From the November 2003 issue of Investment Advisor • Subscribe!

November 1, 2003

Hit the Road, Jack

Firing an employee is never fun, but sometimes you're better off if you go your separate ways. Here's how to make a clean break

Quick, when's the best time to fire an employee? According to management guru Tom Peters, it's the very first time you think about it. The reason, he says, is simple: If you have a problem employee, things very rarely get better.

It is a combination of art, luck, and science to hire competent, adaptable, caring people. The best way to prevent having to fire someone is to have an excellent pre-employment screening process, but even the most rigorous screening processes occasionally fail. And, after agonizing over it, you will realize the only thing to do is to fire that person. (Please note: This column is not intended to be legal advice. If you do need to fire an employee, I strongly suggest you discuss it with a competent labor attorney who specializes in representing employers.)

When Good Employees Go Bad

There many reasons why employees don't work out. The biggest issue is attitude. Skills and knowledge can usually be learned; a bad attitude is forever. Remember, nothing you do is likely to change who your employees are deep inside. If they aren't working out, you are doing yourself, your other employees, and probably even your problem employees a favor if you give them the boot. There's probably somewhere they can fit in and contribute to society; it doesn't have to be with your firm.

Another common problem is the employee who is not performing up to snuff. In a small business, it's sometimes hard to determine how much work your people should be doing and what the standards are. But if your employee is making lots of mistakes, can't meet realistic deadlines, or just isn't able to fulfill the requirements of their position, you may have to replace them.

Some problem employees may harass or be rude to their co-workers. They could be rude to you or to your clients. Or they may be constantly late. They come in late in the morning, take long lunches, leave early, and just don't seem to have any real commitment to the work you have asked them to do. These folks always have a good excuse, but they can't seem to get anywhere on time.

Your problem employee may have drug or alcohol problems. If they come in smelling of booze first thing in the morning, you clearly have a problem. However, you need to check with an attorney on this because they might be considered to have a disability. You need to handle this issue very, very carefully.

Be aware that some problem employees are angels when you're around, and slackers when you're not. Your other employees may complain about them, and tell you that they're not carrying their load.

Or perhaps they're dishonest. Both my father and my wife's father had office managers who embezzled money from them.

One of the most difficult things about problem employees is telling the difference between someone who is slightly off track and needs to be coached versus someone who is simply not right for the job and never will be. And it's even harder to pull the trigger when you've invested a great deal of time or money in the new hire. Have you ever spent a long time looking for a great staff person, finally hired them, and then spent six months training them? Maybe you even wrote a personnel agency a big check.

Unfortunately, regardless of how much you have invested, things will probably get worse. If your troublemakers are truly problematic, other quality members of your team may even leave just to get away from them.

Legal Issues

Most states have "at will" employment laws. This means that employees work at the pleasure of the employer, and the employer can fire them without cause at any time. It's particularly important to make sure that you do not have an employment contract with your employees, since this almost always protects the employee and not you. The best way to hire employees is simply month-to-month on an "at-will" basis.

Before you decide to take action, note that there are certain classes of people who are considered protected employees. This may not be a complete list, as this is a constantly moving target, but here are some key categories of protected employees: ethnic or racial minorities, people with disabilities, people over age 40, and pregnant women. Be aware, too, that a drug or alcohol problem may be considered a disability. If you fire any of these people, with or without cause, you may end up with a lawsuit or other legal problems on your hands.

Get It in Writing

Once you've identified someone as a problem that can't be fixed and you've discussed the matter with an employment attorney, you need to document the problem in writing. Keep these notes in an employee file, and once you have sufficient documentation, discuss the matter verbally with the employee. I usually start by saying something like, "We need to have a chat." When they come in to my office, I simply ask them, "Are you happy here?"

I haven't fired that many people in my career, but most of the time when it's not working out for me, it's not working out for them, either. Usually when I ask problem employees if they're happy, they'll say no. And if they do, you can work with them on a plan of action to help them find a job that's a better fit, identifying their skills and assisting them in finding another job. This path is highly preferable to firing them since they will leave feeling positive (more or less) about the experience, and thus will have no cause for legal action against you.

Step by Step

If, on the other hand, they deny that there's a problem, you must explain the specific issues of concern to you, and provide specific examples of their inappropriate actions. Be careful not to generalize; you need to offer concrete instances of the employee's unacceptable performance or behavior. Then tell them--again, as specifically as possible--what they have to do to correct the problem, and let them know that a series of progressive discipline steps will follow if they do not shape up. Be sure to document all your conversations with them, and with any of your co-workers that you have spoken to about the problem.

Many employees do shape up for a while, and then fall back into their unacceptable behavior patterns after a short period of time. Be on the lookout for this, and as soon as you see the old patterns, have a second discussion. (And remember, throughout this process, you should be getting advice from an employment attorney to make sure you're doing things legally and ethically in your state.)

Remind them that you've already given them one verbal warning and this is the second. Tell them that they need to change immediately or their job is at risk. Don't threaten them; just let them know that you're not happy, things are not working out, and these are requirements of their position. If they don't fulfill those requirements, you're going to have to find someone else to do their job.

If your employee still does not shape up, the third step is to give them a written warning. Again, sit down with them, explain to them that this is a serious problem, and give them a document explaining what they have to do to keep their job. Tell them that if they decide to stay, they must provide you with a plan to correct the problem when they return to work. At this point, they are usually actively looking for another job, or discussing their options with an attorney.

Give them a specific amount of time, usually one week, to change their behavior. Then send them home for a day, with pay, to think about whether or not they want to improve and stay on your team or if they want to find a new position. The ideal situation is to get them to find another position. Be aware that they can quit and then claim "constructive termination." That means that you created an environment that made it impossible for them to continue working for you. So you must be careful and get good counsel here.

See Ya!

Assuming they don't make a dramatic turnaround, it's time to fire them. You must give them a termination letter that releases them from employment. Your attorney should prepare this for you. It's best to have the employee sign the termination letter. At this point, you have the option of offering them a severance. Do not pay them any severance without a complete release from any legal action. It's certainly worth one or two months' pay if they will agree in writing not to sue you or take other legal action.

The best time to fire someone is on a Friday afternoon right after they've gotten their paycheck. If you decide to fire them at a different time, you will need to have their final paycheck prepared on the spot and pay them anything you owe them.

It's never fun firing someone, but it goes with the territory when you own your own business. The best defense against having to fire someone is to have exceptional screening processes, to know exactly what you want, and to keep a close eye on your new hires for the first six months or so. Usually the first 90 days is a honeymoon period in which people are on their best behavior, but ultimately their self-image and worldview will be reflected in their conduct.

By creating special processes for hiring and firing people, you can minimize your headaches and costs as an employer. Each time you fire someone, you should upgrade the position description and your thinking about what you really want and need in the next person. There's a wonderful book on hiring called Top Grading, by Bradford D. Smart (Prentice Hall Press, 1999), which I highly recommend for any employer.

In a perfect world, you'd never have to fire anyone, but, as we all know, the world's not perfect. If you follow these processes and work closely with a competent labor attorney, you should be able to minimize your legal exposure and personal trauma.

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