Have You Protected Yourself from Lawsuits Brought By Laid Off Employees?

William L. Porter Founder & President Specializing in Construction Law, Business Law and Labor Law
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In a difficult economy employee layoffs are inevitable. Unfortunately, even when employers must terminate employees out of economic necessity, employers are not immune from lawsuits brought by terminated employees. All an employee requires to file a lawsuit is a willing attorney. Fortunately, there are a few steps employers can take prior to downsizing to discourage post-termination lawsuits. We suggest the following:

1. Employees Should Sign “At-Will” Employment Agreements
At-will employment agreements generally provide that the employee can be terminated “at any time, for any legal reason or for no reason”. “Good cause” is not required. An employee can be terminated based on the employer’s discretionary business judgment alone. The termination can be made without advance notice. As long as the reason for the termination is not one prohibited by law (race, sex, religion, etc.) the discretion exercised by management will generally not be overturned by the court. While it is true that there is already a presumption in California law that all employees are employed at-will, reliance on this thin safety line is risky, particularly when there are a number of exceptions to this presumption. These exceptions include oral assurances, past practices or employer policies which are viewed as contrary to at-will employment. More specifically, these include promises to give warnings and write-ups and to establish good cause before a termination may occur. Rather than ending up in court to argue whether these exceptions have been established, a better policy is to require that employees sign simple but effective written at-will employment agreements. Doing so will provide substantial protection to the employer and discourage employment attorneys from taking on the case. These attorneys will move on to greener pastures provided by employers who do not act to protect themselves. Please finally note that employment contracts should be carefully drafted by an attorney knowledgeable in employment law.

2. Eliminate Policies Requiring Employee Warnings and Write-Ups
One exception to the at-will employment presumption arises when employers provide that their employees will not be terminated without warnings, write-ups, or other steps in a program of “progressive discipline”. If an employer terminates an employee without first providing the promised warnings and write-ups, the employer is more likely to be sued for “wrongful termination.” To minimize this exposure employers would do well to explicitly disavow any requirement for progressive discipline including warnings or write-ups before a termination may occur. If done effectively, the employer would still be free to use warnings and write ups if they wished to, but they would not be required to do so and would instead be able to use their discretion rather than have their actions dictated by a predetermined program.

3. Make Sure Your Employee Handbook Cannot be Construed as a “Contract”
Employers often face legal difficulties when disgruntled ex-employees claim that the employee handbook contains promises that establish the terms of an employment contract. These may include promises of warnings, write-ups and standards of conduct, the violation of which may result in termination. If the employee can convince a judge or jury that the handbook is tantamount to a contract then every statement in the handbook may well become a contractual obligation. For example, unless the requisite number of warnings and write-ups are provided or unless the offending conduct matches a list of prohibited actions contained in the handbook, then the termination may be said to be “wrongful” or a violation of the contract. In order to avoid this problem the handbook should very clearly state that it does not contain contractual terms or commitments and that all the terms of the contract of employment are instead contained in the employment contract the employee has signed. Employers should be sure to have an employment attorney review the handbook periodically to determine if it serves the interests of the employer consistent with current law.

4. Have Employees Sign “Acknowledgments of Receipt” of the Handbook
Unless you can prove that the employee actually received the employee handbook, careful attention to drafting the handbook will do you little good. It is therefore necessary for employees to sign acknowledgments of receipt of the handbook. Such acknowledgements will wisely include not only an acknowledgment that the employee received, read and understood the handbook, but also a reiteration that the employee understands that the terms of employment are specified in the employment contract the employee signs, that the handbook is not a contract and contains no contractual terms and that the employee understands that he or she is an “at-will” employee and can be terminated at any time for any reason or for no reason.

5. Require Simple Arbitration of Employment Disputes
Arbitration is a procedure by which most common employee disputes such as wrongful termination are kept out of court and are instead decided by an arbitrator. The arbitrator will hear the evidence and render a decision the same as would a judge and jury. The arbitration result is generally enforceable the same as a trial in court. Some of the advantages of use of an arbitrator include: The danger of juror sympathy or animosity toward employers is eliminated. The parties are often able to select their arbitrator by mutual agreement. The arbitration can also usually be completed much quicker and with less formality than a court proceeding. In order to require arbitration of employee disputes, the employment contract should contain an “arbitration clause” carefully drafted by an attorney to meet legal requirements appropriate for the employment context. Some of the best arbitration clauses require the employer and employee to agree to the identity of the arbitrator and rules for arbitration, but if they are unable to so agree, then they default to a preexisting arbitration program such as those provided by AAA or JAMS

William L. Porter is a principal in Porter Law Group, Inc. in Sacramento, California.
He can be reached  at (916) 381-7868.

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