As the coronavirus pandemic swept the nation, businesses (from mom-and-pop shops to large corporate enterprises) have been forced to make tough decisions to keep their companies afloat – one of which is downsizing.
The Walt Disney Company found itself in this position when the outbreak forced it to close its theme parks, hotels and cruise lines. Due to these closures, the company reported a $1 billion loss of operating income in the second quarter of 2020 and a $3.5 billion loss of operating income in the third quarter. Unfortunately, its recovery program included thousands of employee layoffs – including the termination of the Grand Floridian Society Orchestra, a group of musicians that had been performing at one of Disney's hotels for the past 32 years.
Terminating an employee is never easy, especially if that employee has dedicated many years to your company. If you are in the unenviable position of terminating a long-term employee, learn the steps you can take to ease the separation.
How should you fire a long-term employee?
When firing an employee, employers should be diligent to treat all workers equally and conduct the same termination process for any employee. Having a standard termination process can help you avoid wrongful termination or discrimination lawsuits. However, there are several unique considerations for terminating a long-term employee, such as age discrimination, employment agreements, compensation, notifications and severance packages.
Documentation
Before you terminate an employee based on poor performance or misconduct, it is important to have the proper documentation in place. This is especially true for long-term employees who may fall under a protected class against discrimination based on age.
Edith Pearce, lawyer and founder of The Pearce Law Firm, Personal Injury and Accident Lawyers P.C., said most long-term employees are at least 40 years old, which means they are protected by the federal Age Discrimination in Employment Act of 1967 (ADEA).
"Thus, although not required, giving employees feedback and documenting issues is important to avoid a wrongful termination lawsuit," Pearce told business.com.
When you're documenting employee issues, Pearce recommends concentrating on poor performance, such as missed deadlines and tardiness, rather than employees' attitudes, characteristics or habits.
Employment agreements
Many long-term employees have written employment agreements in place that dictate reasons they can be terminated, their length of employment, and benefits they are entitled to in the event they are let go. Similarly, some long-term employees have implied contracts, which means they can only be fired for "good cause," even in cases of at-will employment.
Even if a long-term employee doesn't have an employment agreement in place, they may still believe they are entitled to certain rights based on previous employer policies or discussions. For example, they may have had conversations with their supervisor that led them to incorrectly believe they have a right to be employed until they are ready to retire.
"Before terminating a long-term employee, employers should consult with the employee's supervisors to get an understanding of what the employee may be expecting in advance, and to decide how the company may respond in the event the employee raises those issues at the time of termination," said Jenny Fuller, associate attorney at Fox Rothschild. "To the extent the employee asserts a legal right to compensation or a certain term of employment, or other similar benefits, employers should consult with employment counsel to determine what the company's rights are."
Compensation and notifications
Terminated employees are entitled to any wages they earned up until the date of termination, and many states require employers to pay these wages within a certain time frame (e.g., on the employee's last day of work). They may also be entitled to other forms of compensation, like a payout for their accrued but unused paid time off.
"Some public service (government) employees can be eligible for pensions for long-term employment, such as 25 years of service," Pearce said. "However, pension plans vary dramatically and often combine the employee's age and years of service as factors for 'vesting' or becoming eligible for a pension."
In addition to determining the employee's total compensation, you may need to give them certain notices, such as a termination letter or a notice of the employee's right to file for unemployment benefits.
Severance pay and referrals
There are a few things you can do to ease the blow of firing a long-term employee. If you are amicably laying off the employee for business reasons (not because of poor performance or misconduct on their part), you can offer to provide a positive reference during their search for new employment. If you are firing the employee for poor performance, a good practice is to let them know the company will provide a neutral reference, confirming only their dates of employment and title, said Pearce.
Another best practice to ease the transition for the long-term employee is offering a generous severance package. Severance pay can include benefits like continued salary (e.g., for four weeks after termination), extended health and life insurance coverage, employee retirement account funds, and company stock options. The amount of severance pay you grant can be based on length of employment, making it a good option for long-term employees.
"Some employers have a formula of offering one to two weeks of severance pay for every year the employee worked for the company," Pearce said. "This makes the long-term employee's severance pay more valuable based upon the years worked and may lead to the terminated employee having a more favorable opinion of the employer even after being fired."
The terminated employees aren't the only ones who can benefit from a severance package. Many employers offer severance packages in exchange for the employee waiving their rights to file a wrongful termination or discrimination lawsuit. If you offer this option, have an employment attorney create the waiver to ensure it is legally compliant and tailored to the employee's circumstances.
"It is a good idea to consult an employment lawyer if preparing a severance agreement to make sure it is in compliance with the law, especially for long-term employees who are 40 years or older," Pearce said. "For example, the Older Workers Benefit Protection Act (OWBPA) provides that any terminated employee over 40 years of age who is offered a severance agreement must be given 21 days to review that offer and then have seven days after signing the agreement to revoke it."
What is considered a long-term employee?
There is no legal definition of a "long-term" employee. According to Fuller, whether an employer considers an employee long-term will depend on a variety of factors unique to that business, like the average employee turnover rate in its work environment and industry. For example, some industries might consider five years a long employment term, while others might think of it as 25 years.
The U.S. Bureau of Labor Statistics recently reported that the average time that wage and salary workers had been with their current employers was 4.1 years in January 2020. Because of this high turnover rate, many employers will consider an employee long-term if they have worked at the company for 10 years or longer.
What do you say when firing a long-term employee?
Choose your language carefully for employee terminations, especially when firing long-term employees. Keep the conversation professional and respectful, but clear and to the point. Explain that they are being permanently terminated, give the reason for termination (not a lengthy list), provide details on the next steps, and discuss continuing health benefits under COBRA or unused vacation pay if applicable.
Since long-term employees are often older, be careful to avoid language that alludes to age discrimination. The ADEA applies to companies with 20 or more employees and prohibits the termination of an employee (who is 40 or older) based on their age. If you are terminating an employee for poor performance, be clear about that. Avoid comparing them to others or using discriminatory language.
"Employers get themselves in trouble every day in firing a long-term employee and explaining, 'We need new blood' or 'a fresh face and perspective in this job,' or stating a performance issue as 'communication skills compared to other employees,'" Pearce said.
Although it is best to keep terminations brief, long-term employees might feel a sense of entitlement and pride in their contributions to the company, making the termination hard for them to accept. They may have questions or try to protest the decision. If the circumstances warrant it, Fuller said, the employer can allow the employee time to share their feelings and acknowledge their valuable contributions; however, this can be a slippery slope.
"Employers terminating long-term employees for performance failures, violations of company policy, or other similar unacceptable conduct should be careful when praising an employee for their work or contributions to the company in the past, as that may send an inconsistent message regarding the termination reason," Fuller said.
If you anticipate the employee may be combative or dispute the termination, consult legal counsel on what information to share during the termination meeting.