Effective Employee Termination: Steps & Best Practices

One of the most stressful aspects that all employers will encounter at some juncture is the necessity of letting go of an employee. The employee termination process places both employers and employees in a demanding and uneasy position. No matter the cause for terminating an employee, you should communicate it respectfully and tactfully, addressing not only the terminated employee but also the remaining staff.

Focusing on what is important for the organization and how the termination makes good business sense is crucial. Hence, there is no negative impact on morale, and at the same time, it will respect the privacy of the person leaving the company. The goal is to go through the process within the bounds of the law to avoid potential legal ramifications.

The Employee Termination Process: Essential Steps and Considerations

Before terminating an employee, ensuring everything is in order, and you approach the process correctly is crucial. Let’s look into the steps in the termination process.

Step 1: Document the Termination Reason

Documenting the reasons for firing an employee is the most essential step, without which the employee could sue for wrongful termination, and a court will almost always favor the employee. The reasons for termination should be clear, concise, and business-related. Some of the most common grounds for termination are outlined below:

Poor Job Performance

Terminating employees for performance issues is common and relatively straightforward, as you will have the supporting documentation.  This includes poor employee performance reviews, customer complaints, co-worker emails, or performance metrics.

Business Slowdown or Downsizing

While downsizing or budget cuts are frequently distinguished from firing, they still constitute valid reasons for employee dismissal. If you must release employees due to an unforeseen decline in company business, providing them with sufficient notice is considerate. This notice can serve as documentation to substantiate the termination.

Personality Conflict or Policy Violation

An employer can terminate an employee due to a specific policy violation, interpersonal conflict with co-workers, or negatively impacting morale. In this situation, you can use surveillance camera videos, manager meeting notes, or timecards as evidence of the issue. The documents acceptable for policy violation include any of the following:

• Timecards displaying recurrent instances of absence and tardiness.
• Handwritten meeting notes detailing discussions about policy matters, signed and dated.
• Written records of policy violations or documented verbal warnings for infractions.
• A chronological sequence of events highlighting recurring issues, especially in cases of harassment, violence, or safety concerns.
• A signed acknowledgment of the employee handbook’s receipt and review date.
• A signed employee policy statement delineating company regulations.
• The employee’s job description.

These documents should be collected in real-time, filed in the employee’s personnel file, and discussed with the employee before the decision to terminate. 

Ensuring Accuracy and Fairness: Best Practices for Documenting Termination Reasons

While many states adhere to the principles of at-will employment to some extent, it doesn’t necessarily shield you from the possibility of facing a wrongful termination lawsuit. That is why it’s helpful to have documentation supporting your termination decision.

Ensure that the reason for laying off an employee is work-related and not something that might be perceived as a violation of federal or state labor laws. The reasons that can be construed as illegal are:

• discrimination based on race, sex, religion, age, pregnancy, or political beliefs
• retaliation for threatening to make complaints (whistle-blowers), sexual harassment reporting

It is also important here to know the difference between furlough and layoff.

Step 2: Compile Important Termination Documentation

Once it is verified that the reason for termination is legal, the next step is to gather all data before you notify the employee. The information to be collected and the paperwork required before the termination meeting with the employee are:

Termination Letter

Create this document according to state requirements, ensuring it’s on company letterhead. Include essential information such as the company or business name, the employee’s name, and the termination date. You may also add some clauses to your termination letter based on the situation, such as whether you offer health care insurance, severance, or pay out Paid Time off (PTO) balances upon termination.

Termination or Severance Agreement

This letter will express the terms of severance payments if employee severance is offered.

Healthcare Benefits Information

If the employee is provided with health insurance benefits, then documents for the Consolidated Omnibus Budget Reconciliation Act (COBRA) that provide insurance coverage options to the employee should be provided.

State-required Paperwork

Any paperwork required by a specific state or locality of the company.

Final Paycheck

In some states, depending on the reason for termination, you must provide the final paycheck on the day of termination. Other states may allow you to provide it on the next working day or pay period.

Once you’ve gathered the termination documents, create two copies. Provide one copy to the employee during the meeting and store the other copy in the terminated employee’s termination record.

Step 3: Delivering the Difficult News: Communicating Employee Termination

Now that the termination packet is ready, it’s time to notify the employee of their termination. The steps to be followed while informing an employee of their employment termination are:

• Use a private meeting room to protect the dignity of the employee being terminated and prevent distracting other workers. Also, it is best to find a trustworthy witness, such as an HR manager, the business owner, or another supervisor, to join in your termination meeting.
• Present a termination package that includes all necessary documentation to the employee.
• Every person may react differently to the termination. There may be anger, emotional outbursts, and sometimes refusal to leave by the employee. Give them time and let them compose themselves before gathering their things and leaving. If the situation escalates, you may call 911 or contact the building’s security to help escort the employee out and remove their access to the building to avoid further complications.

You could have a follow-up conversation or conduct an exit interview, but it’s advisable to consult your attorney before doing so.

Step 4: Timely Delivery of Final Paycheck

It’s best practice to provide the employees with their final paycheck during the termination meeting. However, in most cases, you will need at least a business day to prepare the last paycheck. Other options can speed up the process, like using online payroll calculators for states requiring a check to be provided immediately. Also, consider that if you later determine that you’ve underpaid the employee, it’s important that you correct that error by issuing a final check immediately. 

Best Practices for Employee Termination

The employee termination process does not end once the employee termination meeting is over and the employee leaves the premises; the focus now should be on the remaining workforce, including the employees managed by the ex-employee and any vendors, clients, or business partners the ex-employee interacted with. You need to notify all the parties the ex-employee dealt with during their tenure with the company.

• Inform your team about the departure of an individual, aiming to prevent the circulation of harmful rumors. Utilize this moment as an opportunity to uphold our organization’s values by addressing and alleviating any concerns or questions that our staff may have, all while respecting the individual leaving.
• Assign different team managers and employees the former employee’s responsibilities. Utilize this as an opportunity to enhance employee morale through cross-training or promoting dedicated team members. Additionally, inform the vendors, clients, or business partners with whom the ex-employee worked about the change in contact moving forward.
• Remove all systems access of the employee. It’s helpful to keep a checklist of company property that employees have, like key cards, credit cards, company phones, and laptops. Clear the workspace of the former employee for use by a new or transitioning employee.

Proactive Strategies for Future Employee Terminations

Recommend creating a termination checklist to ensure a seamless employee termination process. Some essential documents outlining best practices, which every small business should possess, include:

• Employee Handbook – An employee handbook serves as a guide for employees to understand fundamental company policies, regulations, and anticipated conduct. Keeping the employee handbook current guarantees that employees can access precise company-wide information irrespective of their supervisor or division.
• Job Descriptions – A job description clarifies performance expectations for each job role and includes details about company culture, compensation and benefits offered for the position. This helps to support your decision to let someone go due to poor performance.
• Discipline Policy – A progressive discipline policy outlines a process that provides the company with a framework for managing the team while documenting your progressive discipline steps for employees who do not meet the performance standards.
• Labor Law Notices – You can download labor law posters from federal and state websites.

Conclusion

Terminating an employee requires a thoughtful and respectful approach to ensure a smooth transition for all parties involved. By following the steps and best practices outlined above, organizations can navigate the process of terminating an employee with professionalism, respect, and adherence to legal requirements. This approach not only safeguards the rights of both parties but also contributes to a positive organizational culture and reputation.