-termination benefits: The employee could be entitled to benefits like severance pay and COBRA health insurance coverage.
  • Make the employee leave your place of business immediately: Either give the employee a couple minutes to collect their belongings or ensure the employee that you will safely ship personal belongings as soon as possible.

Are you complying with employment laws?

Most of your employees are at-will employees. This theoretically means you can fire them for any reason. Likewise, at-will employees can quit for any reason. Although the default employment status for most employees in the US is at-will, you cannot fire an employee for a protected reason.

Protected reasons fall into two categories: protected characteristics and protected activities.

Examples of protected characteristics include:

  • Age
  • Citizenship
  • Color
  • Genetic information
  • National origin or ancestry
  • Physical or mental disability
  • Race
  • Religion or creed
  • Sex, including pregnancy
  • Veteran status

Examples of protected activities include:

  • Making good faith complaints
  • Filing lawsuits
  • Concerted activity (e.g., joining a representative organization (union), collective bargaining)
  • Discussing working conditions
  • Strikes
  • Requesting access to personal employee file

The above lists are based on federal law. Your local government or state may further protect certain characteristics and activities. Just because an employee is protected by one of these categories doesn’t mean that you cannot fire the employee. You simply cannot fire the employee for the protected reason.

Performance management systems and company policies will help you avoid terminating employees for protected reasons.

Is your company’s reputation protected?

Protecting your brand and company reputation is unquestionably important. Keep the following question in mind when terminating an employee:

“How do I want this employee to speak of my company after he or she leaves my company?”

If you are hostile during an exit interview, don’t expect positive reviews from the ex-employee on Twitter, Glassdoor, and other social media And keep in mind, future job candidates will see your reviews when considering your company for employment.

In addition to protecting your reputation for future employees, others are looking at your online reputation as well. This could include customers, partners, investors, and lenders.

Your separation from an employee is a key moment for you to protect your company’s reputation. You want former employees to speak well of you, even those you fired.

Consider alternative measures

Your employee handbook and the employee’s employment contract should outline job expectations explicitly. There may be some instances, like workplace harassment, that call for an immediate firing. Others, like job-related performance issues, may not be so black and white.

Before firing an employee, have a face-to-face performance review. Outline the things you’ve identified as troublesome and the areas where you’d like to see improvement.

Institute a tangible, objective performance improvement plan that the employee can follow. Then give the employee 30 days to make the changes.

If the employee doesn’t change within 30 days, you’ll have a much more valid reason to host a termination meeting. A common human resources rule of thumb is no employee should be surprised by their termination.

Whether the employee violates a core value, doesn’t learn from mistakes, or misses their performance, your employee should know firing is due.

Unfortunately, 46% of newly-hired employees will fail within 18 months of being hired. The National Association of Colleges and Employers says that the average cost of hiring an employee for a small business is $7,645.

This doesn’t include costs like unemployment benefits or severance packages that you must pay to the employee you fire.

Instead of being quick to cut the cord, your company could benefit if you exhibit patience and seek to improve the employee’s performance before letting him or her go.

Make sure you fire employees the right way

Delivering bad news to an employee about their firing is never fun. You may find yourself tempted to “rip the Band-Aid” off and get it over with. However, when firing an employee, you need to make sure it’s justified.

Take time to mull over the employee’s track record before you let an employee go, and consider whether there are alternatives. Doing so could help you create a culture of support where you’re seeking to build team members up instead of kicking them to the curb.

If the layoff is justified, make sure to speak to your HR department before doing so. Consider obtaining legal advice to avoid potential issues down the road.

If you follow consistent policies and procedures to monitor employee performance and behavior, you’ll make the separation process easier on your company and your employees while protecting your business reputation.

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Eric is the founder of Dartsand and Corporate Counsel for a global technology solutions provider. He is a frequent contributor to technology media outlets and also serves as primary legal counsel for multiple startups in the Real Estate Development, Virtual Assistant and Mobile App industries. Read more