During tough economic times, it may be necessary to reduce headcount in order to stay afloat. This may become necessary at any time for reasons that include risk to your company’s reputation, theft, and physical violence against coworkers. When these tough times strike, you will need to terminate employees correctly. The EEOC processes thousands of charges of wrongful discharges each year. Avoiding a lawsuit is a must.
“At will” employment policies
Businesses in most states are free to adopt “at-will” employment policies. “At-will” means the employer has the right to dismiss an employee at any time for any reason. However, this comes with a major caveat: The reason for dismissal cannot be an illegal one, such as the many forms of discrimination that we’ll discuss in the next section. Basically, at-will policies give you more flexibility than you’d have if your employees were retained with employment contracts.
Economic reasons for layoffs
The most common reasons for dismissals are economic. When the country is in a recession, companies are likely to be impacted, and they may have to resort to dismissals simply to stay in business. Or, the problem may be limited to your particular industry – or the business itself. Perhaps a competitor leapfrogs your latest innovation, or cuts prices to give their product a marketing advantage. Maybe federal regulators detect trace elements of a toxic substance in your product. The reasons are endless, but the response is always the same: You have to regroup by getting expenses under control. Headcount is often the first line item employers turn to.
The key to implementing cost-cutting dismissals legally is to make sure that you are not discriminating unintentionally. It’s important to use objective, business-focused criteria for choosing the employees you plan to dismiss. For example, you can eliminate an entire department or group. Or trim the five percent of the workforce that was hired most recently. If you are an at-will employer, you can go ahead and announce the planned dismissals. Otherwise, you will have to honor the terms of any contracts, which may involve negotiations with affected employees or their unions.
Firing “for cause”
The last category of legal terminations, firing “for cause,” is typically the most difficult to manage. By definition, the employee in question is creating problems that negatively impact the business and may involve potential harm to co-workers. The “causes” that are grounds for dismissal run the gamut including: illegal activity such as stealing or revealing trade secrets, dishonesty, breaking company rules, harassing or disrupting other workers, insubordination, excessive unexcused absences, and poor job performance by some objective measure.