This Valentine’s season, we dive into one of the biggest challenges for employers: breaking up with employees. Ending a relationship, even if at-will, is not without risk. Further, it can be costly. The costs of recruitment and onboarding alone are high, so when companies invest in employees, they want to get it right from the start. In the event that a separation becomes necessary, there are actions employers can take to help avoid an ugly break-up, and these actions begin during the courtship.

The Courtship

In the employment context, the recruitment phase is like a courtship. During this time, both parties are selling themselves and exploring whether they are a good match. Honesty and transparency are needed in order to avoid catfishing potential hires. Ensuring the job description in the posting is accurate and including the position description as part of the offer letter or employment agreement helps eliminate that risk. When interviewing applicants, be positive, but candid. If the role is grueling, let them know. If personalities can be challenging, do not hide it. If travel is required or the position is expected to be performed on site and not remotely, make sure this is clear in the offer letter and job description. Be up front about the company culture: is it non-hierarchical? If so, make that clear.

Carefully scrutinize the applicant’s resume. Have they changed positions frequently with little time spent in each role? Are the changes in employment mostly lateral as opposed to opportunities for advancement? Are there any breaks in employment and if so, was there a reasonable explanation? How were the references? Sometimes, the biggest mistake an employer makes is missing red flags in an applicant’s resume, resulting in hiring an employee who should not have been hired in the first place.

The Prenup

The beginning of the relationship is often the honeymoon period for both parties, and this is the best time to get agreements in place that set forth the parties’ obligations and expectations in the event the relationship ends, particularly for higher level and executive positions. Like marriage, it can be easier to negotiate a separation when everyone is happy than when a relationship goes south.

When entering into an employment agreement with an executive or director level position that provides for severance if the relationship terminates without good cause or with good reason, ensure that severance is contingent upon execution of a severance agreement with a release. Better yet, include the severance agreement as an exhibit to the employment agreement. It is much easier to negotiate the terms of the severance agreement during the honeymoon phase than to negotiate such terms when the relationship sours. Think of it like a prenup – if the relationship ends for specified reasons, the terms of the divorce are already agreed to in advance.

Another mechanism for ensuring a smoother separation is having new employees sign a commercial protection agreement that protects the company’s proprietary information and includes confidentiality provisions, assignments of intellectual property and requires the return of company property when employment ends. In states where allowed, these agreements can also have restrictive covenants, detailing limitations on conduct post-employment.

For employees with long-term and annual incentive programs, the agreement/plan document signed by the employee should clearly define when a bonus is earned, when it is paid and detail what happens if employment terminates before the bonus is determined and/or paid out. Ensuring that plans include a discretionary component helps protect against later claims that bonuses were earned and are owed after an employee departs. If an employee earns a commission, the plan should detail what happens when employment ends. Are recurring commissions still paid or do they end? Some jurisdictions will not allow a company to withhold payment of an “earned” bonus or commission if the employee leaves before the payout date, while others defer to the company’s plan. The key is to make sure the plan details how bonuses are paid out (if at all) upon termination and to ensure that the plan complies with applicable law.

The Marriage

Most employment relationships have their ups and downs. But, failing to address issues when they begin allows them to quickly pile up and reach a boiling point. There may be ways to save the relationship, through notice, counseling, and an opportunity to improve. The key to a successful relationship, however, is providing timely feedback, before issues become insurmountable, the relationship is beyond repair and the employee is blindsided by the delayed criticism.

Unfortunately, not all managers are good at providing feedback, which is why it is extremely important to ensure that manager level employees are properly trained since improper feedback can create liability. One poorly chosen word in a performance evaluation can create a basis for a discrimination claim.

As soon as performance or behavioral issues appear, managers should address the issues and document their concerns. This can be done through informal counseling followed up by an email confirming the discussion. Performance evaluations should always accurately reflect any performance or behavioral concerns. Failing to provide feedback, even when negative, is a disservice to employees and may result in an employee being unfairly surprised by later adverse employment actions, increasing the emotional response (and risk of litigation) and may make it more difficult to terminate the employee.

If the performance or behavior does not improve after informal counseling, managers should follow the process outlined in the handbook. Performance improvement plans (PIPs) can be very useful in managing and documenting poor performance and should be written in a way that provides a roadmap to success, but also documents the issues in case performance does not improve and termination becomes necessary. Coaching may also be useful. For behavioral issues, written warnings through the disciplinary process are often more appropriate than PIPs. If the behavior is egregious, immediate termination may be appropriate; however, managers should work with their human resource team to ensure there is consistent treatment to avoid discrimination claims.

Frequently, discussions regarding performance and behavioral concerns resulting in the disclosure of disability related information or a request for accommodation. Managers should be trained to recognize such disclosures and requests to avoid failure to accommodate or retaliation claims under the Americans with Disabilities Act (as amended)(ADAA).

The Divorce

Unfortunately, not every relationship is salvageable. Although most employment relationships are at-will, perhaps a better description is “at-will, but. . . .” Yes, employers can terminate employees at any time, for any lawful reason or no reason at all, with or without notice, but if any employee alleges discrimination and is able to make a prima facie showing that: (1) they are a member of protected class; (2) they were terminated; and (3) the termination was because of their membership in the protected class, the burden shifts to the employer to articulate a legitimate, non-discriminatory reason for the termination. Having no reason or a reason that is not documented, makes defense of such claims more challenging. Accordingly, before ending the relationship, there are critical steps that should be followed to assess and minimize risk.

First, employers should ask legal counsel to conduct a risk assessment. The risk assessment involves identifying protected factors or protected activity and reviewing the documentation. Protected activity could range from vague complaints of a toxic environment or unfair treatment to use of FMLA leave or disclosure of health related information that triggers accommodations under the ADAA. While a protected activity may complicate an intended termination, there are actions that can be taken to mitigate the risk. The risk assessment also involves identification of all jurisdictions that may apply since employment laws, including laws regarding termination, can vary by state and local laws.

Second, employers need to determine the timing of the termination and whether notice will be provided. As to notice, determine whether the employee has an employment agreement that requires notice, cause and/or severance to ensure compliance with such requirements. In addition, employers using professional employer organizations (PEOs) may have a requirement to consult their PEO before terminating an employee. When deciding whether to provide notice, review what the prior practice has been and whether providing notice presents unnecessary risk to the company. If no notice is being provided, coordination with IT may be necessary to prevent access to company proprietary information after the termination.

Third, consideration should be given to the messaging to the employee. Here, honesty remains the best policy since a “fake” or inaccurate reason for termination can backfire if the employee sues. The adage “it’s not you it’s me” is usually inaccurate and will backfire unless the company is truly eliminating a role and the business reason for the elimination is well documented. The messaging provided to the employee need not be overly detailed but should be accurate and supported by documentation in case of a legal challenge. Unfortunately, if the reason for termination proffered by the employer during a subsequent lawsuit differs from the reason given to the employee during the actual termination, a fact-finder (jury) could find that the employer’s reasons were actually a pretext for discrimination. Thus, although candor during the break-up can be difficult, it is a best practice. And, assuming the managers did a good job providing and documenting the feedback, the reason for the termination should not be a surprise.

Fourth, thought should be given as to internal and external messaging. Will the employee be given the opportunity to resign in lieu of termination? If so, will the employee have buy-in on internal and external messaging regarding their departure?

Fifth, will any severance be offered? If so, have the agreement reviewed by counsel for compliance with applicable law to ensure enforceability of the release and related provisions. Avoid using older templates since recent changes in the law could have rendered older provisions unenforceable, particularly with regarding to confidentiality and non-disparagement. Further, if the employee is over age forty, then the agreement should expressly provide the employee with at least twenty-one days to review and seven days to rescind under the Older Workers Benefit Protection Act.

Sixth, when will the last paycheck be provided and what will be included? Some jurisdictions provide for final pay to be included in the next regular payroll, while others require it to be paid immediately. Speaking of payment of wages, is the employee owed any bonuses, commissions or accrued but unused vacation? Failure to pay such items, which may be considered “wages,” can be costly and even subject to criminal liability. This is why ensuring that the plan documents clearly define when bonuses and commissions are earned and how they are treated upon termination is so important.

Finally, are there any notices that are required to be given along with the termination? Coordination with the benefits team is necessary to ensure any legally required notices are provided. In addition to COBRA-related notices, twenty-one states require employers to provide separation notices to employees when terminated.

Yes, breaking up can be hard to do, but partnering with counsel before terminating employment can reduce risk, prevent later heartache and potentially save money.

If you have questions, please contact Jennifer Jackman or another member of the Ice Miller Workplace Solutions Group.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.