Category Archives: Terminations
According to a Harvard Business School study, an employer’s decision to avoid employing a toxic employee may prove to be more than twice as profitable as the decision to hire a superstar.
The study analyzed data concerning over 50,000 employees at 11 companies to quantify the costs of employing toxic employees vs. the benefits of employing superstar employees. The study defined “toxic employee” to include “a worker that engages in behavior that is harmful to an organization, including either its property or people” – for example, behavior that causes customer loss, loss of employee morale, increased turnover, or loss of legitimacy among important external stakeholders. A “superstar,” on the other hand, was defined as a worker in the top 1% of productivity.
The study concluded that the average cost of employing a “toxic employee” was approximately $12,489 while the benefit of employing a “superstar” was approximately $5,303 on average. The costs attributed to the toxic employee included the expense of replacing additional workers who quit their employment due to the presence of the toxic employee, but it did not include additional costs, such as litigation, regulatory penalties, or reduced employee morale – so it was likely an underestimate. As a result, the decision to replace a toxic employee with merely an average employee, as opposed to a superstar, should still be an overall benefit to an employer.
Takeaway: The decision to avoid hiring or to terminate a toxic employee may be up to twice as beneficial for an employer as hiring a superstar employee.
Constructive discharge occurs when an employer deliberately makes an employee’s work environment so intolerable that resignation is the employee’s only plausible alternative. A recent federal court of appeals decision demonstrates, however, that constructive discharge is usually difficult for an employee to prove.
In Cosby v. Steak N Shake, the employer gave the plaintiff two performance warnings and a supervisor told the plaintiff that “this” would continue if the plaintiff did not resign. No. 15-1052 (8th Cir. Nov. 4, 2015). When the plaintiff asked about his future at the company, the supervisor laughed. A few minutes later, the plaintiff announced his resignation, and the supervisor said, “this is perfect!” The supervisor also said that he considered the resignation a “huge plus.” The plaintiff later sued and alleged that he was constructively discharged due to race and disability discrimination and retaliation.
In analyzing the plaintiff’s claims, the Cosby court explained that to prove constructive discharge, an employee must show that:
- A reasonable person in the employee’s situation would find the working conditions intolerable;
- The employer intended to force the employee to quit, or the employer could reasonably foresee that its actions would cause the employee to quit; and
- The employee must not quit without giving the employer a reasonable chance to resolve his claim.
The court further explained that constructive discharge requires “considerably more proof than an unpleasant and unprofessional environment.”
The Cosby court held that the plaintiff failed to meet the high standard necessary for a constructive discharge claim. The court reasoned that the supervisor’s laughter and threat that performance warnings would continue until the employee resigned were merely unpleasant, but did not create an “intolerable” working environment. The court also held that the plaintiff could not rely on the supervisor’s comments following his resignation as an alleged justification for the resignation. Finally, the court held that the plaintiff failed to give the employer a reasonable opportunity to address his grievances before his resignation and, therefore, was barred from pursuing a constructive discharge claim.
Takeaway: There is a high evidentiary burden for plaintiffs to establish a claim for constructive discharge. To succeed on a constructive discharge claim, a plaintiff must establish that his or her working conditions were objectively intolerable, that the plaintiff’s resignation was intended or reasonably foreseeable, and that the plaintiff gave the employer an opportunity to correct the alleged problems before he or she resigned.
No – the Colorado Supreme Court recently held that because medical marijuana remains illegal under federal law, an employee’s off-duty use of prescribed medical marijuana was not protected by the state’s lawful activity statute.
In Coats v. Dish Network, the employer fired an employee who tested positive for marijuana after using medical marijuana during non-work hours. The medical marijuana used by the employee was lawfully prescribed under Colorado law, which also recently legalized the recreational use of marijuana. 2015 CO 44 (Colo. June 15, 2015). The employee sued and alleged that the termination violated the Colorado lawful activity statute. Unless limited exceptions apply, the Colorado lawful activity statute prohibits employers from terminating “the employment of any employee due to that employee’s engaging in any lawful activity off the premises of the employer during nonworking hours.” See Colo. Rev. Stat. 24-34-402.5.
The Colorado Supreme Court held that the lawful activity statute did not protect the employee’s lawful use of medical marijuana because even though it was legal under state law, it remained illegal under federal law. The court held that the term “lawful” in the statute only applied to “those activities that are lawful under both state and federal law.” Although not necessarily binding in other states, the Colorado Supreme Court’s decision is persuasive precedent that suggests that off-duty marijuana use may not be protected under many states’ lawful consumable products statutes.
Like Colorado, Minnesota has a lawful consumable product statute, which generally allows employees to use “lawful” products during non-work hours. See Minn. Stat. §181.938. Under the reasoning of Coats, this statute likely does not protect off-duty marijuana use. Therefore, if an employee tests positive for marijuana because the employee used recreational marijuana in a state where recreational marijuana was legal (such as Colorado or Washington), the lawful consumable products act would arguably not protect that employee.
Employers need to be careful, however, because some states explicitly protect the off-duty use of medical marijuana. For example, under Minnesota’s new medical marijuana law, which will take effect on July 1, 2015, an employer generally cannot discipline an employee for the lawful, off-duty use of medical marijuana. If this law had been in effect in Colorado, the Coats case likely would have turned out differently.
Takeaway: The Coats case suggests that off-duty recreational use of marijuana will not be protected by Minnesota’s lawful consumable products statute even if the use occurs in a state where it is legal. On the other hand, Minnesota law generally prohibits employers from disciplining employees for the lawful use of medical marijuana, so employers will still need to exercise caution when disciplining employees for marijuana use.
Here are ten quick tips for how to fire an employee:
- Pay the employee his or her final wages within the time period required by Minnesota law.
- Determine whether the employee needs to be paid for unused vacation or PTO under Minnesota law.
- Be prepared to provide notice of the reason for the termination or a copy of the employee’s personnel file if timely requested by the employee.
- If the employee is a member of a union, make sure there is just cause for the termination.
- If the employee is terminated for misconduct, follow these four tips for explaining the decision to the employee and documenting the termination.
- Avoid making inconsistent statements when explaining the reason for the termination.
- Follow these six tips if you need to ask the employee to leave the workplace immediately.
- If you’re terminating an employee for testing positive on a drug test, make sure to follow the requirements of the Minnesota Drug and Alcohol Testing statute.
- Understand whether the employee will be ineligible for unemployment benefits due to employment misconduct and, if not, how that will impact your unemployment taxes.
- If you ask the employee to sign a release in exchange for a severance payment, include the 15-day rescission period required by the Minnesota Human Rights Act.
Yes – a federal court in Maryland recently rejected the argument that termination of an employee for punching an aggressive shoplifter violates public policy.
In Altschuld v. CVS Caremark Corp., the employee worked at a drug store and, in the course of his duties, confronted a suspected shoplifter. No. WDQ-13-3680 (D. Md., July 10, 2014). The shoplifter became aggressive and belligerent. He shouted, cursed, and moved towards the employee in an aggressive manner. Reasonably fearing for his safety, the employee punched the shoplifter. After the shoplifter was arrested, the police determined that the employee acted in self-defense and did not charge the employee with any crimes. The employer then fired the employee for using force against the shoplifter, and the employee sued for wrongful discharge, arguing that his termination violated a clear mandate of public policy.
On the employer’s motion to dismiss, the court rejected the argument that termination for punching a shoplifter violated a clear mandate of public policy. The court explained that the self-defense statute that the employee cited as the basis for the alleged policy “merely immunizes a user of force from liability in certain cases – it does not mandate that use of force.” The court further explained that, for purposes of the wrongful discharge claim, it did not matter whether the employee’s actions were “fair, justified, sensible, reasonable, or appropriate.” Instead, the only consideration was whether the termination was wrongful because it violated a clear mandate of public policy. Based on this reasoning, the court held that the employee’s claim failed as a matter of law.
Takeaway: Employers have wide latitude in discharging at-will employees and can generally terminate an employee for any reason that it is not unlawful. The Altschuld case shows that an employer can terminate an at-will employee even for engaging in lawful behavior, such as self-defense.
In a recent case, the U.S. Supreme Court addressed the issue of whether severance payments made to employees who were involuntarily terminated as part of a Chapter 11 bankruptcy were taxable wages. U.S. v. Quality Stores, Inc.,No. 12-1408 (U.S. Mar. 25, 2014).
In the case, Quality Stores, Inc. paid severance payments to employees and initially withheld taxes required under the Federal Insurance Contributions Act (FICA). Later, believing that the payments should not have been taxed as wages under FICA, Quality Stores sought a refund from the Internal Revenue Service (IRS) on behalf of itself and about 1,850 former employees. After the IRS neither allowed nor denied the refund, Quality Stores initiated proceedings in the Bankruptcy Court, which granted summary judgment in Quality Stores’ favor on the issue. The district court and Sixth Circuit affirmed, concluding that the severance payments were not wages under FICA. However, the Supreme Court reversed, holding that the severance payments were wages subject to FICA tax because they were “remuneration made only to employees in consideration for employment.”
Takeaway: When paying severance to an employee, an employer should give careful consideration to whether the severance payments are taxable wages for purposes of FICA.
On February 7, 2014, the EEOC filed suit in the United States District Court for the Northern District of Illinois in Chicago against the large prescription and healthcare related services provider, CVS, contending that its actions concerning severance benefits violate Title VII of the Civil Rights Act of 1964. Specifically, this law provides the EEOC with the ability to seek immediate redress to remedy any potential injury which would result from an employer attempting to prohibit communication to the agency to address discrimination.
The EEOC based this Complaint on the theory that CVS was conditioning the receipt of severance benefits on an agreement which it interpreted to “interfere with employees’ rights to file discrimination charges and/or communicate and cooperate with the EEOC,” including limitations on the departing parties ability to cooperate, non-disparagement clauses, and non-disclosure of confidential information. Additionally, the Separation Agreements included general releases of claims, covenants not to sue, and consequences for breach. In the Complaint, the EEOC stresses the policy consideration that any conduct taken by an employer to limit employees’ access to report violations is unlawful. The EEOC’s stated concern is to “preserve access to the legal system” and to ensure that employees remain “free from fear of adverse consequences” if they are to report potential unlawful action.
Takeaway: The timeline for resolution of the CVS lawsuit could be a few months or take several years. In the interim, employers should evaluate whether severance, benefits, or contractual agreements with their employees limit the rights to seek federal intervention for unlawful acts undertaken by the employer to avoid running afoul of the EEOC’s policy mandate outlined in the CVS lawsuit.
When is it in an employer’s interest to tell an employee to talk to an attorney? Believe it or not, that is sometimes the case.
A common example is when entering a separation agreement and release purporting to release the employee’s rights under Title VII or the Age Discrimination in Employment Act. In this circumstance, the statutes and the EEOC require an affirmative statement in the release that the employee is advised to seek review of counsel. Passive language doesn’t work. In some cases, even statements such as “employee acknowledges that he/she has been advised to seek counsel prior to executing this agreement” have been found by courts to fall short and make for an invalid release.
Another example is when an employee has been named as a co-defendant with the employer in a suit such as a harassment action. In these circumstances, the interest of the employer and that of the employee may not be aligned and the same attorney may not be able to maintain a privileged and confidential relationship with both parties. If that is the case, the employee is commonly told to have separate counsel even if counsel’s fees are covered by the employer and/or its insurer under indemnification laws and policies.
Another example occurs when an employee contests a wage garnishment or personnel document subpoena served on the employer by a creditor or in a marital dissolution dispute. The employer must comply with the law, and it is the employee’s obligation to contest a garnishment or subpoena through his or her own counsel.
Takeaway: Sometimes an employer needs to tell an employee to seek counsel since that is good protection for the employer. Talk to your legal counsel to see if you are dealing with such a situation.
Many collective bargaining agreements have a provision that requires “just cause” before a unionized employee may be terminated. In a union context, the phrase “just cause” can have a very different meaning from the same term as used in a non-union employment agreement.
Whether “just cause” exists for unionized employees depends on a variety of factors, including the language of the collective bargaining agreement, analogous arbitration decisions, the employer’s arbitration history with the union, and the facts and circumstances of each particular case.
Although it is not always easy to predict whether an arbitrator will agree that there is just cause for an employee’s termination, arbitrators will often consider the “seven tests” developed by Arbitrator Carroll Daugherty in Enterprise Wire Co., 46 LA 359 (1966), to determine whether just cause is present. These “seven tests” are as follows:
- Was the employee forewarned of the consequences of his or her actions?
- Are the employer’s rules reasonably related to business efficiency and performance the employer might reasonably expect from the employee?
- Was an effort made before discipline or discharge to determine whether the employee was guilty as charged?
- Was the investigation conducted fairly and objectively?
- Did the employer obtain substantial evidence of the employee’s guilt?
- Were the rules applied fairly and without discrimination?
- Was the degree of discipline reasonably related to the seriousness of the employee’s offense and the employee’s past record?
Takeaway: Employers with unionized workforces should familiarize themselves with the “seven tests” of just cause termination. When the requirements of the seven tests are satisfied, it is likely that the employer has just cause for termination.
It depends – Minnesota’s drug and alcohol testing statute imposes a number of conditions on an employer’s ability to terminate an employee for a positive drug or alcohol test. Here’s what employers need to know about the statute’s requirements:
- General Requirements for Drug Testing: Minnesota law permits an employer to administer drug tests of employees only pursuant to a written policy that complies with certain statutory requirements. Among other things, the statute requires that when an employee tests positive for drug or alcohol use: (i) the result must be confirmed by a “confirmatory test;” (ii) the employee must be given written notice of the right to explain the positive test, for example, by identifying any medications the employee is taking or providing other information concerning the reliability of the test; and (iii) the employee may request a “confirmatory retest” of the original sample at the employee’s own expense.
- First Time Positive Test By a Current Employee: If the positive test result was the first time that the employee tested positive, the law requires that, before terminating the employee, the employer must generally provide the employee with an opportunity to participate in counseling or treatment, whichever is more appropriate, as determined by a certified chemical use counselor or a physician trained in the diagnosis and treatment of chemical dependency. The employee may be terminated only if he or she refuses to participate in counseling or treatment or if he or she fails to complete the program successfully. This rule does not apply if the employee has tested positive for the employer before.
- Health and Safety Exception: If an employer believes that it is reasonably necessary to protect the health or safety of the employee, co-employees, or the public, an employer may temporarily suspend an employee who tests positive or transfer him or her to another position at the same rate of pay pending the outcome of the confirmatory test and, if requested, the confirmatory retest. If the employee is suspended without pay, and the confirmatory test or retest comes back negative, the employee must be reinstated with back pay.
- Withdrawal of Job Offer for Job Applicants: If a job applicant receives a job offer contingent on passing a drug and alcohol test, the employer must verify a positive test result with a confirmatory test before withdrawing the job offer. Unlike current employees, however, the employer does not need to offer the job applicant an opportunity to participate in counseling or treatment before withdrawing the job offer.
See generally Minn. Stat. § 181.953.
Takeaway: When an employee or job applicant tests positive on a drug and alcohol test, employers should make sure that they have complied with all statutory requirements before terminating the employee or withdrawing a job offer.
There are a lot of loose terms in the world of employment law. Terms such as “at-will”, “contract”, “progressive discipline” and other common terms have meaning that many of us think we know, but when pressed may get a little vague. A very common such term in the termination context is “just cause” termination.
Usually, “just cause” is a provision in an employment contract. It differentiates the basis for a termination from that of a reduction in force or simple exertion of at-will employment rights by requiring a reason for a termination. In a pure at-will employment situation, employers do not have to provide a reason for termination unless there is a request made by statute. In an employment contract with a just cause provision, the employer articulates the basis for the cause in order to terminate the contract without notice, and/or provide different, or reduced or no severance benefits.
The meaning of “just cause” in an employment contract should be distinguished from the meaning of “just cause” in a union setting. Most collective bargaining agreements require “just cause” for discipline and discharge. If a union files a grievance over the termination of a union member, the employer typically has the burden to show “just cause” existed for the termination during a labor arbitration hearing. In the union context, “just cause” is a term of art that labor lawyers and labor arbitrators understand has a certain meaning, which can be very different from the meaning of “just cause” in an employment contract.
In the employment context, “just cause” is protection for the employer (who can avoid severance in a severe misconduct situation) and for the employee (who obtains severance unless there is demonstrable just cause). More senior executives require this protection. Some contracts simply use the term in an undefined manner and apparently rely upon, one would say charitably, the “common opinion of mankind.” Good luck enforcing that one in court.
A well-drafted just cause provision in an employment contract lists the bases for termination in ways that are objectively definable. That’s easier said than done, of course. In extreme situations, such as conviction of a felony or misappropriation of funds, the definition can be set forth in a very straight-forward way. But in situations that sound in dissatisfaction with the employee’s performance, disputable subjective elements can creep in. That is why it is common to see in a just cause provision notice and opportunity to cure provisions that will allow the employer to spell out the reasons for the termination and demand reasonable cure and, thereby, create a clear and objective record. Of course, this may not work according to plan since the employee can dispute the reasons or only partially comply or other such complications. But the best advice is not to “go generic”, but to work with legal counsel in drafting just cause provisions that fit the specifics of a particular executive employment situation.
Takeaway: As Carl Sandberg said, “Be careful how you use strong words.” “Just cause” is a term that requires careful and specific articulation in the employment contract in order to have meaning and value in determining the employer’s rights and obligations in executive employment terminations. The best advice is to seek advice.
Many employers use severance agreements containing confidentiality provisions, but worry about how enforceable such provisions are. According to a recent case, they are very enforceable.
The case of Hallmark Cards, Inc. v. Murley, 703 F.3d 456 (8th Cir. 2013), will be very helpful to employers seeking to enforce such confidentiality provisions. In Hallmark Cards, the employer sued its former vice president of marketing, who received a severance package of $735,000 after her position was eliminated due to a corporate restructuring. The jury found that the former employee had breached the confidentiality provision of the severance agreement by disclosing Hallmark’s confidential information to her new employer, a competitor. The jury awarded Hallmark Cards the full value of the severance package and the employee’s compensation paid by her new employer. The former employee appealed.
On appeal, the former employee argued that she had complied with some provisions of the severance agreement and therefore she should not have to pay back the full severance amount. The former employee also argued her former employer was not entitled to any of her compensation from her new employer.
Hallmark argued that it was entitled to the full amount of damages awarded because the only reason the new employer paid her compensation was because she provided the new employer with Hallmark’s confidential information.
The Eighth Circuit Court of Appeals upheld the jury’s award of a full refund to Hallmark of its $735,000 severance payment, but held Hallmark was not entitled to the award of the former employee’s compensation from her new employer. The court rejected the former employee’s argument that Hallmark got some value for the severance agreement and thus was not entitled to get all of its severance payment back. The Eighth Circuit reasoned that the confidentiality provision was the primary purpose of the agreement and that the language of the agreement clearly indicated that preserving confidentiality was a priority.
The Eighth Circuit held, however, that Hallmark was not entitled to be put in a better position than it would have been in if the former employee had not breached the severance agreement. Accordingly, Hallmark was not entitled to the former employee’s compensation from her new employer.
Takeaway: The Hallmark Cards case shows employers can enforce properly drafted confidentiality agreements in severance agreements. To have the best chance for success, employers should have their attorneys draft or review the confidentiality provisions prior to giving the severance agreement to the employee, and then call their attorneys if they obtain evidence that a former employee has breached the confidentiality provision.