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How to Terminate Employees the Right Way and Reduce Your Risk Exposure

As a business owner or manager, you may have an employee who just isn’t a good fit for the company. Perhaps they aren’t capable of performing the job or egregiously violated a company policy. Whatever the reason, it’s a risky move to terminate an employee on a whim. Ideally, you should have a set of policies and procedures that you follow to terminate employees in order to minimize your risk exposure and ensure the termination goes as smoothly as possible.

Risks When Firing an Employee

Even though Arizona’s ‘at-will’ employment allows employers to terminate workers essentially without cause, there are a number of important exceptions Arizona business owners must know and understand. Even in an ‘at-will’ state, employers still can expose themselves from a risk perspective and they can still be sued by terminated employees. Here are some risks to consider: 

  1. A potential lawsuit by the employee

Federal and state laws exist to protect the rights of an employee from termination. If proper termination procedures are not followed and a worker’s rights are violated, you may be subject to a lawsuit

The most common ways employee dispute termination is through one of these methods of claim:

  • Breach of Contract
  • Discrimination
  • Retaliation 

Any of the above methods of dispute can negatively impact businesses through:

  • lost time
  • legal expenses 
  • penalty costs 
  • possible forced reinstatement of the employee
  • damage to the business’s reputation

  1. Poor performance of other employees

If coworkers see that an employee has been terminated, they may be less willing to engage with the company. It can be extremely detrimental to morale if colleagues fear they may be next or feel the termination was not fair or done properly. Others may give in to a feeling of pressure and resign willingly in favor of another work environment.

  1. Turnover costs

Losing an employee and finding a replacement can result in significant costs for a business, largely in time. Management will likely spend hours interviewing candidates for the position, and if the new hire doesn’t work out, the search will go back to the drawing board.

Additionally, not only will the new worker need to be trained, but there will be a tentative onboarding period as the employee learns their responsibilities. 

Ensuring You Handle Terminations Correctly

To limit your risk of exposure when terminating an employee, make sure to have a plan in place. There are several steps you should include in your termination plan, listed below.

  1. Document everything

Make sure you write everything down. If it’s not documented, it can be argued that it didn’t happen. Even informal conversations written in a notebook can be helpful and count toward documentation in a legal suit.

Here are some examples of important documentation to collect:

  • Electronic communications (Email, SMS)
  • Phone conversations
  • One-on-one chats
  • Unprofessional or subpar behavior in group settings
  • Feedback and complaints from coworkers, managers or clients
  • Any formal or informal warnings given to the employee 

  1. Tell the truth and make it quick

The termination should be done in a timely and professional manner. It shouldn’t be a surprise and it should go pretty quick. There is also no room for sugar-coating when you decide to let an employee go. You must let them know exactly why they are being terminated.

Common reasons for termination include:

  • Not handling tasks or responsibilities in a timely manner
  • Misconduct or being disrespectful to colleagues or management
  • Continuously late to work or absent

If the employee is let go for any of the above reasons, you must be very clear in your conversation with them. 

  1. Have termination guidelines in place

Prior to terminating an employee, managers should ensure that the decision is objective and has sufficient supporting documentation.  

Companies should have standard guidelines in place for conducting a termination. These guidelines will ensure state and local laws are being followed and the employer’s risk is being minimized.  

After the Termination

Many employers assume that after the termination occurs, there will be no further impact to them, financial or otherwise. This is incorrect and there are a few things to consider: 

  • COBRA Benefits – In Arizona, all employers who offer health insurance must allow terminated employees to continue on the plan through COBRA. While federal law stipulates that COBRA benefits only apply to employers with more than 20 workers, Arizona’s Mini-COBRA statute is more restrictive. It requires that COBRA be offered to any employee who receives benefits from any employer. 
  • Final paycheck – Employees who are terminated must also receive their final paycheck within a certain timeframe that is set by state and federal law. For example, in Arizona, it must be received within 7 days. 
  • Confidentiality – Employers should ensure there are procedures in place for collecting and protecting confidential company information.  Upon termination, employers should be proactive in protecting their trade secrets and other confidential information by immediately disabling the employee’s access to email, voicemail, passwords, social media, website, etc.

Need Help with Employee Terminations?

As part of our HR outsourcing service, Focus offers a comprehensive HR solution for small business employers. We can help clients develop termination guidelines, assist in conducting terminations, and ensure they are carried out correctly –  reducing your risk exposure as an employer. 

If you are interested in learning more about how Focus HR can save you time and money while reducing your risk, schedule a free consultation by filling out the form below.




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