Reducing the Risk of Terminations

Reducing the Risk of Terminations

No one enjoys terminating an employee. As we all know, however, it is essential to operating almost any business. Unfortunately, the myriad of employment laws make many terminations, even well justified ones, legally risky. The key to managing this risk is learning to spot the “red flags” that signal a risky termination, and employing effective steps to manage such risks.


The first step to avoid an expensive lawsuit is learning to identify terminations that are more likely to result in litigation. Here is a sample of some of the most common signs:

Complaints: When an employee has voiced a concern or filed a complaint about perceived harassment, discrimination, or any other workplace activity regulated by law, any termination that is close in time to the complaint may be claimed as retaliatory (e.g. “you only fired me because I complained about …”). Retaliation lawsuits are some of the most difficult and expensive to defend. Thus, prior to any termination, every employer should review an employee’s personnel file and talk to his or her supervisors about the existence of any such complaints.

Family & Medical Leave: The Family and Medical Leave Act (“FMLA”) and Oregon Family Leave Act (“OFLA”) entitle certain employees to up to 12 weeks of unpaid leave each year. These laws contain many highly detailed rules. Violating these rules can result in liability regardless of intent to comply. For example, accidentally counting an employee’s FMLA/OFLA absence against him during an evaluation of the employee’s “reliability” is illegal. Likewise, failing to categorize an absence as covered by FMLA or OFLA when it should have been is enough to violate the law. And, of course, any employee who has taken a protected leave of absence might be able to argue that a subsequent termination was retaliatory. Thus, the termination of any employee who has applied for or taken FMLA or OFLA leave, or whose termination relates to attendance problems, should be carefully examined to determine full compliance with the federal and state leave laws.

Exempt/Nonexempt Confusion: An employee’s status as “exempt” from overtime is one of the most misunderstood wage and hour law principles. Merely paying an employee on a salary or commission basis, in and of itself, does not exempt an employee from entitlement to overtime. Among other requirements, to be exempt, the employee must also perform duties that fall into one of several very narrow categories. The confusion in this area of law has generated massive amounts of easily avoidable litigation. Thus, before terminating any employee who has been treated as “exempt,” an employer should always carefully examine whether the employee is truly exempt under both federal and Oregon law.


Regardless of how many “red flags” may exist, there are times when you simply must fire an employee. When faced with these risks, some employers roll the dice and hope that the employee does not file a lawsuit. While “hope” is certainly one way to manage the risk, a more certain method is the proper use of a severance agreement.

Severance agreements are not merely a means to reward your best, long-term employees. Rather, every severance agreement should include a full release by the employee of any possible legal claims he or she may have against the company. A well drafted severance and release is not only broad and all-encompassing, but also enforceable. While this generally requires some form of payment to the employee, the consideration can often be quite small.

Severance agreements do have several restrictions. For example, claims under the federal Age Discrimination in Employment Act (“ADEA”) require very specific notices and time to consider and even retract the agreement. Without satisfying these requirements, the release of the age claim is ineffective. Even more difficult, employees generally cannot release wage and hour claims without approval from a court or the Department of Labor. Likewise, a split exists in the federal courts as to whether an employee may release claims under FMLA. Despite these restrictions, however, an employment lawyer can often craft a solution or greatly minimize the risk of these restrictions.

Terminations need to occur. That’s just part of business. Lawsuits, however, do not. Whenever terminating an employee that poses a significant risk of liability, the use of a severance agreement should always be considered as one option. In exchange for small consideration, most or all liabilities can be eliminated. While it may be troubling to provide extra compensation to a poor performing employee, it is usually less expensive and more certain than dealing with a lawsuit.

If you have any questions regarding the risks involved in terminating an employee or severance agreements, please contact our office.