• In Good Times and Bad: Employers Must Be Proactive To Minimize the Risk of Employment Litigation in a Down Economy
  • March 25, 2009
  • Law Firm: Graham & Dunn PC - Seattle Office
  • With the loss of 600,000 jobs in January alone, and unemployment rates soaring to 7.6%1, many companies are doing everything they can to reduce operating expenses in light of the economic downturn. As a result, many businesses have significantly reduced their workforce by implementing layoffs, or by terminating select employees with substandard performance. Whether your company is considering an isolated termination, or a larger reduction-in-force, there are practical steps that you can (and should) take to reduce the risk of employment litigation.

    Most employees are “at will” meaning they can be discharged for any reason or for no reason. There is one caveat to “at will” employment, and that is, that an employee may not be discharged for an illegal reason. With the many employment laws designed to protect employees from illegal conduct, most motivated employees can find a legal basis to sue their employer despite being employed at will. In fact, the Equal Employment Opportunity Commission, the federal agency responsible for processing discrimination claims, has reported a 15.2% increase in the number of discrimination charges filed against employers in 2008, and we predict an even larger increase in 20092. Although every employer incurs some legal risk simply because of its status as an employer, by following the steps outlined below you will minimize that risk, but also place yourself in the best position to defend any lawsuit or EEOC charge that may come your way.

    Implement Good Personnel Policies
    Every employer should have solid personnel policies. Personnel policies are designed to communicate expectations to employees, and to let employees know what is and is not appropriate at work. In turn, these policies frequently support the employer’s reason for employee discipline and discharge. Additionally, Personnel policies often include important legal regulations, and may even be required by some laws. These types of policies (harassment/discrimination/no-retaliation, the Family Medical Leave Act, disability and religious accommodation, and meal and rest break requirements) demonstrate to plaintiff’s counsel and to the court that you, as the employer, understand your legal requirements, that you communicated those requirements to employees, and that you took proactive steps to implement the law.

    Routinely Counsel Employees Regarding Poor Performance
    Employees with performance problems should receive honest feedback on an ongoing basis-not just at year end. Most employees want to do a good job, and assume they are doing a good job unless you tell them otherwise. Without this critical feedback, an employee’s performance will continue to suffer, and you as the employer will continue to get frustrated. Employers who are reluctant to give true feedback frequently reach the proverbial “straw that broke the camel’s back” and move straight to termination without first laying the groundwork. Any resulting termination is a surprise (and perhaps a complete shock) to the employee, who doesn’t understand what happened. Although an employee’s reaction to his or her termination is not our first concern, an employee’s surprise is frequently what gets the employer into hot water because the employee starts looking for the “real” reason she has been terminated (i.e., is it because the employee is pregnant, requested FMLA leave, complained about perceived sexual harassment etc.). An employee ostensibly terminated for performance, but not given any information about his or her performance may end up at the EEOC, or worse yet, consulting with a lawyer. The problems can frequently be avoided if you, as the employer, have done your job and counseled the employee appropriately.

    Document Misconduct and Performance Counseling
    Documentation plays an important role in laying the groundwork for any employee termination whether it’s a termination for misconduct or poor performance. If you have done the performance counseling suggested above, you should have documented the dates on which you spoke with the employee, the performance issues discussed, how the employee intended to resolve the issues, and the consequences if the employee does not improve. If a termination is based on misconduct, you will want to document the circumstances surrounding the misconduct, including any investigation you may have done into the incident. This documentation is critical for you, as the employer, to justify your reason for discharging the employee. If you’ve done this, you are in a much better position to defend yourself if you do end up in litigation.

    Conduct A Risk Assessment For Each Employee Termination
    Some employment terminations present increased legal risks simply because of the circumstances. To understand your risk, consider whether the individual is in a protected class, has complained about discrimination/harassment, has disclosed a pregnancy or otherwise requested time off under a federal or state leave law, or has made any wage and hour complaints. Assuming the motivations for the termination are legitimate, the answer to these questions may not make any difference. Nonetheless, you should still be aware of timing and whether the employee may perceive that the discharge is because of conduct that is protected by law. If there is increased risk of a lawsuit because of the proximity between an employee’s protected conduct and the termination, it is more important than ever that you have taken precautions before the termination.

    Treat Employees With Respect At All Times, But Especially on the Way Out
    Terminations are difficult for everyone, but employees who are treated with respect are less motivated to find a reason to sue you. Unless you have a strong reason, such as employee theft or sabotage, it’s perfectly appropriate to allow employees to collect their things, to say goodbye to co-workers, and to generally exit the workplace with dignity.

    Carefully Plan and Document A Reduction in Force
    A Reduction in Force (“RIF”) must be planned in advance with careful attention paid to the selection process. Employer engaging in this process should review layoff policies, identify criteria for layoff (i.e. by position or by employee), document criteria, and carefully select employees. It is also very important to document the selection process and to be able to articulate why a particular employee was selected. Lastly, keep in mind there may be some legal requirements applicable to a RIF, such as the Worker Adjustment Retraining and Notification Act, the Older Workers Benefit and Protection Act if you offer severance pay, and state law requirements.

    All employers face some legal risk when terminating employees. Nonetheless, you can take proactive steps to minimize the risks you face, and to place your organization in the best position possible when it comes to defending a lawsuit. As many have said before, “an ounce of prevention is worth a pound of cure” and this is certainly true in employment law.


    1. See the Department of Labor’s Bureau of Labor Statistics Employment Situation Summary dated February 9, 2009.
    2. See the US Equal Employment Opportunity Commission Performance and Accountability Report for FY 2008.