As a small business owner, a wrongful termination lawsuit can quickly drain capital reserves, even if you ultimately win the lawsuit. Litigation costs along could bankrupt a fledgling business. As is often the case, the best defense is a strong offense. While there is no sure fire way to prevent the possibility of a wrongful termination lawsuit, there are steps you can take to prevent a previous employee from filing one, or at least be prepared in the event one is filed.
The term “wrongful termination” is a broad term. A statutory claim for wrongful termination can be made on the basis of one of the many federal or state anti-discrimination statutes. An employee who was employed pursuant to an employment contract can allege that the termination was in violation of the terms of the contract. Additionally, a somewhat vague “termination against public policy” argument is sometimes asserted as the basis of a wrongful termination lawsuit. Regardless of the basis of a potential wrongful termination lawsuit, taking steps before a lawsuit is even contemplated is your best defense.
Read, understand and implement an anti-discrimination policy. Federal anti-discrimination statutes are much broader than most employers realize. Consult with your attorney if necessary to make sure that you are in compliance.
Don’t turn your “at-will” employee into a contract employee unwittingly. Most states are “at- will” states, meaning that, in theory, you do not need a reason to terminate an employee’s employment. Contracts, however, can be implied and verbal as well as express and written. Be certain that you do not verbally imply a contract between you and your employees if that is not your intention.
Negotiate a separation agreement when possible instead of an outright termination. If the employee agrees to the “separation” from employment, then it is not a “termination” for purposes of a future wrongful termination lawsuit.
Draft a well-written section in your employee handbook regarding the “at-will” nature of employment as well as a section outlining your compliance with all state and federal anti- discrimination laws. Your disciplinary procedures should also be explained at length in your employee handbook.
Document all disciplinary action taken against all employees. Allow the employee to review the summary of action taken and ask them to sign the summary. Keep these in the employee’s personnel file. Keep all personnel files at least as long as the applicable federal and state statute of limitations for wrongful termination lawsuits.
Give your employee a concrete reason for the termination. Conversely, do not offer any information to third parties regarding the reason the employee was terminated unless absolutely necessary and, even then, only if it can be easily and adequately substantiated.