California Employee Termination Checklist

The decision to terminate an employee should never be taken lightly. Employers must ensure compliance with various state and federal laws aimed at protecting employees. Unfortunately, an involuntary termination often invites an employment lawsuit from disgruntled employees, even when the termination is undeniably justified. California employers must therefore be mindful of not only complying with all state and federal requirements, but ensuring that the termination avoids even an appearance of impropriety.

The most important thing an employer can do is plan ahead. An organized termination process will ensure a smooth transition and limit an employer’s legal exposure. While the following list is non-exhaustive, it provides a few key points that should be included in any termination checklist.

Determine If The Employee Is “At Will” Or Has An Employment Agreement.

At Will Employment

In California, most employees are considered “at-will.” This means that the employer or the employee may terminate the relationship for any reason (or no reason at all) and at any time. The limited exception is that an employee may not be terminated for an unlawful purpose. As an example, employees may not be terminated because they are over the age of 40 (a protected class), took parental leave (exercising a right or privilege), or disclosed violations of state or federal law to law enforcement (a “whistleblower”).

Employment Contracts

By contrast, a small percentage of employer-employee relationships in California are governed by a formal employment agreement (or collective bargaining agreement). These employment agreements are typically written, although California courts have recognized verbal or implied employment agreements in some limited circumstances.

An employment agreement is treated like an ordinary contract between two parties, a violation of which can lead to a claim for breach of contract. A well-drafted employment agreement should set forth the grounds upon which the employment relationship can be terminated and the process for doing so. Common provisions in employment agreements include a “for cause” standard and that an employee be provided notice and an opportunity to cure any deficiency prior to termination. Because employment agreements are not standardized, they should be carefully evaluated prior to termination.

Review Reasons For Termination And Evaluate Potential Wrongful Termination Claims

Although at-will employees may be terminated for no reason at all, this is exceedingly rare in practice. Businesses generally do not operate against their own self-interest by terminating successful employees for arbitrary reasons. In fact, plaintiff-employees will likely point to the absence of a reason for termination to suggest that the true motivation may be unlawful. Even where an employer provides a non-discriminatory basis for termination, plaintiff-employees often allege that these grounds are illusory and that the true motivation was discriminatory.

It is therefore important that employers avoid even an appearance of impropriety. Employers should review the reasons for termination to ensure they do not violate any state or federal employment laws against discrimination, and to ensure that the non-discriminatory reasons for termination are well documented.

Employee (Mis)Conduct

One of the most common reasons for termination is the employee’s conduct – or misconduct. Some examples include:

Employee Misbehavior: violation of workplace rules, insubordination, unlawful behavior, or falsifying employment application.

Inadequate Performance: lack of productivity or poor work quality.

Attendance Issues: chronic absences or tardiness.

To discourage or defend against a wrongful termination claim, it is important that the employer be able to substantiate the non-discriminatory reasons for termination. An employer should be able to establish, at a minimum, that the employee knew what was expected, their conduct fell below expectations, and that termination is appropriate and consistent with discipline given to other employees. In litigation, a critical issue will be documentation. Employers should carefully assess whether the misconduct, as well as any investigation, is well supported by documentary evidence.

Prior to termination, employers should be able to answer the following questions:

Employee Misbehavior

• What standards/expectations were violated?

• Did the misconduct occur during work hours or in furtherance of the employee’s job duties?

• Are the standards/expectations contained in a written policy?

• Were the standards/expectations communicated to the employee?

• Was the misconduct investigated, and was the employee afforded an opportunity to be heard?

• Is termination appropriate given the employee’s misconduct?

• Is termination consistent with the discipline given to other employees for similar behavior?

• Is the misconduct well documented? How?

• Was the investigation documented? How?

Inadequate Performance

• Were the employee’s expectations clearly set?

• Are the employee’s performance issues well documented?

• Is the employee evaluated on a subjective standard (like a rating system or evaluation) or objective standard (like sales numbers)?

• Is termination consistent with discipline given to other employees for similar performance issues?

• Are the performance issues well documented? How?

Attendance Issues

• Does the employer have an established attendance policy?

• Was the attendance policy communicated to the employee? How?

• Are the employee’s performance issues well documented?

• Was the employee ever advised about their attendance issues?

• Is termination consistent with discipline given to other employees for similar attendance issues?

• What were the reasons for the employee’s attendance issues? Do these reasons relate to any protected leave, such as maternity leave, military leave, or family and medical leave?

• Are the attendance issues well documented? How?

Reduction in Force / Business Factors

Employers must sometimes reduce workforce as a result of business and budgetary considerations. This is often caused by a downturn in profitability, a merger or acquisition, or strategic change in company direction. This is frequently referred to as a Reduction in Force (“RIF”), layoff, or downsizing.

A RIF comes with significant legal risks. By definition, a RIF results in the termination of multiple employees at the same time, which increases the likelihood of a lawsuit from one or more disgruntled employees. In addition, state and federal laws govern how, when, and under what circumstances some employers may reduce their workforce. An employer can reduce these risks by creating and implementing a strategy with the advice of counsel.

Develop a Uniform Selection Criteria (Objective over Subjective)

An employer has full discretion to decide which at-will employees are part of the RIF, as long as it does not include any unlawful criteria. Stated differently, the employer may use only legitimate, non-discriminatory reasons for selecting which employees are affected by the RIF.

To avoid a legal challenge to the selection process, an employer should develop a uniform approach for selecting which employees are part of the RIF. This could include objective criteria, subjective criteria, or a combination of both. Generally, using objective criteria is more effective in preventing and defending against employment discrimination claims. Such objective criteria might include:

• Seniority (last in, first out)

• Qualifications (certifications)

• Productivity (sales revenue)

• Job functions (phasing out a product or service line)

Whether an employer relies on this objective criteria or subjective criteria, employers should create and maintain documentation which supports the decisions related to the RIF.

Use Multiple Levels of Decision Making

Employers should generally have multiple levels of management weigh in with respect to the RIF. This helps ensure that the employer is applying the selection criteria in a consistent manner, and ensure that no individual employee or group of employees are unfairly discriminated against.

Review Potential Claims of Retaliation

California law prevents retaliation against employees who engage in certain protected activity. For example, an employer way not terminate an employee because he or she took job-protected leave status (FMLA, CFRA, or USERRA), filed a complaint about harassment or discrimination, refused an employee’s sexual advances, or requested certain accommodations for religious belief or disability.

Employees who have engaged in protected activity present special challenges for employers conducting a RIF. On the one hand, an employer may not consider an employee’s engagement in protected activity when deciding whether to include that employee in the RIF. On the other hand, an employee is not protected from termination simply because they engaged in protected activity. Employers should handle these employees with care. If such an employee is selected to be part of the RIF, the legitimate, non-discriminatory reasons for including them should be well document and consistent with other employees.

Evaluate Possible WARN(ings) to Employees

Employers with 75 or more employees must comply with the California (and federal) Worker Adjustment and Retraining Notification Act (“WARN”). These WARN laws require employers to provide notice at least 60 days prior to a plant closing or “mass layoff.” The notice must be sent to affected employees as well as specific government agencies and officials. Failure to comply with the WARN Acts can lead to civil liability and class actions, with the potential exposure of a prevailing plaintiff’s attorneys’ fees.

Conduct Disparate Impact Analysis

Even if a RIF is organized without any discriminatory purpose, it may have the unintended consequence of affecting a specific protected class more than others. An employer should analyze whether the RIF will have a significant disparate impact on one or more protected classes. This is known as a “disparate impact analysis.” A disparate impact analysis is a statistical comparison of the pre and post layoff workforce. For example, if employees with military or veteran status make up 40% of the pre-layoff workforce, but only 5% of the post-layoff workforce, there may be an inference of disparate impact based on employee’s military or veteran status.

Prepare Final Payment & Health Insurance

Under California law, employers must pay all sums owed to an employee immediately upon termination. Employers should prepare the final check in advance of the termination meeting and ensure it includes payment for any reimbursements or accrued time off (if applicable).

Employees participating in their employer’s group health plan must also be provided notice of their COBRA and Cal-COBRA continuation rights. Employees must also receive The California Employment Development Department’s (EDD) “For Your Benefit” pamphlet no later than the date of the discharge.

Other Considerations: Severance, Release, Non-Competes, and Confidentiality

Employers should also evaluate whether to offer severance - even if there is no contractual or legal obligation to do so. While some employers condition a severance package on the execution of a release of claims against the employer, employers should carefully evaluate the legal implications of this approach. For example, an employer attempting to create a severance policy may inadvertently create a welfare benefit plan subject to the Employee Income Retirement Security Act (ERISA). While such a plan may be beneficial to the employer, ERISA imposes certain reporting and disclosure requirements which must be carefully met.

Employers should involve counsel in the preparation of any release, non-compete, or confidentiality agreement. Agreements which fail to comply with California or federal law may be invalidated or even lead to legal exposure. For example:

• The Older Workers Benefit Protection Act (OWBPA) provides strict requirements for obtaining a release from employees over the age of 40;

• Certain types of claims cannot be released as part of a severance, like some wage and hour claims or the right to report unlawful conduct;

• Beginning January 1, 2019, employers may not prevent the disclosure of factual information regarding sexual assaults or sexual harassments.

Finally, employers should carefully consider whether a non-compete agreement is appropriate or enforceable. While traditional non-compete agreements are presumptively void in California, some limited exceptions do exist (such as geographically and temporally limited agreements applied to business partners).

Post Termination References

Employers should have in place a policy for responding to future reference requests. Unfortunately for employers, providing even neutral references can lead to claims of defamation, retaliation, and interference with prospective economic advantage. In California, employers are afforded some protection against these claim under a doctrine known as the "common-interest privilege." While this privilege protects certain truthful statements about former employees, it is far from absolute. For example, it does not apply to statements made with malice, communications that are unsolicited, or statements that are knowingly false or reckless.