Authored by:
Kathy Nolan - Former Client Services Manager and Corporate Attorney 
Anita Ryan - Legal Counsel 

Close your eyes and imagine the worst termination:

The employee took the news quite badly. His rants and hollers in the conference room could be heard by everyone present. His outburst continued as he went to his desk, riled up other employees, and did his best to make everyone miserable before he walked out the door with two boxes full of documents. A month or two has passed. You aren’t sure exactly when his termination date was, but you know he definitely left sometime around July. He sends you a notice saying that he wants to exercise his option shares now. But since you don’t know when his last day was it’s hard to determine exactly how many vested shares he has, but you’re certain it’s fewer than he thinks it is. You tell him this and in response you get a nasty letter from his attorney. Or a lawsuit alleging he was not paid properly, or claiming the company stole his personal intellectual property. Or a wrongful termination suit for age discrimination... 

There are a few things you can do to make sure you’re not making terminations harder than they have to be. Here are five tips to consider when terminating employees. 

Don’t Surprise Them

It’s in the best interests of both the company and the employee for you to tell your underperforming employees when they’re doing poorly, and that, if they keep it up, they’ll be let go. If your employees get a heads up from you, you’ll never need to fire an employee that honestly thinks they’re doing great and had no idea they were at risk. It also gives employees a chance to change and do better—keeping existing employees takes less of your time than finding and training new ones. Furthermore, the totally shocked employee who thought she was doing amazing is more likely to be upset and conclude that there must have been an improper reason like age/gender/race discrimination behind the sudden firing. 

During The Meeting: Have The Folder, Have The Reason, Never Lie

Don’t terminate over email. Don’t terminate over the phone. There are of course exceptions to every rule, but the norm should be having a face-to-face meeting to tell them they’re being let go. The first words out of your mouth when you sit in your chair in that meeting room after the door is closed should be, “we’re letting you go.” There should be no chit-chat. Also, it’s worth mentioning that apologizing mostly makes things worse. It implies you regret or disagree with what you’re doing right now—which is firing this employee. 

They’re going to ask the reason they’re being fired, and you’re going to have to say something, so be prepared to explain the reason. If you've been having open conversations about poor performance, then the reason will be on the table and there will be less to explain. Some other motivations to terminate include (a) the employee’s skills don't match what the company needs, or (b) the quality and quantity of their work isn’t living up to what was expected or needed. While most employees are “at-will,” which means that you can fire them at any time with or without a reason, not giving a reason leaves it to the employee to imagine one—and they may conclude the reason is a questionable or downright illegal one like retaliation for reporting harassment, a safety violation or other wrongdoing by the company. Definitely be prepared with an answer to “Why am I being fired?” 
Also, don’t lie. Everything you say may be quoted back to you later in a lawsuit or an attorney letter. So don't tell them you’re eliminating their job and it’s not their fault, when a job posting just went up to hire their replacement. 

Once it’s all said and done, get them out the door fast. Make it clean—don’t let them loiter around. Don’t let them sit at your company until they find a new job. Don’t let them linger a few days to “wrap up loose ends” or projects at your company. They’ll likely breed resentment from employees that wonder why the soon-to-be-ex employee is slacking. It’s also amazing how much drama an employee can generate on their way out. Get them out of the door as quickly as you can. 

A Release Is A Good Tool To Protect Your Company

Some companies offer some compensation to the employees they fire, e.g., two weeks pay. If you are going to do this, insist that the terminated employee signs a release as a condition of getting that payment. A release is essentially an agreement by the employee saying that if they have any complaints against the company about how they were treated, they promise not to sue you based on those complaints. You can only have them sign a release if you give them something in return (e.g. two weeks of pay). Otherwise, there’s no “consideration.” Google it. 

It is also a good idea to make sure the employee’s personnel file is in order. Personnel files contain documents relating to an individual’s employment, like a signed offer letter, employee NDA, W-4, I-9, performance reviews, promotion letters, etc. Employees have a right to ask for their personnel file at any time, and many will ask for it when they have been terminated. 

For Heaven’s Sake, Pay Them!

On the last day, they should be paid for everything, including their work that day. If your company provides accrued vacation days (i.e., they earn vacation days based on a specified duration of employment in accordance with your company’s policy), then they must be paid for the vacation days that they didn't take. (Sidenote: this is why lots of companies offer an unlimited vacation policy—since vacation time doesn’t accrue, the company doesn’t have to pay out employees for their unused vacation time.) 

You should also ask yourself if they’re owed any commissions. A commission plan must be clear on when they are eligible for commissions and when and under what conditions commissions are to be paid. If they worked on a deal but are fired before they close it—do they get paid according to your plan? If the revenue stream from that new client they helped secure extends two years in the future, are they eligible for any of that future revenue? Make sure your commission plan isn’t vague on these points or you may wind up having to negotiate with your terminated employee over what the plan provides upon termination. 

Don’t Do It On The Wrong Day

Before you decide when you’re going to fire someone, take a step back and make sure you’re not firing people during these time frames: 

  • Don’t fire sales people right before they land a huge account 
  • Don't fire people while they're on any kind of family leave (i.e. maternity) 
  • Don’t fire people the day before they hit their cliff on their shares 

Just don’t do it. You waited this long; you can wait a little longer. If you fire people before these major milestones, they could claim you’re firing them because you didn’t want to pay them their commission on an account, because they took family leave, or because you didn’t want them to have their shares. Avoid the lawsuit and wait. 

A Note on Layoffs

When you’re terminating people, be sure to consider if your firings qualify as just plain old terminations, or if the terminations fall into the category of “layoffs” (usually defined as eliminated jobs instead of replacing employees in the same job). If they’re layoffs, your attorney will let you know what additional actions you need to take. 

It is never easy terminating an employee. But it has to be done. Think of it like ripping off a band-aid—do it quickly and in one swift motion to minimize the pain. No two terminations are alike, so recognize which ones may be more delicate or problematic and seek assistance or legal advice when you need it. 

Fidelity can help you streamline hiring and employee equity management.


Sample scenarios are for illustrative purposes only. Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.