RIAs rely on talented employees to help them grow their businesses. Unfortunately, there may come a time when an investment adviser must make the difficult decision to terminate an underperforming employee. While this is never an easy task, it is essential for RIAs to tread carefully to avoid employee lawsuits. In this article, we will explore the best practices that RIAs can implement to reduce liability when preparing to terminate an underperforming employee.
Before we dig into best practices on terminating employees, it’s worth noting that the best way for RIAs to avoid having to terminate an underperforming employee is avoiding hiring such an employee in the first place. For an article discussing five common mistakes RIAs make when hiring employees, please click here.
First, one of the foundational steps in reducing liability with respect to employee terminations is to prepare employment agreements for employees to sign that clearly outline the firm’s expectations, including clear descriptions of the employee’s roles, responsibilities, and time commitment as well as the reasons employees may be terminated. These agreements often also lay out what employees will be entitled to if they are let go for reasons out of the employee’s control (without cause) or for reasons due to the employee’s underperformance or bad conduct (with cause). For an article highlighting best practices and common mistakes when preparing employment agreements, please click here.
Second, RIAs should adopt employment policies that clearly outline the firm’s expectations with respect to performance standards, workplace behavior, and disciplinary procedures. These policies and procedures, often reflected in an employment handbook, can help to avoid confusion about the firm’s expectations of employees. To provide further clarity, RIAs should provide trainings on such employment policies to employees and ensure that employees have opportunities to ask questions regarding such policies to further minimize the risk of confusion. Well-documented policies and procedures can help an employer to defend against claims of arbitrary or discriminatory terminations.
Third, RIAs should conduct regular performance evaluations to identify underperforming employees and communicate those reviews clearly to such employees. This gives employees clear notice they are not performing to the RIA’s standards and provides opportunities for employees to improve their performance. Performance reviews also help an RIA document the fact that an underperforming employees was given notice of underperformance and an opportunity to turn the ship around.
Fourth, if an employee’s performance begins to decline, RIAs can provide coaching or other resources designed to help the employee improve his or her performance. This is often much less expensive than having to replace the employee.
Fifth, RIAs should have clearly-delineated policies addressing employee terminations to protect the firm and reduce the likelihood of missteps during the termination process. Supervisors should be clearly trained on how to follow these policies and procedures in advance of any employee termination.
Sixth, before proceeding with a termination, RIAs should consult with an attorney experienced in employment law. Attorneys can provide guidance on the specific legal requirements and potential risks associated with the termination and develop a termination plan designed to mitigate such risks.
Seventh, RIAs should consider whether a severance package should be offered to reduce the likelihood of an employee lawsuit following termination. In certain circumstances, offering a fair and reasonable severance package can mitigate the risk of an employee lawsuit. A well-structured severance package may include continued salary, benefits for a period of time, and potential assistance with locating a new position. In exchange, the employee should be required to sign a release of claims, waiving their right to sue the firm for wrongful termination.
Eighth, when notifying employees they are being terminated, it is vital for RIAs to follow their procedures for employee terminations to ensure that the proper steps were taken in order to avoid a wrongful termination lawsuit and to protect the firm’s interests.
Ninth, RIAs should communicate employee terminations with clarity and respect and, if appropriate, offer to assist the employee with locating a new position. Having emotionally-charged conversations with departing employees could increase the likelihood the employee will pursue legal action against the RIA.
Tenth, RIAs should clearly document the communications and steps taken with respect to employee terminations. When notifying the employee of the termination, it is also advisable to have more than one person representing the firm during termination meetings to avoid false accusations regarding what occurred during such meetings.
Despite taking all of these steps, sometimes it’s inevitable that a terminated employee will file suit against the RIA. Nonetheless, following the above steps can reduce the likelihood of bad outcomes if any such legal action is taken.
What questions do you have about managing employee relationships or terminating employees? Please contact us, and we’d be happy to see how we can help.
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