Can I lay off an underperforming employee instead of firing him?
Amy McAndrew |
Common HR Questions
Firing an employee is never easy. It’s often a situation that is fraught with stress and discomfort for all parties, and the path leading to termination can be painstakingly tedious. Whether the employer is attempting to soften the emotional blow for the employee, expedite the process, or simply to reduce the risk of a lawsuit from the employee, many employers look for alternate routes to employee separation.
This Hotline topic highlights what many of our Members mistakenly view as an alternative to termination – a layoff. It’s only a matter of semantics, right? Not exactly. To best equip our Members with the information they need to remain legally compliant when involuntarily separating an employee, MEA is pleased to share the hypothetical exchange below.
Member: I need to terminate one of our employees due to poor performance. However, I want to avoid the hassle of extensive documentation and the uneasiness of an employee termination meeting. Can’t I just call it a layoff to minimize the stress and streamline the process?
MEA Expert: Thank you for reaching out to MEA for guidance. Your question is one that we field often from Members echoing the same aversion to the termination process. While calling the termination a layoff sounds like a quick fix, it’s unfortunately not that simple. There are potential legal implications to consider when laying off an employee, especially if the situation does not meet the criteria or warrant the label.
Member: I didn’t realize that there were specific criteria that had to be met to lay off an employee instead of firing him. I assumed that the former would be easier for everyone instead of the latter.
MEA Expert: Yes, it is important to delineate between a layoff and a performance-based termination to protect your organization legally. In a layoff, an employee typically loses his/her job for reasons unrelated to performance. A layoff usually means that an organization is undergoing a reduction in force (RIF), which may be due to circumstances such as decreased business, increased automation, the need to right-size a department or the elimination of a particular product line. Additionally, a layoff can imply a temporary suspension of work such that the employee may expect that you will bring him back to work when business conditions change or improve. Do any of these factors describe the circumstances surrounding the potential termination of this employee?
Member: No. Actually, business is thriving, and we do not anticipate a reduction in force anywhere within the organization. Also, we have no intention of bringing this employee back. He simply is not performing up to our expectations. We would like to terminate him and find a replacement as soon as possible.
MEA Expert: I understand. Based on what you’ve shared, it sounds like a layoff is not the best course of action here. Calling this termination a layoff carries with it substantial legal risk if the employee later brings a lawsuit. The only way to defend against such a claim would be to show that you had a lawful business reason to let the person go, and you will have no evidence to support that this was a layoff. With this employee, you would attempt to show that the employee was terminated for being a poor performer, but a court would not allow you to do so because you already called the termination a layoff. According to the law, once you provide a reason for termination, you’re stuck with it and cannot argue something else, even the truth, later.
Member: That’s helpful to know – thank you. But we’re an “employment at-will” company, so I can still fire him easily without all the red tape and documentation, right?
MEA Expert: That’s another good question. Unfortunately, at-will employment is not always cut and dry when it comes to termination. While employment in most states is “at will,” meaning the employee can quit or the company can fire without cause or notice, organizations still must follow federal and state employment laws covering issues such as discrimination and retaliation. In other words, even at-will employees have protected rights. If an employer violates these rights, the employee may have cause to file a lawsuit.
Member: Wow, I didn’t know that. Can you provide some examples of labor laws that I could unknowingly break when firing an at-will employee?
MEA Expert: Sure, but remember that it is not only about the laws you may break, but also about what you can do to prove that the termination in question was based on lawful business reasons. Employees who sue for discrimination and retaliation often do not have to prove anything until the company first demonstrates that it based its decisions on legitimate business reasons. For example, if the employer terminates an employee for poor performance, but the organization can’t prove the employee was a poor performer, the employer risks losing the case. To best protect your organization, be sure you have sufficient documentation to demonstrate the poor performance. In addition, be mindful of any binding employment contracts. If you terminate an employment contract prematurely, the employee could sue your company for breach of contract. Even if you think there is no employment contract in place, be sure to review your employee handbook, all other policies, and any offer letters. These documents may be interpreted as binding legal agreements giving the employee certain rights to their job you may not know about.
Member: There is certainly a lot to review. Assuming our paperwork is in order, is there anything else that I need to consider when firing an at-will employee?
MEA Expert: Yes. In addition to furnishing proper documentation, employers must uphold laws prohibiting discrimination of at-will employees. Discrimination categories include race, religion, gender, age, national origin, disability, pregnancy status, and, in many states, sexual orientation or gender identity. At-will employees are also protected against retaliation, which means that you cannot fire someone for exercising a legal right such as taking family or medical leave, filing a workers’ compensation claim, or making an internal complaint of harassment.
Member: Thank you for all of this information. There is a lot to consider. It sounds like we’ll have to follow the standard procedures for terminating the employee due to poor performance. Do you mind if I call back with additional questions?
MEA Expert: We encourage you to call back any time. Our Employers’ Hotline is staffed by a team of experts always available to provide guidance and advice. I’m glad that I could be of assistance to you today.
MEA’s goal is to provide current, detailed and useful information to Hotline callers, but our responses do not constitute legal advice about what you should or should not do in a particular situation. You should always consult legal counsel, in the context of a confidential attorney-client relationship, before taking any action that could have legal implications for you or your business.
Editor’s Note: This post was originally published in March 2017 and has been updated for accuracy and comprehensiveness.
About the Author
Amy McAndrew is MEA’s Director of Member Legal Services and has over twenty years of experience as a labor and employment attorney.