Termination of an Employee Contract in a Small Business

Any business will, at some point, have to confront the unpleasant business of dealing with the termination of an employee's contract- or, to put it bluntly- if you own a business, you'll likely have to fire someone at some point!

 

Termination can occur for a number of reasons; some cases of termination are due solely to the employee's performance, while other terminations are a result of necessary cutbacks on the part of the employer.

Whatever the reason for employee termination, it is vital that correct termination procedures be followed if you want to avoid being sued by your ex-employee for wrongful termination. Not only can a lawsuit for wrongful employee termination be financially damaging to your business, it can also increase stress levels for all concerned and tarnish your company's reputation.

Firing an employee is possibly the most contentious method of employee termination, yet sometimes this type of termination is very necessary to the smooth running of the business. Firing an employee requires careful treatment. Termination can normally only occur following gross misconduct or repeated minor misconduct, as well as the employee failing to carry out his job in an acceptable manner over a period of time.

Minor employee misconduct normally involves an employee breaking the rules laid down by the business, but in these instances, the actual impact on the overall running of the business is small. Examples of minor employee misconduct include:

This list is not exhaustive and may vary depending on the nature of the small business involved.

All businesses, whether large or small, should have adequate disciplinary and termination procedures in place. The correct sequence of events for preliminary termination procedures must be adhered to before termination of the employee contract can occur. Several types of warnings may be issued, depending on the type of breach committed by the employee.

Verbal Warning: A verbal warning typically involves a formal discussion between a business manager and employee about the specifics of the employee's misconduct. The business manager will also take the opportunity to reinforce the standards expected of the employee. Verbal warnings may remain on the employee's file pending further action, and possible eventual termination should the employee continue to breach business rules.

Written Warnings: Written warnings often follow verbal warnings, as a prelude to employee termination. As this is a step closer to the termination of an employee's contract, it is vital that the manager clearly states the misdemeanor of which the employee is accused, and the corrective behavior required if termination is to be avoided.

Before termination, there should be a disciplinary hearing where the employee is entitled to have a representative present and is given the opportunity to appeal against the impending termination.

Currently, the federal government has very little to say about employee termination. Furthermore, different states have different laws about employee termination, so it is a good idea to find out the laws that are applicable in your area.

For the most part, the United States upholds the Employment At-Will Doctrine, which states that employment is voluntary and indefinite for both the employee and the employer. This gives the employee the right to quit whenever and for whatever reason, it also gives employers the right to terminate employment whenever and for whatever reason. But due to a slew of lawsuits in the 1980s that revealed the shortcomings of the Employment At-Will Doctrine, many states have adopted the Model Employment Termination Act (META). The act requires employee terminations to have a "good cause," but that is still open to debate. Usually, reasons such as misconduct or to relieve the business' financial problems would be "just cause" for employee termination.

Severance pay is not required under U.S. law, but many companies offer it, either to stay competitive with other companies or to "bribe" ex-employees in order to avoid lawsuits. No set standard exists for severance packages, so it is up to the discretion of the business.