The small business guide to avoiding discrimination charges when firing

Insureon Staff.
By Insureon Staff
June 13, 2014
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To avoid a damaging lawsuit, be sure to know when a dismissal violates an employee's civil rights.
A man carrying a cardboard box of office items.

For most small business owners, terminating an employee is never easy. Small businesses don’t have that many employees, and it’s easy for members of the team to start feeling like family. They might even be actual family!

That’s why firing employees can be such tricky business. But in addition to the standard hurt feelings and damaged egos, some fired employees may believe they’ve been wrongfully terminated.

Wrongfully terminated” is a legal term that means an employer unfairly and illegally dismissed an employee. For example, employers cannot violate work contracts or falsely justify a dismissal when they really just wanted to hire someone for a lower wage. You can learn more about those situations by reading Nolo.com’s helpful article “Wrongful termination: was your firing illegal?

But this post explores wrongful termination based on workplace discrimination – dismissals that violate an employee’s civil rights. To learn more about workplace discrimination in general, check out “The small business guide to avoiding discrimination and harassment in the workplace.”

What workplace discrimination has to do with wrongful termination

Most employers don’t need to provide reasoning when they fire an employee – but they still can’t do anything illegal. Discrimination in the workplace is illegal thanks to federal Equal Employment Opportunity laws. (For more information on these laws, read “Small business owners and employee rights.”)

In terms of wrongful termination, this includes dismissals that are based on an employee’s…

  • Race
  • Color
  • Sex (including pregnancy status)
  • Religion
  • Age
  • Disability
  • National origin
  • Genetic information

Most of the federal laws only apply to businesses with 15 or more employees. However, many states have laws that implicate smaller businesses. These laws might also expand their definition of discrimination to include unfair termination based on…

  • Marital status
  • Veteran status
  • Parental status
  • Smoking status
  • Sexual orientation

It’s important to note that even if your business too small for the Equal Employment Opportunity Commission to take on your employee’s case, that worker can still sue you on their own.

These cases can be particularly expensive because the losses involve an employee’s entire income. Additionally, there is no limit to the amount of back pay a wrongfully termination employee can collect.

For protection against these costs, small business owners can purchase employment practices liability insurance (EPLI), a type of professional liability insurance that pays for workplace discrimination and harassment lawsuits.

However, the best employment practices liability lawsuit is the one that doesn’t exist. That’s why we’ve put together a list of ways to prevent termination-related discrimination charges below.

Best firing practices: 4 ways to avoid wrongful termination lawsuits when dismissing employees

As a small business owner, it’s likely that you are familiar with the types of things you can and cannot say during a job interview in order to avoid discrimination. But the same care must be taken when you let employees go. Here are some tips:

Stick to the facts and be compassionate

You do not legally need to provide reasoning when you termination an employee – that’s one of the conditions of “at-will” employment. As soon as the employer or employee is dissatisfied with their work relationship, either one can end it. That said, it’s best to stick to the facts if you wish to give your employee an answer about your decision. And because employees can take the news hard, ensure you’re compassionate throughout the meeting. At the same time, realize that the longer you stay engaged with the fired employee, the more likely it is that you may say something that could be misconstrued. 

Do not fire alone

Discrimination-related wrongful termination cases can be tricky because they often turn into a “he-said, she-said” argument. And because tempers can flare in a firing situation, it’s important to have another person – preferably an HR representative – in the room when you let someone go. Without one, an employee could claim you said something discriminatory (e.g., “People like you don’t usually last long in this position,”) when you were simply talking about their tendency to work on freelance projects during business hours. 

Keep documentation and communicate

First, each position in your business should be documented with a list of duties and the qualities an effective candidate should possess. When an employee’s work violates these criteria, you should document it. Any performance evaluations should also be documented. That’s because in order to prove a wrongful termination case, fired employees must prove they are qualified for the job. If someone brings a wrongful termination suit against your business and you have months’ worth of paperwork documenting poor performance, that former employee is not going to have much of a case. Also keep in mind that sudden firings are more likely to end with discrimination charges. To avoid this, it’s a good idea to let employees know when their performance is starting to slip. 

Evaluate all employees the same

One way that fired employees can prove their wrongful termination case is by showing that certain individuals were treated better (e.g., not fired), despite the fact that their performance was worse. One way to avoid this is to keep accurate documentation of all performance evaluations and promotion and training decisions. If you give a performance evaluation to one employee, evaluate all employees. That way, it will be easy for you to prove that your business makes decisions based on merit, not discriminatory practices.

As always, if you have legal concerns, you should seek counsel from an attorney. And to learn more about the insurance coverage that can back up your discrimination risk management plan, read “Do small businesses need employment practices liability insurance?

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