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5 Risks When Small Businesses Fire/Terminate Employees

Companies of all types and sizes terminate employees for a wide range of reasons. However, these actions carry consequences if not done appropriately.


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Even though the “employment at will” principle gives most employers the power to terminate employees at their own discretion, it does not mean that they can do so in any case. What are your potential risks?

Being Sued By the Employee
Firing/terminating employees imperfectly or violating state and federal laws that protect employees against wrongful termination can be costly. Understand the law, complete the necessary documentation, and follow precise termination procedures in order to avoid making unlawful terminations. If you make the mistake of violating an employee’s rights, the employee has the right to file a lawsuit against you.

Loss of Company Property, Trade Secrets
If firing is not done with due diligence, you are at risk of losing company property and files. Plan to ensure that the fired employee does not have access to crucial company property, confidential information and files. If the fired employee does not return company property, such as a cellphone, credit cards, a computer, keys, passwords, etc., the company might end up losing that property.

Destruction of Company Reputation
Firing/terminating an employee has a direct impact on the employee’s personal life. As a way of exacting revenge, employees can decide to brand your company negatively and give it a damaging public image via social media. Additionally, the terminated employee secretly can disclose confidential information or trade secrets to your competitors, thus giving them a competitive advantage over your business.

Poor Performance, Retaliation by Other Employees
It is normal for the remaining employees in the company to feel threatened about their job security whenever they see a colleague terminated. In many cases, employee termination creates tension within the company because other employees feel like they might be the next “victim.” Worst-case scenario: Some employees might be affected psychologically, and others might resign when they cannot manage the pressure.

High Turnover Costs
Finding a replacement for the fired employee is a costly process that requires advertising for the position, perhaps paying recruiting agencies, conducting several interviews and offering higher salary packages to find an employee who will perform better than the terminated employee. In the meantime, the separated employee’s work has to be picked up by others, with supervisors/managers spending more time overseeing the work. Additionally, it requires time away from the core business to fill the vacant position, and it takes time for a new employee to fully understand the job and perform as expected. This ultimately affects company performance overall.  

Margaret Jacoby, SPHR, has more than 30 years of human resources and professional management experience in a variety of industries and has owned her own consulting practice for more than 15 years. She has directed high-quality human resources functions for small and emerging businesses and served as an external consultant to a wide range of diverse organizations across the U.S. She is the author of “Practical Tools to Manage Costly Employee Turnover.”

This article originally appeared in the July 2015 issue of Pet Product News.

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