Pitfalls to Avoid in Employee TerminationBy John Boggs, ESQ.
Article Date: 10-01-2009
Copyright(C) 2009 Associated Equipment Distributors. All Rights Reserved.
Protect your dealership with a few common sense and compliance-oriented guidelines.
There is a boom in the car dealership business, but it's not an increase in sales. The boom is in the number of lawsuits being filed against dealerships by employees who have been laid off.
My business is defending car dealerships against employee labor and wage complaints, and I also serve as legal counsel to the California New Car Dealers Association. In the last six months the volume of cases coming to my office has increased 300 percent, which is not good news for dealers.
Increased Unemployment = More Employee Lawsuits
With unemployment at the highest rate since 1983, the number of lawsuits filed by terminated employees is at an all-time high. Just Google the phrase "how to sue when laid off," and you’ll find more than half a million articles.
The U.S. Equal Employment Opportunity Commission (EEOC) reported a 15 percent increase in the number of bias charges filed with the agency in 2008, on top of an 11 percent jump during the two prior years (see Chart A).
Even if you successfully defend your case, you still lose. In my experience, legal fees incurred by a dealership for a successful defense against a single claim brought by an employee are often between $75,000 and $125,000. Total costs if you lose a wage and hour with discrimination lawsuit can total $75,000 to $175,000 in attorney fees and $500,000 for the settlement (see Chart B).
Actions to Take Before You Terminate an Employee
Many employees look upon a legal settlement for a payday at a time when a new job is hard to find. While you can’t prevent employee lawsuits, the actions that you take prior to employee termination can have a major impact on whether or not you win the case in court, or on any settlement negotiated outside of court.
Here are six pitfalls to avoid in employee termination:
1. Hiring a high-risk employee
Start with the basics – drug, background, and reference checks are designed to protect companies from bringing problem employees into the workplace. While most companies now perform these checks, it’s amazing how frequently new employees are hired before all of the results are confirmed and approved.
Recommended Action – Have safeguards in place to ensure that applicants are not hired until a full due diligence is completed and reviewed by all required managers. These safeguards might be manual processes – signoffs and checklists before hiring – or they may be automated by a human resources software solution.
The first step toward bulletproofing your termination process is to force compliance with the applicant review and hiring process, so that job offers cannot be made until all required checks have been completed and reviewed.
The CFO of a Honda dealership in Southern California uses a software system that won’t allow a paycheck to be issued to a new hire until all paperwork and checks are complete. He said, “It’s a relief to know that we are doing the best possible job of hiring quality employees. And if the rejected applicant ends up going to work for one of my local competitors, well, that doesn’t hurt my feelings one bit.”
2. Using out-of-date and noncompliant employee handbooks and policies
Here’s a quick way to increase your liability risk – Exhibit A in the courtroom is your company’s handbook, with a policy that is not in compliance with the prevailing state or federal laws.
How can a company stay in sync with a steady stream of changes in employment law? In 2008 alone, significant changes were made to the Americans with Disabilities Act (ADA), the Family and Medical Leave Act (FMLA), and new military leave requirements. Any breach in corporate compliance could open the door to potential employee legal action.
It’s a daunting task to stay up to date, even with Human Resources staff attending training and continuing education classes. Policies and handbook changes need to be triggered by changes in the law, not “when there is time” or on a once-a-year refresh.
Recommended Action – Identify a source of expert advice for the company policies and employee handbook, including a process to ensure updates and training when the law changes. This might be a labor attorney who works on retainer to your firm, an HR resource that you subscribe to, or an automated system that updates an electronic database where your employee handbook and policies reside. Regardless of the system you select, be sure that you have some system in place.
Recommended Action – As a defense attorney, I need to demonstrate that my dealership client not only maintained an employee handbook that was compliant with current law, but also that employees were informed of relevant handbook changes. In other words, I need to defend my client against the employee who gets on the witness stand and says “I was never told…” The best proof is a dated signature by the employee. Dealerships need to maintain a manual or automated system to ensure that employee signatures are obtained whenever the handbook is updated.
3. Vague or missing job descriptions
If you terminate someone for nonperformance, the court will look to the job description as the standard against which the employee’s work should be measured.
Be honest: Does your organization have current job descriptions for all employees? Do the job descriptions clearly specify, in detail, the responsibilities, essential job functions, and reporting relationship?
You can expect a plaintiff’s attorney to cast a wide net in order to demonstrate discrimination against the employee. Allegations of gender or racial discrimination and charges of retaliation make up the two biggest categories of employee complaints to the EEOC. When job descriptions are well drafted for all employees, a company can demonstrate consistent expectations among all employees.
Recommended Action – Do not treat job descriptions as a quick task that any manager can perform. Adopt a job description format that conforms to best practice standards for complying with the law and that is consistent within your industry. Seek the advice of an employment attorney, trade organization, or other trusted resource.
Recommended Action – The job is only partially complete with the development of a comprehensive set of job descriptions. Job descriptions should be embedded within the total employee management system, and especially they should be linked to performance evaluations and disciplinary actions. If a service technician fails to attend a mandatory safety training session due to his own fault, then a disciplinary action should be written up and the job description requirement to attend mandatory training should be cited. That is a closed loop system.
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