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Ask the Hotline | Termination Checklist

June 6, 2017

 

Question

 

I am going to terminate an employee soon. Can you give me a list of all the things I must remember to do to make sure I don’t run afoul of any state or federal law?

 

Answer

 

While some employers deal with terminations regularly, others confront the process only occasionally. It is easy to make mistakes and inadvertently forget a key step in the process. And that mistake may open the employer up to significant legal risks.

 

With one major exception noted below, voluntary separations and terminations are similar in terms of the employer’s responsibility.   An involuntary separation occurs when the employer terminates the employee’s employment by layoff, reduction in force or discharge.

 

The first step is to review your documentation as to the reason you are terminating the employee. The strength or weakness of this information may influence your decision about whether to use a termination agreement.

 

Then decide how you want to handle the employee’s access to your IT network. Should the employee be shut out during the termination meeting or shortly thereafter? Do you want to give the employee time to go in the system and take out personal matters, with HR and IT watching over their shoulder to limit any trade secret or commercial sabotage? Or tell the employee that you will forward all personal matters later?

 

A terminated employee must be paid all outstanding wages plus any earned but unused vacation pay on the day of termination. These requirements are outlined in the Massachusetts wage law (MGL ch. 149, §148) and reinforced by rulings from the courts and by administrative interpretations from the Massachusetts Attorney General’s office.

 

If the employee is voluntarily terminating employment, you may pay the employee a final paycheck on the date of the next regular payroll cycle.

 

For employers unable to generate a final check that day, one option is to pay the employee through the following day to make sure you can get the check to the employee before final separation from employment.

 

While an exempt (i.e. salaried) employee usually must be paid for the full week in which the employee performs any work, in this case, an exempt employee may be paid a proportionate part of his or her week’s wages for the final week of work. This is one of the exceptions spelled out in the Fair Labor Standards Act regulations about paying exempt employees.

 

Employers that provide paid time off (PTO) instead of specific vacation leave are encouraged to have a well-articulated policy that sets forth how earned vacation will be calculated and paid upon termination of employment. Absent a well-documented and consistently applied policy and practice, the entire PTO bank is likely to be deemed payable to the separating employee.

 

If you have advanced the employee vacation time, review what written documentation you have to support deducting the vacation advance from the final check. For example, a clear written statement on the vacation request form informing the employee of your intent to recoup any advanced vacation time would strengthen your case. Conversely, nothing in writing is likely to invite a non-payment of wages claim. 

 

Unemployment Insurance

 

The employer must distribute to any separating employee DUA Form 590-A, “How To File For Unemployment Insurance Benefits,” as soon as practicable, but within a period not to exceed 30 days from the last day compensable work was performed. The form is available on the website in multiple languages.

 

The form may be delivered in person or mailed to the employee's last known address.  Employees who do not receive the information and who are otherwise eligible to receive unemployment insurance benefits will have their claims backdated to the time of initial eligibility.

 

Health Insurance Continuation

 

Terminated employees also have rights to elect to continue health care via COBRA if they were on your health care plan.

 

COBRA requires covered employers (20 or more employees) that offer group health coverage, including dental, to offer a covered employee and/or dependents the right to elect to continue that coverage at their own expense for 18 to 36 months, depending on their eligibility. Termination of employment is among these qualifying events and results in eligibility to continue coverage for up to 18 months. The definition of spouse under COBRA includes same-sex spouses.

 

The Massachusetts “Mini-COBRA” law applies to employers of between two and 19 employees. The mini-COBRA law does not require employers to continue dental coverage.

 

Release of Claims, Severance Pay, Termination Agreements

 

There are no laws requiring employers to pay severance benefits to a separating employee. An employer may elect to do so through a termination agreement known as a release of claims.

 

To be valid a release of claims requires payment from the employer to the employee in exchange for the employee forgoing a legal right to sue the employer over legal issues arising out of employment such as discrimination. The payment must be above and beyond any payment of final wages owed.

 

In the context of unemployment, a release is treated separately from severance pay and does not delay a claimant’s right to collect unemployment.

 

Using a release may make sense but it will take some work to prepare. To make sure the release of claims you present is legal, you should work with outside legal counsel to prepare it. There are clear rules about how to draft it, when it applies, timeframes for consideration and revocation, and what happens if there is more than one employee involved. It also may be helpful to have a lawayer’s assistance in valuing the release to ensure success in having the employee sign it.

 

Employee Obligations

 

Remind the employee to return all company equipment in his/her possession such as computers, cell phones, employee identification, car and any  proprietary information. Developing a checklist of what each employee has would be helpful here. 

 

Employment Agreements

 

If the employee has signed any agreements with you such as non-competes or non-disclosure, now is the time to remind the employee of the terms of the agreement and that you will take steps to enforce it if you become aware of the employee taking steps to violate the agreement.

 

Document Retention

 

Under Massachusetts law, employers must retain a separated employee’s personnel record for three years from the date of separation of employment. The employer also must retain the Form I-9 for one year from the date of separation or three years from the date of hire, whichever is later.

 

As you can see, the days of firing an employee “just like that” are long gone. It often takes some planning to comply with the various laws and to make sure you protect your company from any legal fallout.

 

Please contact the AIM Employer Hotline at 800-470-6277 if you have any questions about this or any other HR related matter.

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