Have you ever met somebody who says to you, “I was laid off from my job today and I deserved it.”? If you have, you’re definitely in the minority. If you own a small business and have to lay off employees, you increase the probability of legal action against you. How do you lay off employees in a way that minimizes your risk of a lawsuit?
Here’s a scenario. Your small business has three employees. One is a young, attractive female, another is an older female who is a valuable employee but due to her experience, must be paid more, and the third is an up and coming African American male employee with a work ethic that you greatly admire. You can only afford to keep two of the three employees so what do you do?
There are at least two type of legal risk that you face. First, a discrimination lawsuit. Could the African American employee claim race discrimination? Could the older employee claim age discrimination? One type of discrimination easily forgotten is discrimination claimed by gay or lesbian employees. In fact, Entrepreneur magazine claims that discrimination action brought by gay or lesbian employees is the fastest growing population claiming discrimination.
Another type of lawsuit is a disparate impact lawsuit. Simply stated, this type of lawsuit claims that while a company’s policy may appear neutral, it isn’t. If your older employee had access to your employment files and found that over your company’s history, you fired or laid off a significantly higher percentage of older employees they could claim disparate impact.
How do you avoid lawsuits? There is no way to avoid them altogether because, as we stated, everybody feels like a victim when they are fired or laid off but there are ways to greatly minimize your chances. First, make your standards of laying off an employee as objective as possible. While many employees dislike a seniority system, laying off employees based on the amount of time they have worked for you is highly objective and hard to argue in court.
If a highly objective system doesn’t work for your business, keep accurate and detailed records of employee performance and be ready to defend your findings in court. Finally, consider asking recently terminated employees to sign a general release of liability statement in exchange for a small bonus on their last check.
Remember that no legal grounds have to exist to file a lawsuit and sometimes just the cost of defending the lawsuit has just as much of a financial impact as the suit itself. Your older employee could claim that she is being discriminated against because of her age, the African American could claim race discrimination and the young, attractive employee could claim that after your advances toward her were rejected, she was fired soon after.
Often, these types of arguments have no merit but you can minimize the chances of these allegations becoming a legal battle by being as objective as possible with your hiring practices. One more thing… never run a business without the liability protection of a limited liability company (LLC), C corporation or S Corporation. Sole proprietors and partnership can lose everything in case of a lawsuit.