Terminations are very costly to an organization in the following ways:

  • Employee turnover--The company's investment in training the employee and grooming him or her to be a valuable and active part of the company workforce is lost.
  • Corrective counseling--The amount of rehabilitation time invested by management in assisting the employee in a performance improvement program is, to some extent, wasted.
  • Dismissal--The amount of time spent by management to define appropriate action for employee discipline is nonproductive.
  • Layoff--Company morale and productivity are reduced as everyone becomes anxious that they may be the next to receive a layoff notice.

Terminations, however, are inevitable within any organization. You should develop clearly stated procedures that are flexible enough to handle the various forms of termination.

In deciding on the policies and procedures for terminations, you should be aware of certain legal traps. Discussion of these traps in conjunction with this policy does not mean that you should include an exhaustive list of "dos and don'ts" into an already lengthy policy.

Failing to recognize these traps could certainly affect your company's profits. You could face the legal cost of defending a lawsuit or administrative proceeding, and the potential for court judgments or fines against the company or its officers. Consult with an expert both at the time of writing this policy and if a termination appears to involve some potential for legal entanglement. You and your personnel director should consider a seminar, led by an authoritative professional, for your managers on these issues. The following comments are not a complete discussion of all the legal issues related to terminations.

Many states have statutes which require that final wages be paid to a terminated employee on the final day of work. Some make the failure to pay final wages a crime or subject to a penalty.

Some states also have statutes that govern the payment of final wages to an employee who voluntarily terminates. For instance, the time of payment may depend upon the amount of notice given by the employee. States may also have statutes requiring special treatment for employees in special occupations who are laid off.

In most cases, state law requires that pay for vested vacation time and vested sick leave be included in the final paycheck. Some statutes specifically prohibit the forfeiture of vested vacation pay upon termination whether or not for cause.