Free Enterprise - The FindLaw Small Business Law Blog

How to Fire Family Members (Legally)

When you open a family business, you love the people you work with. But let's face it, none of us like our coworkers all 40 hours out of the week. And when you're working with family, those office tiffs can spill over into the home.

So when it comes time to sever ties with an employee who also happens to be related, things can get a little dicey, both personally and legally. Here's how to handle it.

Any Reason or No Reason, but Not a Bad Reason

The premise from which all employment termination questions arise is that employment is "at-will," meaning employers don't need to find an excuse for firing an employee. And while employment contracts might dictate pay, benefits, and other employment parameters, they generally don't specify how long the employment will last. Therefore, the general rule is that you can terminate an employee, even a family member, for any reason or no reason at all.

That said, there are some reasons for firing an employee that are prohibited. Federal employment laws make it illegal to fire an employee for a discriminatory reason. Also, you also can't fire an employee for exercising their employment rights under state or federal law. For instance, if an employee files a harassment or discrimination claim, a complaint with OSHA, or otherwise reports illegal or unethical business practices, (i.e., if your family is snitching on you, employment-wise), he or she may be entitled to whistleblower protections. And you also can't terminate an employee for filing a workers' compensation insurance claim.

Parting With a Partner

The most difficult part about firing a family member might be deciding what to do with their stake in the business. Many relatives, whether a husband, wife, sister, brother, father, or son, have an ownership share of the family business -- do they lose that when they're fired?

You may need to negotiate with the family member and come to mutually agreeable terms concerning their role in the business. Perhaps they're happy to step away from the day-to-day operations if it means they can retain their piece of the pie, so to speak. If a relative isn't happy with leaving or giving up their stake in the business, you may need to turn to a mediator to find a resolution before turning to a lawsuit.

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