Creating a Clear and Legal Termination Policy for Your Business

Written By Lucas Martin
Terminated employee.

Terminating Trust: The Costs of an Unclear Termination Policy

When Acme Inc. fired Jane, an employee of 5 years, her coworkers were shocked. Jane was a model employee who received positive reviews. Her sudden termination seemed unjustified. Angry rumors spread through the office as productivity plummeted. Jane soon filed a wrongful termination lawsuit, claiming discrimination.

During litigation, it was revealed Acme lacked a proper employee termination policy. Without warning, Jane was simply handed a termination letter and escorted out. Acme’s lack of empathy and unclear policy fueled Jane’s legal case. After two years of expensive litigation, Acme settled out of court for a large sum.

Jane’s termination was a lose-lose situation. Both Jane and Acme endured reputational damage, legal costs, wasted time, and emotional distress. If Acme had an empathetic, lawful termination policy in place, this could have been avoided.

Terminating employees is inevitable, but having unclear terminated employee procedures can spur distrust, lower morale, and spur litigation. That’s why every business needs a clear employment contract and legal termination policy. This article will explore exactly what your termination policy should include to protect your company and employees.

Why a Termination Policy is Crucial

When terminating employees, some managers wing it based on emotion rather than having a protocol. But unclear terminations often backfire through lawsuits or plummeting morale. Here are two key reasons you need a termination policy:

Avoid Wrongful Termination Lawsuits

Even in at-will employment states, wrongful termination lawsuits are common. Without just cause or proper procedures, terminated employees can claim discrimination or unjust firing. Clear termination policies show you acted fairly and legally, protecting you in court. Documented warnings and performance issues prove the rationale behind firings wasn’t unlawful.

Maintain Workplace Morale

When staff don’t understand why coworkers were terminated, Terminator-style paranoia spreads. Employees worry, “Am I next?” Productivity suffers as rumors swirl. A clear policy outlines expectations so workers understand what would warrant termination of an employment relationship. Knowing fair employment agreement protocols are in place quells concerns and builds workplace trust.

In short, a termination policy benefits both employers and employees. Don’t learn this lesson the hard way, like Acme Inc. Take a proactive stance by creating a termination policy.

Not All Terminations Are Equal: Voluntary vs. Involuntary

Terminations generally fall into two categories:

Voluntary Terminations

Voluntary termination occurs when employees willingly leave their positions. Common voluntary terminations include:

  • Resignations
  • Retirements
  • Abandonment (failing to show up for work without notice)

Involuntary Terminations

Involuntary terminations happen when employers initiate the separation. Common involuntary terminations include:

  • Layoffs due to downsizing
  • Firings due to poor performance or misconduct
  • Position eliminations

Understanding the differences in termination types will help you tailor your policy. For example, involuntary terminations may require warnings and performance management beforehand. Outlining these procedures will strengthen your policy.

Crafting a Complete Termination Policy: Key Elements

Now that you know why you need a termination policy, what should you include? While each company’s policy will differ, these elements form a comprehensive core:

Explain Termination Types

Begin by defining voluntary resignations, involuntary layoffs, firings for cause, position eliminations, and other separations unique to your company. This context engenders understanding and greater clarity around the employment relationship.

Outline the Termination Process

Make the steps clear, such as warnings, performance evaluations, and management discussions leading up to an involuntary termination. For resignations, include how much notice is expected.

Define Immediate Termination Causes

Specify actions like violence, harassment, theft, and policy breaches that warrant immediate dismissal without warning. This reassures staff that certain behaviors won’t be tolerated.

Describe Offboarding Procedures

Explain what happens on an employee’s last day, like turning in keys and equipment. Review if they’ll be escorted from the premises. The more transparency about offboarding procedures, the better.

Include Severance and Benefits Details

If you’ll provide severance pay, stipulate how it’s calculated. Outline benefits like financial counseling, job placement assistance, and healthcare continuation under COBRA. This demonstrates goodwill.

With a detailed policy, managers can terminate employees in a way that is clear, consistent, and legal. Both parties understand expectations, preventing confusion and disputes.

Ensuring Your Policy Aligns with the Law

Crafting termination policies involves more than just ethics – it requires an eye on the law. Here are tips for keeping your policy legally defensible and on the right side of federal and state laws:

Consult an Employment Lawyer

Laws surrounding terminations differ by state and are constantly evolving. Partner with a lawyer to ensure your procedures comply with all statutes and regulations. They can identify potential pitfalls or loopholes. Consider having them review your policy annually.

Avoid Wrongful Termination Landmines

Certain actions can spur wrongful termination lawsuits. Watch for discriminatory firing patterns related to age, gender, or race. Never terminate as retaliation for things like workplace complaints or maternity leave.

Document Performance Issues

If firing for poor performance, have a paper trail proving subpar work. Lack of documentation makes alleged terminations seem pretextual or in bad faith.

Check Federal Legislation

Consider regulations like COBRA and WARN when dealing with things like benefits continuation or mass layoffs.

Infuse your policy with legal wisdom to avoid lawsuits. While attorneys require an investment, it’s minimal compared to litigation’s high costs. Stand on firm legal ground.

Bringing Your Policy to Life: Key Implementation Tips

Don’t just file your shiny new termination policy away in a drawer. Follow these best practices to roll it out successfully:

Include it in Your Employee Handbook

Your policy’s home is your employee handbook, alongside other guidelines. This provides official notice to staff. Have employees acknowledge receiving the handbook with a signature.

Train Managers Thoroughly

Conduct termination policy training for all managers. Roleplaying exercises can sharpen skills in delivering bad news compassionately while following procedures.

Document Everything

File all termination letters, meeting notes, warnings, and related correspondence in employee records. Documentation is your friend if former employees allege impropriety.

Conduct Thoughtful Exit Interviews

Learn from departing employees through exit interviews. Probe reasons for resignation and solicit feedback on improving the work environment.

A strong policy means little without proper implementation. Take these steps so employees comprehend expectations and managers handle terminations legally and empathetically.

Parting Ways with Clarity

Terminating employees tests company culture. Without thoughtful procedures in place, it can spur distrust or legal troubles. However, an empathetic, lawful termination policy mitigates risks while maintaining workplace morale.

Key takeaways include:

  • Outline expected termination processes transparently
  • Consult lawyers to avoid wrongful termination
  • Document reasons and performance issues thoroughly
  • Train managers on compassionate, ethical protocols

While no termination is easy, policies create understanding and compassion. Both employers and employees benefit when separations are handled deliberately and legally. Invest time in this critical policy.

Termination Policy: FAQ

1. What are some common wrongful termination scenarios?

Typical wrongful termination situations include:

Firing someone for discriminatory reasons (due to race, gender, age, etc.)

Retaliating against someone for whistleblowing or taking medical leave.

Constructively dismissing someone by making work conditions hostile.

Firing someone without following company disciplinary procedures.

Laying off someone without proper notice per federal regulations.

Ensuring terminations are clearly documented as being based on legitimate business reasons, not discrimination or retaliation, is key to avoiding wrongful termination claims.

2. How much severance pay is typical?

There are no legal requirements for severance pay, but common amounts are:

One week’s pay for every year worked for lower-level employees.

2+ weeks’ pay for every year worked for mid-level employees.

One month’s pay for every year worked for senior-level executives.

Factors like company finances, reason for termination, and employee tenure also influence severance amounts. Providing some severance, even if minimal, promotes goodwill.

3. Can I terminate an employee without any warning?

Generally, it’s recommended to give warnings and a chance to improve performance issues. However, immediate termination can be warranted for serious transgressions like violence, harassment, theft, or major policy breaches. Having an immediate termination clause for such scenarios is recommended.

4. What should I avoid saying when terminating someone?

Don’t make negative comments about the person’s character or abilities. Keep the conversation professional and focused on business needs, not personal criticisms. Avoid raising your voice or showing anger. And never terminate someone in public – do it privately.

5. How can I make the termination process more empathetic?

Listen without interrupting to understand their perspective. Express regret at having to terminate them. Avoid blaming language. Provide positive references moving forward. Consider extras like severance pay, job placement services, or letting them announce it as a resignation. Treating others as you’d want to be treated goes a long way.