Employee Termination: Protecting Your Practice

Mark Sanna, DC, ACRB Level II, FICC

Terminating an employee is never a comfortable or easy task. When done, it must be free and clear of legal complications. Even firing an incompetent employee can be a risky endeavor. Do it for the wrong reason or in the wrong way and you may have to pay substantial damages. Let’s review some of the steps you can take to mitigate your risk when parting ways with an employee.

At-will Employment

At-will employment is a legal presumption in all U.S. states (other than Montana), whereby either an employer or an employee may, with no adverse legal consequences, terminate the employment relationship for any legal or no reason. Most employers take pains to point out, in their written policies, applications, handbooks, job evaluations, or other employment-related documents, that their employees work at will.

There are several limitations to at-will employment. If your employment agreement or written policy includes a list of reasons for which employees can be fired, employees may be able to seek legal protection if the reason for their termination does not fall within that list. In addition, if during or after the hiring process, you made any statements that indicated that an employee can only be fired for good cause, you may be liable for breach, as this could be considered an implied or oral contract. For example, if you said, “You’ll always have a home here as long as you do your job well,” or “We only terminate employees who do not meet our performance standards, even after we have coached and trained them,” your employee may claim that they were not employed at-will.

Thwarting Wrongful Discharge

Even at-will employees cannot be fired for reasons that are illegal under state and federal law. For example, in most states, an employee cannot be fired because of their race, religion or gender. At-will employees are also protected from termination for filing a complaint about illegal activity, discrimination, harassment, or about health or safety violations in the workplace. In addition, employees may not be terminated for exercising their legal rights including taking leave to serve in the military, or to take time off work to serve on a jury or vote.

To thwart wrongful discharge employers must be prepared to show that termination was for a specific reason. Examples of termination for cause include: performing poorly in the job, abusing sick leave, being habitually tardy, endangering health and safety, and engaging in criminal behavior.

Lawsuit “Red Flags”

While following the letter of employment law is important in all cases, there are certain situations that call for extra vigilance. If the employee you are terminating is over the age of 40, you may be at risk for an age discrimination lawsuit. Terminating an employee who is disabled in any way without adhering to the Americans with Disabilities Act may also place you at risk. Firing an employee who has been injured on the job or who has filed a Workers’ Compensation claim requires extra diligence.

Sensitivity toward gender and race is essential when terminating an employee, especially when the employee is a minority or female. Other lawsuit red flags include an employee who has been involved in a sexual harassment dispute. Employees who have been involved as a whistleblower may also place you at risk for litigation.

You can decrease your exposure to a wrongful termination lawsuit by acting consistently toward all of your employees. Take care to take similar action to all employees who have acted in the same way. Have a documented progressive discipline process and follow it completely. This may include a progression from verbal correction to written documentation in the employee’s file, to involvement of a third party. Your documentation should include if an employee has been repeatedly counseled and assisted regarding performance.

The Termination

First and foremost, document everything. Having a clear documentation of all of the steps leading up to the termination is essential. When firing an employee, it is good policy not to do it alone. Have a third party there to witness the process. Avoid making statements to the employee such as, “I’m sorry about this,” and “I hate to have to do this.” These statements may be used against you in a wrongful termination lawsuit.

It’s good practice to have documented exit procedures for terminating an employee and to follow them. Have the employee’s final paycheck ready to deliver.  Make a list of any company property that the employee may be in possession of that will need to be returned. Back up all important computer files before firing the employee. Terminate the employee on Monday instead of Friday and keep the meeting short.

Employee Crime

When considering employee crime it is important not to be naïve. Employee theft costs U.S. companies $40 billion annually. Over a five year period, 80% of healthcare practices will experience embezzlement in one form or another. Over 70% of employee embezzlers have practiced their embezzlement skills with a previous healthcare practice.

The most common incidents of crime occur with employees who are involved with inventory control, data processing, purchasing, receiving, bookkeeping and cash disbursements. Give heightened scrutiny to employees who handle administration, handle or review accounting, and are involved in reconciling bank statements. Don’t leave your practice vulnerable by not periodically checking on employees who are involved in performing this type of work. Follow good financial stewardship by not giving authority without holding the individual accountable. For example, signing blank checks before a trip.

Why does employee crime happen? Practices are comprised of a close-knit group of employees. Most of the members know each other well. Many times practices, procedures, and controls are deemed unnecessary or not instituted due to the sense of familiarity that develops over time. Practice owners should remember that a lack of control mixed with daily cash flow is a potentially dangerous situation. While employee crime is commonplace, many doctors allow it to happen because they are reluctant to admit it when it does occur. They often believe that it was nothing other than an isolated incident. For these reasons, doctors often fail to report employee crime to the authorities.

Doctors can take some of the blame for employee crime by not following good business practices. Do not give blind trust to employees. Accountability is an essential component of a healthy employment relationship. Keep abreast of all of the business aspects of your practice and do not delegate this important area without regular reviews. Maintain strong management over the financial control of your practice. Don’t set a bad example for your employees by taking money from petty cash or cash receipts.  Avoid placing all of the financial activities of your practice in the hands of one employee.

How It Happens

Which employees are most likely to commit a crime? Beware of the overly loyal employee who doesn’t take vacations or takes just one or two days off at a time. The employee who constantly works overtime, takes accounting work home, or is seldom absent should also trigger concern. Employees who always come in early and stay late may be doing so to cover the tracks of their malfeasance. You should have on your radar employees who exhibit all controlling behavior. This is the employee who resents having their work overseen, resists change in a computer or accounting system, or has “no time” to post the financial books.

There are many ways that embezzlement occurs. Some of the most common methods include creating fictitious receipts for payments, slipping a blank check into a stack of checks to be signed, refunds to fictitious patients, extra paychecks and paying bills twice and pocketing the refunds.

The signs of employee crime often become glaring after the incident has been discovered. One often asks how it went unnoticed for so long. Be alert for changes in your employees’ lifestyle. Do you have an employee that has a deteriorating personal financial condition? Do not take lightly employees who are vocal about the doctor’s income, lifestyle, or the fees charged by the practice.  Watch for new spending patterns – car, house, or jewelry.

Establishing Security

You can protect your practice from employee crime by following some basic steps. Carefully screen job applicants and check their referrals before hiring. Implement an internal system for financial audits. Regularly examine canceled checks to see if there is anything unusual. Have more than one person prepare payroll and always review it. Require two people sign off on checks above a set amount. Limit the endorsement of checks (other than the owner) to “Deposits for credit only.” Divide the financial responsibilities of your practice. For example, the person receiving checks isn’t the same person depositing them and the person ordering supplies isn’t the same person paying supply bills. Finally, require all financial employees to take a vacation annually. It’s difficult to keep up fraud during an absence.

Protect Your Practice

You can decrease the likelihood of an employment lawsuit and from being the victim of employee crime by setting good company policies and procedures, being familiar with them and following them. Don’t get sloppy with your employee documentation. Give your employees regular, honest performance appraisals. Take all employee complaints seriously. Be sure to work with employees to correct poor performance prior to firing them. Foster a positive attitude and culture of acknowledgment and accountability among all of your practice team members.

Dr. Mark Sanna is a member of the Chiropractic Summit and a board member of the Foundation for Chiropractic Progress. He is the president and CEO of Breakthrough Coaching (www.mybreakthrough.com 1-800-723-8423).