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Economic woes, layoffs and wrongful termination lawsuits

Posted: January 29, 2009 8:48 p.m.
Updated: January 30, 2009 4:55 a.m.

Employers looking to reduce overhead in 2009 by terminating employees due to the impacts of the bad economy should not assume that such decisions are free of the risk that a wrongful termination action could be filed by the terminated employee.

Even though the bad economy would appear to give an obvious defense to any employer against a claim that an employee was “wrongfully terminated,” desperate former employees unable to secure new employment may target their former employer in the courts in an effort to solve their own personal economic crisis.

As the Los Angeles Times reported in December 2008, “a tidal wave of wrongful-termination suits is expected in the coming months, as the jobless burn through their savings, run up debt and find few work prospects in the worst economic downturn in decades.”  

It is true that in California, as a general rule, employees who are not hired for a specified term are considered “at-will” and can be terminated without cause — meaning that the employer does not need to establish misconduct on the part of the employee to terminate them.  

The primary limitation on that unrestricted right to terminate is that the termination cannot be for reasons that violate public policy. Such public policies include those set forth in federal and state statutes prohibiting discrimination, prohibiting termination on the basis of age, race, sex, religion, disability, political association, filing a worker’s compensation claim, complaining of workplace safety, disclosing an employer’s illegal acts to governmental authorities and taking time off as provided by the California Family Rights Act, joining or creating a union or filing for bankruptcy under the bankruptcy code.

Of course, you have no intention of terminating anyone for any reason that violates public policy — it is pure economics — with maybe a little dissatisfaction with the terminated employee’s performance wrapped up in the analysis. You assume that the terminated employee will understand that and, therefore, there will be no risk of an expensive lawsuit being filed.

Keep dreaming.

Where the stated reason for a termination is an economic downturn, such a reason is often challenged as “pretextual” by the terminated employee who is desperate to extract money (or revenge) from you. In other words, they may claim that the reasons you’ve stated for the termination are untrue and are actually a cover-up for reasons that violate public policy.

The strategy of those attorneys who represent terminated employees is often to look for evidence that the employer in the termination decision treated this employee differently from other employees.

For example, if the terminated employee was older or of a religious or ethnic minority or had more years of service than employees that were retained, they may attempt to use those facts as evidence that the termination was wrongful.

You may think that if you were to be sued, you would eventually “win” because you will be able to prove the real reasons for the termination. Let’s be clear — even if you are ultimately vindicated by a judge or jury, you will have spent an enormous amount of time and money responding to the lawsuit.

Your goal should be to minimize the prospects that a lawsuit will even be filed.

Therefore, if you are intending to terminate an employee, there are a few steps you should take to minimize the risk that you will be sued or to otherwise lessen the exposure if such a claim is filed, prior to terminating any employee:

■ Confirm that your Employment Practices Liability Insurance Policy is in effect.

■ Do a complete review of the personnel file of the employee(s) to be terminated and those to be retained.

■ Review each prospective termination decision with your Human Resources manager and with an attorney who practices in the labor and employment field. Have them check to make sure that there are no outstanding wage and hour issues (classification/overtime issues, etc.), that are now the focus for plaintiffs’ attorneys consulted by terminated employees.

■ Give careful consideration to how the decision will be communicated to the employee. If economic considerations are but one reason for the termination and poor performance is another, don’t state that the termination is solely because of the economy.

If a claim is later filed, you will want to be able to demonstrate that the termination was, in part, performance related.

■ Consider providing a severance payment in exchange for a release of all claims in a carefully drafted release.

David S. Poole and Brian R. Tinkham are attorneys with Poole & Shaffery, LLP, a full-service business, corporate and employment law firm. “It’s The Law” appears Fridays and rotates between members of the Santa Clarita Valley Bar Association. This column represents their own views, and not necessarily those of The Signal.


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