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Don't Give Departing Employees Reason to Sue You

There are lots of reasons why an employee may leave your business. There are good reasons (from the employee's perspective) such as retirement, education, career changes, moves, advancements, etc… Employees can also leave because they are not happy or you are required to terminate their employment because they do not work out. It is usually employees terminated for these last two reasons that can cause problems.

Even when you properly terminate an employee, there are traps for the unwary that can result in liability. You must be aware of these traps and put preventative strategies in place to avoid lawsuits.

A number of pitfalls for the unwary can be found in the Wage & Hour laws. First, the Wage & Hour laws impose strict time requirements for unpaid final wages. One day late and the employee can hold you liable for penalty wages and the employee's attorney fees.

Second, you must pay the final wages that are due in full. Sometimes this is more difficult than it sounds. If an employee successfully argues that you underpaid the employee by even a single dollar, you can be held liable for up to 30 days wages and the employee's attorney fees. Problems can arise when an employee argues commissions were miscalculated, more vacation or sick pay is owed, severance should be paid or he or she is entitled to a bonus.

There are steps you can take to protect your business.

DON'T: Don't assume you will never have problems with your employees or that since you have not had problems in the past, you won't have problems in the future. A happy employee that you consider to be a friend today can sue you tomorrow.

DO: Do always, always, always deliver final paychecks to employees you terminate at the time of termination. You must deliver final wages to employees you terminate NO LATER than the next business day following termination.

DO: Do document delivery of the final paycheck. It can be as simple as a dated note that is placed in the employee's personnel file. Better yet, have the employee sign a receipt for the final paycheck. If the employee refuses to sign, ask the employee to write a note that he or she refuses to sign and then sign the note (this really does work).

DO: Do always make sure that employees that quit with notice are paid their final wages on their last day.

DO: Do always make sure that employees that quit without notice receive their final check no later than five business days after their termination.

DO: Do make sure you document the delivery of final paycheck to employees that quit in the same manner as is described above for terminated employees.

DO: Do state your commissions or incentive policies very clearly in writing and have each employee benefiting from the policy acknowledge in writing that they received a copy of the policy. Failure to clearly define the commission or incentive formula, failure to define the terms used in the formula and failure to define when commission or incentive payments are due have proven to be very costly for employers.

DO: Do state your policy on severance pay in writing in your employee handbook or in a written policy statement. If you have a severance policy, define it and follow it. If not, state that it is your policy not to pay severance to terminated employees and that any exceptions are at your discretion, to be decided on a case-by-case basis as you deem appropriate.

DO: If you have a bonus policy, do clearly define your bonus policy in your employee handbook or in a written policy statement. The formula for bonuses should be stated as clearly as is discussed above for commissions and incentives.

DO: If you do not have a bonus policy, state in your employee handbook or a written policy statement that you do not have a bonus policy. State that it is up to your discretion from time to time whether to pay bonuses. Also state that if you decide to pay bonuses, the amount paid to each employee, if any, will be decided on a case-by-case basis as you deem appropriate.

DO: Do have all of your employees sign a dispute resolution agreement that provides, among other things, that all disputes will be resolved by arbitration rather than litigation.

DO: Do use termination agreements where terminated employees agree to waive any and all claims they may have. If you are going to do something nice for the terminated employee, then we might as well get a release from the employee in exchange.

We Can Help

We are committed to helping you manage your employment risks. We can help in the following ways.

- Employee Background Checks. We can conduct employee background checks to help you avoid making hiring mistakes.

- Employee Investigations. We can help you investigate claims of employee misconduct, including sexual harassment. There is at least one court decision from California that states that if you rely in good faith on the results of an investigation conducted by legal counsel, the employee can not bring a claim against you, even if the counsel is wrong.

- Manager Training. One of the things we like doing best is conducting seminars for your managers to bring them up to speed on various aspects of employment law so that you can prevent problems before they even occur.

- Telephone Consultations. We are happy to consult with you on employee matters to help you make the right decisions and to "dot the i's and cross the t's" as necessary. Simply call me at 541-345-2325.

- Employee Forms. After years of being frustrated that we could not find good employment forms for our clients, we were encouraged by a large national retailer to develop the employment forms we wished our clients were using. The result is our Employment Form System, an integrated set of forms customized for your business covering an employee's first day with you, last day with you and every day in-between. The cost for this integrated set of forms is only $595.

- Employee Handbooks. Employee handbooks are a project that sits on managers' to do lists for years. Everyone knows they should have a handbook but it is a difficult task. With the frequency of changes in employment law, handbooks are obsolete almost as soon as they are printed. We can help you develop an employee handbook, customized for your business, that can be completed in just two weeks for just $595. We will then track the custom provisions in your handbook and offer you an updated handbook each year. We will follow the changes in employment law so you do not have to.

We are very proud of the solutions we developed to help our employer clients. Give us a call to discuss ways we can help solve your employee management concerns.

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