Termination of a working relationship happens when an employer or an employee decides to end their employment/engagement status. This is a common occurrence in business. Both employers and employees are bound by their employment contracts and all applicable laws. Hence when terminating the working relationship, they must be careful not to overstep and violate any of them.
Termination can either be voluntary or involuntary. It could also be mutual. In some cases, it can be referred to as constructive dismissal. On a high level, voluntary termination occurs when the employee decides to terminate the relationship. Involuntary termination occurs when the employer does it based on some specified grounds. Constructive dismissal is when the employee is left with no option but to terminate the relationship. Mutual termination is when both the employee and the employer jointly decide to end the working relationship. We shall look at all these scenarios in greater detail within this guide.
In addition, we shall also be discussing the lawful grounds for termination of a working relationship, how to manage the termination process, and other essential tips that a small business should be aware of. State and Federal laws are very particular in how you can go about terminating a working relationship. Failure to adhere to the law may expose a business to costly settlement suits. Check out this brief video by Gregg Learning discussing the overview of the termination process.
Table of Contents
• Permanent vs. Fixed-Term Employment
• Voluntary Termination of a Working Relationship
• Lawful Grounds for Termination of a Working Relationship
• How to Manage the Termination Process
• Can you reverse a Termination?
• Employment Tips for Small Business Owners
Permanent vs. Fixed-Term Employment
Fixed-term employment naturally ends when the stipulated period elapses. The relationship can be renewed under the old or under new terms. A fixed-term working relationship can be terminated before the time ends by following the termination terms outlined in the contract.
A permanent relationship is one in which an employer engages an employee on a long-lasting basis. This type of relationship can end if the employee decides to leave the employment. They must give notice as situated in the employment contract. To contrast the requirements for notification of employees in fixed-term employment as opposed to permanent employment, check out this 2-minute video guide from Monkhouse Law.
If the employer decides to terminate the relationship, there must be grounds for doing so. An employee doesn't have to have any grounds or state the reason for terminating a relationship, but an employer must have grounds and state them in writing.
At-will employment mean that the employer or the employee can end the relationship without notice and without giving a reason. Provided the motive behind the termination is not discriminatory, the law will not interfere.
Many small businesses engage employees at-will. For example, it is a common practice to have freelancers working remotely enter into service agreement contracts with their employers. In the absence of a contract, the law assumes the relationship to be at-will. This arrangement is favored by many small businesses and even some employees due to the flexibility of offers.
When an employer terminates a working relationship, they do not face any legal liability due to the absence of a contract. However, as we have seen they must make sure that the termination was not motivated by discriminatory or retaliatory reasons. Gregg Learning provides a 3-minute overview of how employment at will works and how you can use this arrangement optimally for your enterprise.
Voluntary Termination of a Working Relationship
Voluntary termination is when an employee resigns from a job. There are many reasons why an employee may resign, including:
- Changing location
- Finding another job
- Change in marital status
- Family situation
- Starting a business
- Going back to school
The key takeaway here is that the employee is not bound to have a justifiable ground. They are only bound by the terms of their employment contract. Usually, these terms will have the stipulated notice period that the employee must serve to the business.
For the business, sometimes it's hard to let go of a good employee. Many employers are at a loss to decipher the motivations behind an employee leaving. To mitigate against your good employees leaving, always treat them fairly and offer competitive terms so that they feel the need to continue working for you.
This occurs when the employer terminates the working relationship with an employee. It may be referred to as being fired, or removal or dismissal. There are many reasons why an employer may do this, including performance, discipline, economic downturn, attendance problems, criminal conduct, among many others.
The law requires that an employer demonstrate that there were justifiable and lawful grounds for terminating a working relationship. If there are no grounds, a disgruntled employer may sue for wrongful dismissal, which may expose the business to costly litigation and damages. There are also potential adverse effects of the involuntary termination of an employee within your organization. Check out this 2-minute video guide on how to handle involuntary terminations and minimize their impact on your workforce by Employers Council.
This occurs when both the employer and the employee agree they are not a good fit for each other and decide to end their working relationship. They both agree to do so in a manner that makes neither party responsible for the termination, thus no legal liabilities. It's a win for both of the parties, and they each go their way.
Constructive dismissal, also known as constructive termination, is when an employee resigns, just like involuntary termination, but this time the resignation is out of frustration or out of undue pressure from the employer. The termination cannot be said to be voluntary.
The reasons for constructive termination may be due to a hostile work environment, unsafe environment, a series of incidents that made the working relationship difficult, threats, unreasonable demands, humiliation, demotion, change in work hours, lowering of pay, unreasonable transfer between workstations, etc.
For an employee to prove a case of constructive dismissal, they must first resign then outline the reasons that pushed them to this decision. If a court or a tribunal finds that the allegations have been proved, the employer is liable for damages. Whether you are an employer unsure whether you have constructively dismissed your employee or a victim of constructive dismissal, this 3-minute video from Monkhouse Law on how to address a scenario where a constructive dismissal may have occurred can be of use to you.
Lawful Grounds for Termination of a Working Relationship
Employers are not bound to continue sustaining a relationship with an employee that is no longer in the best interests of a business. You have a right as a business to terminate any employee provided there is lawful and justifiable ground to do so. Due process must also be followed to satisfy the law. In this chapter, I want us to look at some lawful grounds that can lead to termination. Before going over the list, check out this 5-minute video by Samfiru LLP where a distinction is made between normal termination and termination for cause.
- Incompetence: The employer should try to coach or place the employee in a performance improvement plan first before resulting in termination
- Insubordination: This is a serious ground in many workplaces as it can directly affect others' safety in the workplace
- Going against company policy, culture, and practices
- Repeated issues with attendance
- Any criminal behavior: This can include theft, breach of a non-disclosure agreement, violence, threats, sexual harassment, etc.
- Termination due to medical grounds
- Economic downturn
- Relocation of the business
- Downsizing due to redundancy
- Mergers and acquisitions may lead to redundancy
- Death of the employer
As you can see from these grounds, some are as a result of employee conduct while others are due to factors outside the control of the employer or the employee. As discussed in the Samfiru LLP video, termination for cause is reserved for the worst of cases wherein the company has exhausted all possible means for rectifying undesirable employee behavior but failed to do so.
Federal and State law prohibits employers from terminating an employee based on discriminatory grounds (age, gender, orientation, race, religion, nationality) retaliatory grounds or other grounds that are inconsistent with the law.
How to Manage the Termination Process
As an employer, you will inevitably have to terminate some staff due to any of the grounds we have discussed in the earlier section. It is crucial for businesses, especially small businesses, to understand that the termination process can result in liabilities if dismissed employees sue for wrongful termination.
In addition to the legal ramifications, terminating employees on a whim can be expensive to the business in terms of the costs and time it takes to recruit and onboard a new employee.
It is therefore a best practice to try all within your means to coach, encourage, motivate employees to improve their productivity and performance.
However, there comes a time when you are left with no option but to terminate a working relationship. Let's look at some important points that you need to follow to manage this process effectively. To start, check out this quick video by HR 360.
Everything should be documented
This is the golden rule. Every action leading up to termination should be documented. This includes any disciplinary proceedings, warnings, performance appraisal, and performance improvement plans.
Review the employment contract of the affected employee. It is common to find businesses having different contracts for different employees. Review, the specific contract with the said employee to check for any clauses that define what should be done in case of termination.
Review the termination decision
The termination decision should not be taken lightly. Carefully review the decision to make sure it was not taken on a whim or as retaliation. A human resource professional or an attorney would greatly help determine whether there are lawful grounds for termination.
The termination decision should be made by a person authorized to do so and who is objective. For instance, a supervisor who has a long-running feud with a subordinate cannot be trusted to be objective. The reason for termination must be consistent and clear. It should be well understood by all parties.
Follow all company policy when terminating an employee
In addition to Federal and State law, most companies have their own company policies that must be observed when terminating a working relationship. We have these policies in place to avoid a situation when an employee may be treated unfairly, or due process is not followed. These policies detail how to go about the termination of the contract and what should happen before a decision to terminate is reached. They also lay out the reasons why an employee may be terminated.
Listen to the employees' version of events
In most of the cases, the person making the termination decision is not the immediate supervisor. They may have heard an inaccurate story about the employee, and it's only fair to hear their side as well. Some circumstances may look serious until an explanation resolves them.
If after all these review options and fair administrative action has been done and the final decision has been taken, then the last step is executing the termination.
Executing the Termination
The aim here is to make the process brief, confidential, and as humane as possible. It is often a tense situation with emotions likely to erupt but keep it short and straightforward. Do not terminate an employee through a letter. It should be done through a face to face conversation.
- Hold the meeting in a private area to protect the confidentiality and the dignity of the employee.
- The meeting should be attended by a minimum amount of people. The attendees serve as witnesses and also one person to represent the employee.
- The meeting should be brief. Briefly address the reason for termination and hand over the termination letter. Resist the temptation to be drawn into an argument or debate regarding the reasons.
- It should be held, preferably early in the week.
- Always remain fair and respectful to the employee.
- Give the employee the way forward in regards to handing over company items, final dues, and any other related information.
Employees who feel that they have been treated fairly and fair administrative action has been taken are less likely to file a lawsuit even if they do not agree with the grounds for termination. A small business will also be in a strong position to defend itself against such a lawsuit by demonstrating the grounds that warranted the termination and the process that was taken. Check out this video guide by Dan Martell on how to terminate a working relationship gracefully.
Can you reverse a Termination?
The simple answer to this question is yes, you can reverse a termination. When you reverse a termination, the working relationship is restored as it was prior to the termination. The only scenario where you cannot reverse a termination is when you have already rehired the person on another contract.
A mediator, tribunal or a court may sometimes reverse a termination though they are more likely to award damages.
Before making the decision to terminate an employee, you should consider the following to avoid a situation where a reversal or damages may occur:
- The employment contract, particularly termination clauses
- Company policy
- Any Collective Bargaining Agreement
- Federal and State law provisions on termination
Notice of Termination
In the United States, many small businesses engage employees at-will. This means that they are not required to provide notice of termination or even a reason for the termination. Provided the reason for termination is not discriminatory. However, some employers give notice even to at-will employees.
Medium-sized businesses and bigger businesses usually engage employees through an employment contract. Even some small businesses do the same. In such an instance, a notice of termination is required or payment in lieu of notice. This applies to both the employer and the employee. Usually, the notice period is one month though it can be two or three months. It rarely goes beyond three months.
The notice of termination serves as a formal letter that signifies the coming to an end of the employment relationship and the reasons for termination. The reasons can either be due to the conduct or performance of the employee or due to other factors unrelated to the employee.
Federal law mandates employers to give notice for mass layoffs such as those that occur due to a plant closure even when the employees are engaged at-will. This law is known as the WARN Act. The WARN Act stipulates a notice of 60 days of the notice period.
An employment certificate is a written document an employer gives an employee indicating the period the employee worked and the duties they performed during this time. Sometimes, the employer may include the reason for termination of employment, though it usually happens at the request of the employee. Other information that an employer can include is the skills and conduct of the employee.
An employee agreement is a document drafted by a business that outlines the terms of termination of the working relationship with an employee. The agreement serves to release the business from all claims in addition to outlining some other facts regarding the termination. E-Forms gives you a 1-minute overview of this important document which can potentially save your business a lot of trouble.
The separation agreement can also be referred to as
- Termination agreement
- Release of claims from employment
- Severance agreement
When an employee agrees to sign this document, they waive their right to sue for wrongful termination and other claims in relation to discrimination and severance pay. Just like any other agreement, there must be a consideration. The employer pays the employee an amount over and above any severance pay. This agreement can also have a non-compete clause and a non-disparagement clause.
If you anticipate that the termination of the working relationship can result in an employee filing any form of claims before a tribunal or a court, it would be wise to negotiate a separation agreement with them. Make sure to draft the agreement in such a way that it will be enforceable in a court of law.
Employment Tips for Small Business Owners
Small business owners often suffer from a lack of knowledge of Federal and State labor laws. This often comes into play when you terminate an employee, and they decide to sue. However, the law protects the business as well. You don't have to overly worry about this. However, there are certain things you should take care of:
- Have a thorough interviewing, hiring, and training process to ensure employees are the right match for your brand and company culture to avoid situations you have to terminate them
- Meet all Federal, State, and local laws relating to labor
- Make use of referrals. They are a good way to meet good people
- Incentivize to retain good talent
- Pay your employees at least the minimum wage
- Maintain all records including correspondence with current and former employees
- Avoid any form of discrimination but most especially against protected groups (gender, age, disability, race, religion, orientation)
- Provide unpaid maternity and medical leave
- Avoid retaliatory behavior against employees
- Make sure you don't incorrectly classify employees as independent contractors
- Deal decisively with any form of harassment in the workplace
Most of the laws covering these areas stipulate the minimum number of employees that a business should have for the law to apply. However, it is good practice to follow them even if you fall below the threshold to create a conducive working environment.
Termination of a working relationship is inevitable if you own a business. There will always be factors that lead to termination, either related to the performance and conduct of an employee or others related to the business or even outside factors.
Handling the termination process fairly and thoughtfully should be the bare minimum. This ensures that employees don't leave with a bad taste in the mouth and also protects the business from lawsuits. Employees who are treated fairly are less likely to feel the need to seek redress in court.