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Avoiding Wrongful Termination Lawsuits, Fines and Damage to Your Business

Marisa Sanfilippo
Marisa Sanfilippo

Firing employees for the wrong reason could result in lengthy and costly lawsuits.

While every business hopes that each hire turns out to be a positive one, there will inevitably come a time when you have to fire an employee. It is important when going down that road to ensure you are doing it for the right reasons and following proper protocol. Firing an employee without just cause can result in a wrongful termination claim, which can be a time-consuming, draining and expensive process that ultimately damages your brand. Here's what you need to know about wrongful termination and how to avoid it.

What is considered to be a wrongful termination?

In the eyes of the law, wrongful termination is a firing for an illegal reason according to an employment contract, federal law or state law. For example, it would be considered wrongful termination if you fire an employee for any of these reasons:

  • Sexual orientation: As an employer, you can't just decide you don't approve an employee's sexual orientation and fire them for it.

  • Sexual harassment: If you fire an employee because they were sexually harassed – e.g., as retaliation for reporting their harassment – you could face a wrongful termination lawsuit that results in you paying for the employee's emotional pain.

  • Age: Firing older employees because of their age is considered age discrimination.

  • Race: You can't discriminate based on the color of one's skin. All employees, no matter their skin color, need to be treated equally.

  • Retaliation: It is against the law to fire an employee who raises concerns over an illicit activity (a whistleblower) or even files a complaint for the company to be investigated.

  • Religion: The law protects all religions, and you can't force employees to participate in yours. In addition, employees can't be fired for requesting time off to observe religious holidays.

  • Disability: The Americans with Disabilities Act defines a disability as "a physical or mental impairment that substantially limits one or more major life activities, a person who has a history or record of such an impairment, or a person who is perceived by others as having such an impairment." Employees who are able to complete essential functions of a job either with or without reasonable accommodation are protected. Just a few of the protected disabilities are blindness, brain tumors, epilepsy, mobility impairments, learning disabilities, depression and organic brain syndrome. [Read related article: LegalZoom Lawyer Discusses How to Shield Your Business From Potential Lawsuits]

Is it hard to prove wrongful termination?

Wrongful termination can be difficult for employees to prove, especially in at-will states where employers are not required to provide a reason for termination. However, as an employer, you should still be mindful of the wrongful termination reasons. Proving a case is not impossible, especially for employees who have been documenting events.

Michael Elkins, partner and founder of labor and employment law firm MLE Law, said the difficulty of any matter is usually fact-specific.

"That said, rare is the case where there is an email from a supervisor that says, 'Fire Jane, we need younger men working here,'" he said. "Employers often hide their discriminatory reasons for termination."

Elkins said that for an employee to proceed to court on an employment discrimination claim, they must first file a charge of discrimination with the federal Equal Employment Opportunity Commission.

"After the EEOC investigates (which is its own process), the EEOC will issue the employee a document called a 'right to sue,'" said Elkins. "The right to sue is the employee's ticket to bring a lawsuit in federal court."

After an employee makes an initial federal claim for employment discrimination, the burden is on the employer to "articulate," not prove, a "legitimate nondiscriminatory reason" for the termination or other adverse action (such as a demotion, suspension or failure to promote), according to Elkins.

"Then, the burden shifts to the employee to prove that the 'legitimate reason' offered by the employer is false and a cover-up for the real reason," he said. "In court, it's called proving that the stated reason is 'pretext' for discrimination."

Are there legitimate reasons for an employee to challenge a wrongful termination?

Before firing an employee, keep in mind that there are possible legitimate reasons, as noted by Nolo, for an employee to challenge a wrongful termination, even in at-will states.

Something in writing that states they have job security

Employees who have a written document stating their job security are not at-will employees.

Verbal promises of job security

These are called implied promises, which are defined as a verbal agreement an employer made with an employee. They are hard to prove, however.

Breaches of good faith or fair dealings

The American Bar Association sees the duty of good faith and fair dealings as the duty "that neither party will do anything that will destroy or injure the right of the other party to receive the benefits of the contract." These are a few examples that go against this rule and could result in a lawsuit:

  • Firing employees before they can collect sales commissions that they earned

  • Promising employees a promotion or salary increase when you know you won't fulfill either

  • Lying to an employee about why they are being let go and replacing them with someone willing to work for less money

  • Not being upfront about dangerous working conditions and forcing employees to work under them

How can wrongful discharge laws protect employees?

David Miller, an attorney who specializes in labor and employment law with Bryant Miller Olive, said remedial laws like these are a societal judgment that something is wrong and shouldn't happen. He said that society, acting through Congress, came to the conclusion in the 1960s that making employment decisions based on the color of one's skin was wrong.

"It's been a long road to enforce that judgment, but the judgment was clear," Miller said. "The same thing goes for any of these laws, and those are the protections they offer to employees – and, in some sense, to us all. While an employee is protected, the employer is restricted. If we've decided it's a moral wrong to terminate an employee for, say, filing a valid workers' comp claim, then preventing that through law is preventing the employer from committing a moral wrong. At least, that's the 40,000-foot ethical theory."

Miller said there isn't a specific law for wrongful termination. The law depends on the situation, and a lot of laws govern the employment relationship.

"Terminating an employee may run afoul of any of those laws, depending on the how and, often most importantly, the why of the termination," Miller said.

While most employers know you can't fire someone based on their race or gender, there are less obvious situations employers should be aware of, according to Miller. For example, an employer may feel perfectly justified in firing an employee because they never get anything done, arrive late a lot and are hard to get along with. However, Miller said, it's conceivable that such a person is suffering from clinical depression to the point where it could be considered a disability under the Americans with Disabilities Act.

"Under some circumstances, the ADA will penalize an employer who fires the employee first and never asks questions. The employer might actually have a duty to inquire to see whether this may be a disability issue, even if the employee has never said a word about being ill or needing an accommodation."

To avoid making any employment decisions that could come back to haunt you, Miller said the best thing you can do is invest in a competent HR professional, whether in-house or outsourced.

"Listen to her and give her your backing," Miller said. "She'll keep you out of a lot of trouble and save you a lot of money. And when she says it's time to consult the lawyer, do it. Paying a lawyer upfront is the absolute best way to save a whole lot more money on the back end."

What fines and damages are associated with wrongful termination?

There is a connection between damages and compensation in a wrongful termination case, according to Lawyers.com. The fines and damages associated with wrongful termination vary from case to case and by location. The average settlement cost is around $40,000. However, some cases cost employers millions of dollars. The damages and fines can depend on these factors:

  • Trial expenses

  • Lost earnings

  • Lost benefits

  • Expenses associated with finding a new job

  • Emotional distress

  • Any medical expenses that may have come up and required treatment because of the termination

  • Fines toward punitive damages in cases that punish an employer's wrongdoing

How can employers avoid wrongful termination lawsuits?

The key with wrongful termination lawsuits is to avoid them altogether. Avoiding a wrongful termination lawsuit starts before an employee is even hired. Here's what to include in an employment contract to prevent it.

  1. Illustrate what's expected from each employee. This can start with the job description. Document what is expected, and have each employee sign off on it. As part of defining what's expected, include information on how employees will be reviewed, such as what performance metrics they will be evaluated on.

  2. Fire employees with compassion and empathy. If you have a difficult employee, it can be hard to act compassionate and empathetic toward them, but doing so is in your best interest. When they find out you are letting them go, they may be surprised, hurt, and worried about how they are going to support their family, which may cause them to act out. Consider offering a severance package and having the employee sign off on it.

  3. Protect your company with liability insurance. Business liability insurance (also called employment practices liability insurance, or EPLI) is much cheaper than a lawsuit and can help pay for certain claims against wrongful termination, discrimination, harassment and more. This type of insurance is a safe bet for even small businesses.

  4. Obey the law. This may seem like common sense, but a key way to avoid a lawsuit against your business is to not break the law in the first place. To help prove that your company is following the law, keep documents showing how you follow government guidelines.

  5. Train your staff. Some employees may not know that certain actions can be illegal, such as making a comment about how someone is dressed, even if it was intended as a compliment. According to a study from i-Sight, more than half of women have experienced inappropriate sexual advances at work. Of those, 1 in 3 said it involved a male colleague, with 1 in 4 saying it involved a superior. Thus, sexual harassment training should be a top priority in your staff training program.

How can you prepare for a wrongful termination suit?

If you find your company being sued for wrongful termination, here are some best practices to follow:

  1. Hire an attorney. An attorney will know how to respond to protect your rights and can give you legal advice.

  2. Don't respond to the employee. Any communications from the employee or their lawyer should be directed straight to your attorney. Responses need to be handled with care, because they could make you come across as guilty even if you're not.

  3. Gather evidence. Put together any evidence you may have that the claim is invalid.
Image Credit: fizkes / Getty Images
Marisa Sanfilippo
Marisa Sanfilippo,
business.com Writer
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Marisa Sanfilippo is an award-winning marketing professional who has more than six years experience developing and executing marketing campaigns for small and medium sized businesses with a focus on digital marketing. After graduating Stockton University with a B.A. in Communications and minor in writing, Marisa worked as a freelance journalist for numerous publications, ultimately earning a position as an e-marketing specialist for a credit union. While in that position, she earned HubSpot's Inbound Marketing Certification and helped build the organization’s digital marketing strategy from the ground up. Her efforts helped lead the credit union to success on and offline including: a 200%+ organic increase in Facebook followers, a sales generating blog, and much more. Later on, she worked on a social media campaign that gained recognition by The Huffington Post.