Can I lay off an underperforming employee instead of firing him?

Firing an employee is never easy. It’s a situation often fraught with stress and discomfort for all parties, and the process itself can be painstakingly tedious. Whether it be an attempt to soften the emotional blow for the employee, expedite the termination quickly, or to simply reduce the risk of a wrongful termination suit brought about by the employee, many employers look for ways to circumvent the termination process through an alternate route.

This month’s 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 terminating an employee, MEA is pleased to share the 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. My question is, can 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 issuing 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 doesn’t meet the criteria or warrant the label.

Member: I didn’t realize that there were specific criteria that had to be met in order to lay off an employee instead of fire him. I assumed that the former would just be easier for everyone instead of the latter.

MEA Expert: Yes, it’s necessary to delineate between a layoff and a performance-based termination to protect the legal rights of both you and your employee. In a layoff, an employee typically loses his/her job for reasons unrelated to performance. For example, maybe your company is experiencing a reduction in force (RIF), or a department within the company is downsizing, or perhaps a particular product line supported by a team is being phased out, etc. Additionally, since a layoff can also refer to a temporary suspension of work, the employee could have an expectation that you will bring him back to work when business conditions change or improve. Do any of these factors describe the circumstances surrounding your need to terminate the employee, and can you show proof?

Member: No, business is actually thriving, and we do not anticipate a reduction in force anywhere within the organization. Also, we have no intention of bringing this employee back. We’d like to just terminate him and quickly find a replacement.

MEA Expert: I understand. Based on what you’ve shared, it doesn’t sound like a layoff is the legally acceptable course of action here.  Should you proceed, you could find yourself in a lot of legal trouble if the employee sued for wrongful termination, since the only way to defend against such a claim is by showing that you had a lawful business reason to let the person go.  With this specific employee, you would of course present information that demonstrates he was a poor performer.  But the court would not allow you to do that here since you already called it 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, organizations still must follow  federal and state employment laws covering issues such as discrimination, whistleblowing, and layoff notices. In other words, even at-will employees have protected rights. If an employer violates these rights, the employee may have cause to file a claim for wrongful termination.

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. First, remember that it is not only about the laws you break, but also about what you can do to prove that your termination was based on lawful business reasons.  Employees that sue for wrongful termination often do not have to prove anything until the company first proves what it did was lawful.  If you can’t prove the employee was a poor performer, you risk losing the case. To best protect yourself, be sure you have sufficient documentation to demonstrate the poor performance. Next, be mindful of any binding employee contracts in place. If you do in fact have one and terminate it prematurely, the employee could bring about a wrongful termination claim for breach of contract. Even if you think or know that there is no employment contract in place, be sure to review your employee handbook, all other policies, and any offer letters – these documents, although not considered employment contracts, can often 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 that 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 simply means that you cannot fire someone for exercising a legal right such as taking family or medical leave, serving jury duty, or even for reporting your company for a safety or health violation.

Member:  Thank you for all of this information. There is a lot to consider, and I didn’t realize that there were so many exceptions to at-will employment when termination is involved. 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: Of course – 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. Call again any time.

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.