Business Owner Responsibilities For Employee Termination

In general, most management advice tends to focus on things like hiring, managing, and motivating employees. There’s good reason for that—after all, the point of management is to move your business forward, and the way to do that is with a motivated, professional workforce.

But sometimes, for different reasons, it just doesn’t work out with an employee, and the time comes where it’s best to part ways. It’s typically not a fun experience, but it’s something that is occasionally necessary. And, as an employer, it’s critical that you not only know when to let someone go, but what your business owner responsibilities are before, during, and after the termination.

Before The Termination

The first thing to understand, before terminating any employee, is that employee’s status in regards to any Employment At Will policy or statutes in your state. “Employment At Will” is a term that means that an employer or employee may terminate their employment at any time, for any reason.

However, while almost every state allows at-will employment policies, there are differences between states in terms of the specific conditions (and exceptions) of their at will statutes. Many states and the Federal Government have likewise taken steps to curb the breadth of the at will concept, so it’s critical to understand exactly where your state stands in the regard before moving forward.

Further, employment contracts may be in place, which supersede any at-will employment guidelines. These contracts may also spell out additional business owner responsibilities, so make sure you fully understand the terms of any such agreement before commencing with the termination.

Completing The Termination

Let’s assume that no employment contract is in place, and your state has an at-will employment policy in place, which (for the vast majority of scenarios) is likely to be the case. During the termination, you as the business owner still have certain responsibilities in protecting your company.

Even though your state likely allows Employment At Will, that doesn’t mean that you’re automatically without any liability whatsoever when terminating an employee. For instance, you’re not permitted to terminate employees for any discriminatory reasons, such as race, religion, sex or age, among others. Also, some states have modified their at-will employment statutes to include concepts like good faith employment, which provides additional protection for employees from wrongful termination.

Post-Termination Responsibilities

Assuming you’ve completed the employee termination successfully, the law still mandates ongoing business owner responsibilities after the termination. Some of these responsibilities include:

•    Severance Payments

Even though most states don’t require that severance payments be made to terminated employees, they are often paid in order to reduce wrongful termination lawsuits and other related actions. However, you should consult an attorney before agreeing to make any kind of severance package.

•    Providing Continued Health Benefits

Under federal law, business owner responsibilities for companies with 20 or more employees include providing COBRA healthcare benefits to employees that have been terminated. And even in companies with fewer than 20 employees, individual states may mandate coverage be provided anyway.

•    Certificates Of Creditable Coverage

If you have a group health plan for your employees, and you terminate an employee, you’re required under HIPAA to provide a Certificate of Creditable Coverage for the period in which the employee was covered under your plan. This certificate will aid the employee in obtaining future healthcare coverage.

Terminating Independent Contractors

Many companies utilize independent contractors and consultants at various times, and there are a lot of benefits to utilizing them. In most cases, contractors are not subject to the same healthcare coverage and termination protections of regular employees. However, there are considerations to take into account when terminating contractors.

Remember, as indicated by the name, contractors work under a contract. And, as we mentioned above, an employment contract typically supersedes Employment At Will statutes. As a result, it’s very important to review the contractor’s agreement prior to termination. Hopefully, there’s a provision in the contract stating the agreement is subject to Employment At Will, but if there is anything different in the agreement, that language will likely take precedence.

Protecting Yourself And Your Business

The key takeaway from all of this is to remember that there are business owner responsibilities prior to, during, and after terminating employees. And what’s more, failure to meet some of these responsibilities can expose your company to significant liability and legal costs. Look into your insurance policy to see if your business  owner policy covers employment practices liability insurance.

That’s why it’s critical to meet with an attorney who specializes in employment law well in advance to understand your rights and obligations under state and federal law, so that you can take steps to protect your company and assets. Remember, terminating employees can be hard, but it’s made much harder if you don’t take steps to protect your business first.