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Small Business Layoff Tips to Avoid Legal Disputes

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By Christopher Coble, Esq. on April 15, 2016 11:56 AM

Nobody looks forward to firing employees. When you have to lay someone off, it either means your small business isn't doing as well as you want, or that you made a mistake in hiring. Either way, the last thing you want if you have to fire an employee is a wrongful termination lawsuit.

It's only natural that someone getting fired is going to be upset. But there are ways to protect your small business from legal disputes arising from layoffs. And if you can't prevent a lawsuit entirely, there are steps you can take to make sure you're on the right side of the law.

Are the Layoffs Unavoidable?

There are tactics that can help you avoid layoffs, and there are alternatives to employee layoffs. Reducing hours, limiting benefits, or adding non-monetary incentives can help your small business through a rough economic time. Employees are less likely to sue if they feel you had no choice but to lay them off.

Are the Employees At-Will or Under Contract?

Most employment arrangements are at-will, meaning an employer doesn't need a reason to fire an employee (although you also can't fire an employee for the wrong reasons, as we'll see below). So, generally speaking, an at-will employee has little legal recourse if he or she is fired. And while most employment contracts don't include a specific length of employment, they may have clauses requiring notice and other provisions regarding termination of the contract to which you'll want to adhere.

Are You Discriminating or Retaliating?

As referenced above, there are bad reasons for firing employees and discrimination and retaliation are two that will most likely get you sued. Federal law (and many state and local statutes as well) prohibits employers from firing employees based on race, gender, religion, national origin, disability, age, and pregnancy. And you definitely don't want to fire an employee simply because he or she filed a harassment or discrimination claim, a workers' comp claim, a complaint with OSHA, or otherwise reported illegal or unethical business practices -- he or she may be entitled to whistleblower protections.

Do You Need to WARN Them?

If you're conducting mass layoffs, the Worker Adjustment and Retraining Notification (WARN) Act requires 60 days' written notice before a plant closing or a "mass layoff." The WARN Act applies federally to employers with more than 100 workers, but state versions of the law may apply to smaller employers. Giving employees some kind of notice before layoffs, however, is generally a good idea, even if it's not always legally required.

If you have no choice but to lay employees off, or want to make sure you're doing everything by the book, you should talk to an experienced employment law attorney before doing so.

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