How to Fire Your First Employee

How to Fire Your First Employee

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Hiring employees is tough, but when a new team member does not work out as planned, you may find yourself with no option but to let them go. Whether it is for an egregious action or a series of smaller troubles, firing the right way is important to protect yourself and your business from lawsuits. Follow these steps to ensure you do everything right when terminating an employee.

Build a Case Proving Your Reasons for Termination

When you start thinking you may have to fire someone, it is time to get to work building a file documenting why you would fire this employee. This file is your defense if an employee decides to sue after being let go.

Even if the reasons to fire the employee are 100 percent legitimate, they may claim discrimination or wrongful termination. Even if you win, the legal costs of getting sued might be enough to make your jaw drop. Unless the employee has done something egregious, you should take your time to build a solid case explaining why the employee was sacked.

Thoroughly Document Problems and Reasons for Firing

Good documentation is not just a couple of notes on a Post It. You should be very detailed and clear when documenting reasons to fire an employee. The best option is to create a computer document or physical file listing each problem the employee causes with a date, time, and clear explanation of what happened. The more evidence and detail, the better. If you have a published employee handbook (most small businesses don’t, but can be a good idea) and the employee has broken a company policy, this is important to document as well.

Every time the employee screws up, you have an opportunity to document and protect yourself from future lawsuits. You can never have too much documentation for this purpose.

Have a Performance Review Meeting

Before your rush to toss the employee to the curb, give him or her a chance to fix whatever is going wrong. Set clear timelines to solve issues and make sure there is no ambiguity on what the problem is and how it can be addressed. It is ideal to have a second manager join you for this type of meeting as a witness.

When you meet with the employee for a performance review, document the meeting and ensure both you and the employee sign a form or letter agreeing that the meeting took place. Even if the employee does not agree with the review, they should sign that the meeting happened and they were informed of performance issues.

Consider Reviewing Your Case With a Lawyer

If you are firing anyone, but particularly anyone that could claim a minority status, you may want to review your documentation and reasoning with an employment attorney. A short consultation may be enough to meet your needs. The lawyer may point out other areas where you are liable for major risks.

The average out-of-court settlement costs employers around $40,000, while a case that goes to trial runs about $45,000. Around 10 percent of wrongful termination suits lead to a million-dollar payout. A few thousand dollars for a visit with an attorney may save you exponentially more.

Offer a Termination Severance With a No Disparagement Clause

To further reduce your risk of suit, you may want to offer the employee a severance at the time of termination. Offering a severance with a requirement to sign a document agreeing not to file a lawsuit is a final step in encouraging the employee to forget about it and move on.

You can’t force the employee to sign a letter, but you can withhold severance if they do not agree to the terms. Severance agreements generally include an agreement that the employee will not sue, make disparaging remarks, or take any action to harm the business in exchange for a one-time payment. Again, it is possible that spending a couple of thousand dollars today can save tens of thousands in the future.

The Tough Conversation

Once you have dotted every I and crossed every T, it is time to have the difficult conversation where you inform the employee that their employment is coming to an end. Everyone reacts very differently in this situation, so it is best to bring another manager with you to ensure there is no “he said / she said” accusation later on.

Make the meeting short. Explain that the decision has already been made, and come to the meeting with their last paycheck in hand, and potentially a severance letter. Withhold paying the severance until the letter is signed. You should give the employee the option to take the letter home and review it with an attorney before signing if they so choose.

Be Professional and Take Out Emotion

Few people like firing employees, but that’s part of running a business. The best way to approach a firing is to take emotions out of the situation. Your business is in the business of making money, and if any employee takes you farther from that goal, creates regular problems, or shows a pattern of poor performance, you are certainly better off without them.

Just take the right steps to cover your bases and protect yourself from lawsuits. If you do, you can fire with less stress and fewer worries and get back to the parts of your business you enjoy.

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About the Author — Eric Rosenberg is a finance, travel, and technology writer originally in Ventura, California. When away from the keyboard, Eric he enjoys exploring the world, flying small airplanes, discovering new craft beers, and spending time with his wife and little girl. You can connect with him at his own finance blog Personal Profitability.

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