Although you might think of your team as family and believe that they would never sue you, lawsuits filed by employees are actually one of the most common causes of litigation for business owners. In fact, nearly one in every five small businesses will eventually get sued by an employee.
Of all types of lawsuits an employee can file against you, wrongful termination is among the most frequent. Essentially, wrongful termination is when an individual is fired for an unlawful reason. This includes terminations that violate anti-discrimination and other employee-protection laws at both the state and federal level, as well as terminations that violate employment agreements.
Wrongful termination lawsuits can be a huge liability, and they’ve been on the increase in recent years, especially with so many businesses laying off workers due to COVID-19. Such suits can be extremely costly, since regardless of whether you win the case or not, you are still on the hook for attorney’s fees. Indeed, the average amount paid for settlements and court awards for wrongful termination claims is $37,200, according to Martindale-Nolo Research.
Given these risks, you should take every possible precaution to protect your business against wrongful termination claims. Your first line of defense is always going to be purchasing the right business insurance, so start by investing in an employment-practices policy. Beyond having good insurance, you should consider implementing a number of proactive strategies to further safeguard your business.
The following 4 strategies are among the best ways to protect your company from wrongful termination claims. These measures can not only reduce the chances of a wrongful termination lawsuit being filed, but also increase your chances of winning such a suit should your business ever get hit with one.
1. Familiarize yourself with the law
If you don’t know what constitutes wrongful termination, you can’t take steps to prevent it. Discrimination is one of the most frequent bases for wrongful termination lawsuits. Both federal and state law protects workers from discrimination of all kinds, including on the basis of race, sex, religion, national origin, age, disability, and pregnancy.
Under these laws, you can be sued for wrongful termination if an employee claims their firing was related to one of these protected classes. For example, if you terminate an employee, and she claims it was because she became pregnant, she could sue you.
In addition to anti-discrimination laws, there are a significant number of federal, state, and local laws protecting employees from terminations based on a variety of other different causes. Some of these include disparate treatment, breach of contract, constructive (provoked) discharge, retaliation, and inconsistent application of company policies.
While you should do your best to familiarize yourself with employment and labor laws, consult with us to make certain that your actions, policies, and work environment are in compliance with the latest legislation affecting your particular industry and business.
2. Create effective workplace policies and procedures
Knowledge of the law does very little if you don’t put it into practice. Creating clearly defined policies detailing your procedures for hiring, discipline, termination, and dispute resolution is essential. Moreover, documenting these policies and procedures in your employee handbook and your employment agreements is another best practice—and one we’ll cover in more detail later.
Keep in mind that for all but the most flagrant violations of company policies, an immediate termination can often be quite risky from a potential liability standpoint. To reduce this risk, consider implementing probationary periods for new-hires, corrective-action plans for underperforming employees, and workplace mediation programs for dispute resolution.
Finally, having formal policies and procedures in place for documenting and resolving complaints of sexual harassment, discrimination, retaliation, and other unlawful behaviors can offer your business further protection from potential lawsuits.
3. Use sound employment agreements with every employee
No matter whether you have one employee or one hundred, you should require every individual who works for you—without exception—to sign an employment agreement. In fact, having a sound agreement in place is even more essential if you employ friends or family.
Your employment agreements should clearly detail the terms and conditions for the working relationship, so everyone on your team understands exactly what’s expected of them. Effective employment agreements can protect you from wrongful termination by clearly establishing the employee’s responsibilities, your rights as employer, and the circumstances under which the employment relationship may be terminated.
We can help you create comprehensive employment agreements for your employees to help ensure you have the robust contractual protections for not just wrongful termination suits, but every other potential claim related to the employer-employee relationship.
4. Document everything
If a fired employee does sue you, by far the most powerful weapon in your arsenal is complete, thorough, and contemporaneous documentation. The last thing you want is to be asking a judge or jury to simply “take your word for it,” when trying to prove an employee’s actions provided grounds for termination.
Thoroughly documenting all employee incidents, along with the corrective measures you took as a result, can not only provide strong evidence to defend against a lawsuit, but it can often be enough to get a claim thrown out well before it even reaches the trial phase. Ideally, this process should be a collaborative effort with the employee, and all incidents should be documented in writing as soon as possible following the action in question.
Collaborative documentation includes having employees read and sign that they understand why disciplinary actions are being taken, and that they agree to abide by any corrective-action plan you may require them to complete. We can not only help you develop effective documentation procedures, but also advise you on the proper corrective actions to ensure you’re offering your team an appropriate opportunity to rectify their behavior, so termination is always a last resort.
Cover all your bases
While these strategies can go a long way toward protecting your business from wrongful termination lawsuits, understanding all of the nuances and complexities surrounding the employer/employee relationship from a legal perspective is extremely challenging. To this end, you should consult regularly with us, as your Family Business Lawyer™, to ensure your policies, procedures, agreements, and HR practices are in compliance with the latest standards and laws.
This article is a service of Liz Smith, Family Business Lawyer™. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.