How to Keep a Firing from Backfiring

Time was when firings, layoffs and reductions in force were financially painful only for employees. Increasingly, however, terminated employees are suing and collecting from former employers. Whether an employee can recover depends on who was terminated, why, which law applies and what a jury decides.

The Protected Classes

Federal and many state laws prohibit termination because of race, sex, national origin, citizenship, disability, union activity or even age (over 40 under federal law), filing benefit claims or protesting discrimination. Aggrieved employees can file charges with state human rights agencies and the federal Equal Employment Opportunity Commission. If these agencies don't help, lawyers will gladly sue.

In many states, employees have won suits on allegations that they were fired for reasons against the state's "public policy" which can vary from state to state.

In New York State, supposedly an "employment-at-will" state, statutes prohibit discrimination for engaging in legal, after hours recreational activity, criminal convictions that do not create undue risks for the employer, filing workers' compensation claims or serving on juries. In New York City, discrimination on the basis of sexual orientation is also barred.

In most states, if the terminated employee contends a personnel manual or somebody in authority said employment would be "permanent" or termination would be only for "just cause," the employee is entitled to a trial to determine whether the reason for termination was sufficient. In a few states, like Massachusetts and New Hampshire, even if nothing is said in the manual, there is an implied obligation to act fairly and in good faith in terminating employees.

Employees who win such suits can win big — reinstatement, back pay, future lost pay, damages for pain and suffering, and if a jury thinks the employer acted willfully or maliciously, even punitive damages. Multimillion-dollar verdicts are possible.

Every termination must be treated as if it could be attacked in court. Once in court, the employer must present a reason for the termination that is not inconsistent with any statute or other law. During that litigation, all the company's records on this employee and others in similar situations can be brought into court and wilt have to be explained to a judge or jury whose decision will turn on some notion of fairness and justice.

What Happens in Termination Litigation

Terminated plaintiffs most commonly claim they were terminated "because" they were members of a group protected from employment discrimination by federal and state laws. To prevail, the terminee must prove that protected group status was a determining factor in their selection for adverse treatment.

This issue normally turns on the intent of the employer. The only direct evidence of intent is the testimony of the actor, but triers of fact are skeptical of testimony of sanctimonious intent.

The courts have, therefore, developed a complicated scheme of presumptions and shifting burdens to give plaintiffs a fair chance to reach the trier of fact without encouraging frivolous lawsuits.

The Employee's "Prima Facie" Case Burden

The employee may force the employer to articulate its reasons for selecting the plaintiff by establishing a prima facie case (sometimes called raising a presumption of illegal discriminatory intent) by showing:

  1. membership in a protected class (race, sex, age, etc.),
  2. termination (or some other adverse employment action),
  3. qualification for the job in question, and
  4. that someone not in the protected class received better treatment or that there are other indicia of illegal intent. E.g., McDonnell Douglas Corp. v. Green, 411 U.S. 792 (1973).

The Employer's Burden to Articulate a Legal Reason

The burden of production (but not persuasion) then shifts to the employer to articulate a nondiscriminatory business reason for its actions. E.g., Texas Dept. of Community Affairs v. Burdine, 450 U.S. 248 (1981).

The Presumption of Illegality Disappears

The prima facie presumption then disappears from the case and plaintiffs have the burden of proving they were terminated because they were protected class members and that "a discriminatory reason more likely motivated the employer." Plaintiffs may do this in a variety of ways including:

  1. Proving a statistically significant adverse impact on members of the protected classes that is not explainable by business reasons. (Actions speak louder than words.)
  2. Actual admissions of illegal intent by authorized agents of the employer who participated in or influenced the action. (Anything an employer or agent says can be used against them.)
  3. Anecdotal testimony usually about statements made by supervisors tending to show illegal intent (in effect, smoking gun statements). ("A smite and a suitcase," "the old fellow's lost it," "that ethnic group is just lazy," etc.)
  4. Evidence tending to show that the articulated reason is untrue. Because employers are presumably reasonable, the only reason to lie is to cover up illegal intent to discriminate (this begins to sound a lot like the notion of consciousness of guilt which arose in criminal cases), and/or
  5. Inconsistent statements made by someone who speaks for the employer (everyone had better be on the same wave length).

PRE-TERMINATION CHECKLIST For Individual Firings

Why?
  Does it make sense?
  Does it seem fair?
  Does it seem excessive?
  How serious is the infraction?
  How long is the employee's seniority?
  How have others been treated?

Review Paper Trail
  Personnel file
  Grievance procedure
  Other writings

Disparate Treatment
  How has employee
  been treated in the
  past for this type
  of behavior?

Consider Settlement of Troublesome Cases
  Valid release (reviewed
  by your labor attorney)
  Out-placement

Neutral References

Reinstatement if Your Case is a Loser

Did the Employee Do it?
   Get their side in writing
   Face conflicts
   Prepare evidence if needed
   Consider mediation or arbitration

     

Defendants Then Have an Opportunity (and Burden) to Show it Would Have Happened Anyway

Finally, if the plaintiff establishes "direct evidence" that discriminatory intent was "a determining factor" in their selection, the employer is given an opportunity to prove that the plaintiff would have been treated in the same manner notwithstanding the proven fact that a discriminatory motive played a part in the decision. Such proof will limit judicial remedies to declaratory and/or injunctive relief and attorneys' fees and costs and save the employer from an award of damages and/or an order requiring admission, reinstatement, hiring or promotion of the plaintiff or payment of back pay.

What Employers Stand to Lose

Losing employment discrimination litigation means the employer pays two people for the same work: the retained employee and the terminee. Losing an age discrimination claim can mean paying three times because a terminated employee wins double damages if the plaintiff shows that the unlawful age discrimination was "willful." Losing a federal discrimination claim concerning sex, national origin or religion can add up to $300,000 damages for "pain and suffering" or even punitive damages if the judge or jury deems the employer to have evil intent as well as uncapped back pay and front pay for lost wages. There is no cap for race discrimination. in New York City, there is no cap on punitive and other damages. Violations of New York State antidiscrimination statutes can result in unlimited damages for pain and suffering but not punitive damages. And losers pay employees' legal fees to boot.

But the saddest fact is that no employer can "win" a discrimination suit. Even a successful defense costs executive time and distraction and incurs considerable legal fees.

How to Keep a Firing from Backfiring

The only way to win litigation is to avoid it. So employers should plan litigation avoidance early and follow preventative human resource practices.

The Time to Defend Begins Before Hire

The time to defend against termination lawsuits begins before an employee is hired. When employers hire someone, they enter into a contract of employment with that person. That contract may be oral (typically, what is discussed are wages, hours and benefits Like medical insurance, holidays and vacations), but it is nevertheless binding on the employer.

If an employer wants to retain the prerogative of terminating an employee for any reason (other than those that are contrary to a statute or, in some states, to public policy), that had better be spelled out in writing and signed by the employee before or at hire. The best place is in a signed employment application spelling out at-will employment.

Watch Out for Unintentional Promises

Great care should also be taken to review personnel manuals, employee bulletins and other documents that state terms of employment. High minded promises of fair treatment can result in lawsuits where juries decide what they think is fair.

REDUCTION in Force Checklist

UNDERSTAND THE EMPLOYER'S OPERATIONS (WHERE IT'S AT)

  Management Structure
Departmental Structure
Operational Structure
Review or create job descriptions and   organization charts.

UNDERSTAND WHAT THE EMPLOYER WANTS TO BE (WHERE IT'S GOING)

  What is the objective of the RIF?
Cost Saving
Improved Efficiency
Automation
Peter Principal elimination
Going out of a particular line of business
What will the Organization Chart look like?
What will new job descriptions look like?
What jobs will be eliminated?

DECIDE HOW TO GET THERE
Is LIFO possible? —

  Strict seniority is a Safe Harbor.
How is seniority to be measured?
Most recent date of hire by the employer
Length of service in the position or department
Date of entry into department
Experience in the skill
Should terminees be allowed to bump junior
  employees in other jobs or departments?
Should job elimination be used?
Shall incumbents be laid off?
Should laid-off incumbents be allowed to bump less
  senior or less skilled in retained jobs?
Should the "best" be identified and the "worst"
  laid off?
Review, rate and rank candidates and their written   records.
Start with those with inadequate performance.
Check and cross-check subjective judgments.
Should bumping be allowed?
Avoiding liability by encouraging
  voluntary quits
Providing sweetened early retirement options
Offering exit incentives (severance pay, etc.)
Obtaining valid releases —
  check with your attorney:
Knowing
Voluntary
Valuable consideration
Older Workers Benefit Protection Act

 

PRECHECK THE TENTATIVE
SELECTION LIST

Check the statistical impact of the RIF
  on each protected class before and after
  the RIF.
Compare those retained to those let go.
Identity potential plaintiffs and weigh their
  cases carefully scrutinizing the:

  Reasons for the choice,
Fairness of the reasons,
Paper trail in the employee's records,
Reasonableness of the decision makers,
Confirmation of the choice by other
  supervisors, and
Credibility of potential witnesses.

CONSIDER OTHER RISK REDUCTION TECHNIQUES
Voluntary Quits (exit incentives)
Adjustments to cure statistical imbalances
Reconsideration of individual cases

CALCULATE THE HIDDEN COSTS
Multi-Employer Pension Plan Act (hidden
  cost of Union member RIFs where
  contributions have been made to
  Union/Employer Muti-Employer
  Pension Fund)
Worker Adjustment and Retraining
  Notification Act (60 days notice for
  mass layoff)
Consider other potential sources of liability:
  Employment Contracts
  Personnel Manual Promise
  Pension and Insurance Plan
    Complications
State Severance Pay Laws

FINALIZE AND EXECUTE THE PLAN
Start with the voluntary quits.
Then do the involuntary.
Plan the actual termination procedures
  (who, when, where, etc.).
Rehearse those who will be involved.
Be prepared to answer question which
   will be raised (e.g., Why me?).

ACT TO CUT DOWN LIABILITY AFTERWARDS
Consider outplacement counseling.
Organize help for terminees to get next jobs.
Be sure not to hinder terminees' job search.
Refer all government and hostile inquires to
  appropriate counsel who will do the job of
  replying right the first time.

Cut Down Your Risks Before You Use the Ax

Be sure that there is a provable, unassailable business reason — such as a clear violation of a published work rule or a documented record of warnings for poor performance or excessive absenteeism — for any termination. That reason should be reviewed and established before the employee is let go, not after.

A typical recipe for a disastrous lawsuit involves a long-term employee who received wage increases every year and whose personnel file contains no written warnings. One day someone decides that a formerly acceptable level of performance is inadequate. So the employee is unceremoniously let go. If the employee had been warned of substandard performance and given fair warning and a reasonable opportunity to improve, the employer would have a better case.

Another invitation to a lawsuit occurs when there are several employees with a chronic problem (like absenteeism), but the older employee is the first one fired. Better to discipline the worst first. When younger people, not in any protected group, with similar absenteeism problems are not terminated, the employer faces a strong inference that the real reason for termination was age. But if those with the worst absenteeism records are terminated first, especially after warnings, it will be harder to prove that hidden discrimination was the real reason.

Ten Ways to Avoid (or Win) Employment Termination Litigation

  • Say what you Mean — You may be stuck with what you Say
    Before hiring, review documents that are likely to be involved in a termination lawsuit. Be sure that they promise only what you want them to deliver. Be sure that they spell out that oral promises will not change the written rules.
  • Loose Lips Sink Ships
    Be sure no one in authority makes promises you do not intend to keep. And tell employees that only property promulgated written policies will be honored.
  • Fair Warning Wins Lawsuits, Communicate Work Rules and Warnings
    Establish basic, written work rules and make clear that infractions can lead to discipline and discharge. Don't adopt overly specific rules. Use rules like honesty, courtesy, excessive absenteeism, sobriety and a duty to cooperate in company investigations. Be sure every employee receives a copy and signs for it. Use (but don't promise) progressive discipline for lesser infractions — that is, give an employee an opportunity to correct unacceptable behavior. This might include a written warning or two acknowledged by the employee.
  • Discipline the Worst First
    If discipline is necessary, deal with the worst offenders first.
  • Look Before You Leap
    Get the employee's side of the story in front of witnesses and, if possible, in writing signed by the employee. Then, check it out before you act. It is best to recognize factual weaknesses in your case before it is too late. If you really don't want the employee on the payroll until the facts are clear, suspend the employee during your investigation but offer back pay if the employee is "cleared."
  • Consistency is the Best Preventative
    Be consistent in discipline — similar infractions should receive similar punishment.
  • Fair Treatment Wins Cases
    Review the employee's personnel file with an eye to fairness: Fair treatment as well as fair warning. For example, employees with longer seniority merit more opportunities to correct their actions than newly hired people.
  • Buy out the Bad Risks
    If you must fire someone but think your termination rationale could be viewed as suspect, consider severance pay in exchange for a release from any claims that might arise from the termination. Not the severance pay or vacation pay that you give to anyone who is terminated, but additional compensation. To be valid, a release must be knowing, voluntary and for a valuable consideration, over and above otherwise mandated severance benefits.

Under the Age Discrimination in Employment Act, you have to give 21 to 45 days to consider the release and must explicitly advise the terminee to consult a lawyer.

  • Never Speak Ill of the Recently Departed
    Don't stand in the way of the terminated employee's future employment. An employee who has a new job is less likely to bring a lawsuit against a previous employer. Bad references can lead to expensive lawsuits. But good references are an admission that there was not cause to terminate. So, adopt a policy of simply confirming dates of employment.
  • Consider Alternatives to Juries Like Arbitration
    Wouldn't you prefer to have a businessperson decide rather than a jury of employees? Why not offer or require Commercial Rules Arbitration of employment termination disputes. To these general rules add one more: Know which laws are applicable in your jurisdiction. The laws are changing quickly and often vary from state to state.