Wrongful termination claims can lead to significant financial and reputational harm for companies of all sizes. Publicized cases can also affect employee morale, and trigger claims from other former employees as well. As a result, defending against wrongful termination claims requires a strategic and measured approach – and companies should take proactive measures to protect against the risk of wrongful termination litigation as much as possible.
What Constitutes a “Wrongful Termination”?
In the employment law context, wrongful termination refers to a separation from employment which involves either (i) a discriminatory basis, (ii) a breach of an employment agreement, or (iii) retaliation.
There are numerous federal and state laws that prohibit discriminatory employment practices:
- Civil Rights Act of 1964
- Americans with Disabilities Act (ADA)
- Age Discrimination in Employment Act (ADEA)
- Family Medical Leave Act (FMLA)
This includes termination of employment based upon an employee’s membership in a “protected class.” Even where discrimination is not at issue, when a contract guarantees employment for a specified period of time, termination in violation of the terms of the contract can constitute a wrongful termination as well. As a result, both “at-will” and contract-based employees can potentially sue for wrongful termination.
Many wrongful termination cases also involve allegations of unlawful retaliation. As a general rule, employers are prohibited from taking adverse employment action against employees who report legal violations or file whistleblower claims with the government. These types of wrongful termination claims involve unique considerations; and while employers will often have a variety of defenses available, the potential direct and indirect exposure from retaliation against a whistleblower can be substantial.
Key Considerations Prior to Termination of Employment
In order to mitigate the risk of a wrongful termination claim – and to position your company to mount a successful defense in the event a claim is filed – there are several steps that should be taken prior to the termination of employment. These steps include:
- Gathering and Reviewing All Relevant Documentation. Prior to termination, company leaders and legal counsel should gather and review all documentation pertaining to the employee in question. Depending upon the nature of employment and the employee’s history with the company, this may include: employment agreement, amendments to the employment agreement, ancillary agreements (such as stock options, confidentiality, and non-competition agreements), policy documentation, and disciplinary records.
- Determining Prerequisites for Lawful Termination. If the employee is under contract, what does the contract say about grounds and procedures for termination of employment? Is a formal investigation required? Are there default and cure provisions that need to be observed? Is mediation or arbitration required?
- Assessing Litigation Risk. Are company leaders aware of any complaints (formal or informal) or potential grounds for the employee to allege harassment or discrimination? If so, how substantial is the documentation supporting the non-discriminatory basis for the employee’s termination?
- Determining the Company’s Liability as a Result of Termination. What compensation and benefits will be owed upon termination? Are there any disputes (actual or potential) regarding the employee’s right to commissions, equity, or options? In the case of a contract-based employee, are there any conditions on the company’s liability that are relevant to the circumstances surrounding the employee’s termination?
- Evaluating Potential Ancillary Consequences of Termination. If the employee leaves on bad terms, does he or she have access to confidential or proprietary information that could be exposed? If so, what measures can be taken prior to termination to protect against exposure? Is the employee’s termination (or wrongful termination suit) likely to trigger resignations or lawsuits from other employees?
Like most other forms of business litigation, wrongful termination claims are typically resolved through out-of-court settlement negotiations. If you are able to anticipate a potential dispute, it may be possible to negotiate a severance in lieu of unilateral termination. This avoids the costs, publicity, and potential exposure of a wrongful termination lawsuit.
If this is not an option, it may still be possible to resolve an employee’s claim through severance negotiations (assuming that negotiating a settlement is in the company’s best interests). When negotiating a pre-termination or post-termination severance agreement, some of the key considerations include:
- What are the employee’s rights (if any) to severance compensation?
- If severance compensation is not contractually owed, is the company willing to consider a payout to resolve any potential claims?
- Does the employee have any potential claims against the company (e.g., for harassment or discrimination)?
- What non-compensation-related provisions (such as confidentiality obligations, return of proprietary information, and waiver of claims) need to be included in the severance agreement?
- What is the company’s potential exposure in post-termination litigation?
When a former employee files a wrongful termination lawsuit, the company must be prepared to respond swiftly with a strategic defense. Ideally, the steps taken prior to termination will provide the documentation and leverage needed to achieve a quick and favorable resolution. But, what if this is not the case? If a former employee has substantiated grounds to pursue a wrongful termination claim through trial, the company’s potential exposure could include:
- Lost Income. In a wrongful termination case, a former employee can seek to recover damages for his or her loss of income. Plaintiff-employees must attempt to mitigate their losses by pursuing appropriate employment opportunities. However, where it has been shown that no suitable opportunities are available, former employees have been awarded both past and future lost earnings.
- Lost Benefits. Lost benefits can be awarded in a wrongful termination case on generally the same terms as lost income.
- Emotional Distress. In addition to economic losses, in appropriate cases terminated employees can also seek compensation for emotional distress. This can include compensation for anxiety, depression, and embarrassment resulting from either the termination itself or any discrimination or harassment underlying the adverse employment action.
Oberheiden & McMurrey, LLP | Employment Litigators Representing Companies Nationwide
If you need guidance for terminating an employee or are facing a wrongful termination lawsuit, our attorneys can help you make informed decisions and protect your company against liability. For a free and confidential case assessment, please call (888) 452-2503 or contact us online today.