Reducing Risks in Terminations
Running a business is not cheap. Working in the construction industry means dealing with the costs that may be out of your control, like materials, supplies, market demand, supply chain issues, and competitors’ pricing. One of the largest costs for employers is compensation and benefits, which can be within your control with proactive auditing and management. Labor costs can increase drastically if your business retains underutilized or unideal workers, who can negatively impact your business from many angles, including damaging team morale and creating a poor work environment, making costly errors in their work, and increasing insurance premiums.
Because labor shortages are pervasive, many companies cannot afford extensive vetting to ensure only the best employees are hired. Plus, problems with longer term employees can surface at any time. If your business is considering terminating employees, consistency and compliance with Colorado statutory requirements are critical.
Consistency and Statutory Requirements
Businesses should make a conscious effort to remain consistent in all employment decision making practices, but especially at termination. The Colorado Wage Claim Act governs the requirements and timing for an employee’s final paycheck. The Act applies to all employers regardless of the organization size.
At termination, a good practice is to pay out to the employee their earned wages immediately or within twenty-four hours. The wages due to an employee are those earned which are vested and determinable at termination, typically wages owed as well as any leave that an employee has accrued. Colorado no longer permits “Use it or lose it” vacation policies, and employees are entitled to a payout of earned and unused vacation time at termination. If your company is allowing employees to cash out sick leave, any accrued sick time must also be paid out. If your company provides commission, bonuses, or other structured performance-based incentives that are guaranteed and not discretionary, these will also need to be paid out, if vested and earned at the time of termination. Keeping detailed records of these items is important because the Act carries exposure for an employee’s attorney’s fees and costs and statutory penalties. A good practice for terminations is to meet with the departing employee to secure return of company property, to memorialize the final paycheck, and to obtain a release or waiver of claims, if necessary.
The employer may legally deduct amounts from an employee’s final pay under certain limited circumstances. Allowable deductions include normal withholdings and contributions that were taken out the employee’s prior paychecks. The Act provides some latitude for employers to make deductions if an employee fails to return company-issued property, but any such audit must be completed within 14 days of termination. A best practice is to have disclosed the value of all company-issued property in an employee handbook and obtained a signed acknowledgement from the employee at the time any higher value property is issued, such as a company phone or computer. The Act also allows an employer to withhold wages if the employee committed theft and a criminal complaint is filed. However, because a company has exposure to statutory penalties if criminal charges are dropped, we recommend consulting with our firm or other legal counsel before withholding any portion of a final paycheck based on suspected theft.
When terminating an employee, the employer should also be aware of the logistics that accompany the end of employment. An employer should have procedures in place to protect company property, trade secrets, and access to the company’s data, be it physical or electronic. An employer should be cognizant of security clearance and badges, email, and database access, and determine when access should be terminated to protect the company’s reputation and assets. Because third parties will likely view your employees as agents of your company, it is important to ensure that third party vendors, suppliers, or other affiliates are notified that a termination has occurred to avoid any unauthorized purchases or other exposure. Such procedures should be in place at the time of hiring and communicated to the hired employee.
It is helpful to have well documented employee personnel files. Personnel files are useful for documenting employee performance issues, tardiness, and documents relevant to the employee’s tenure. This provides a basis for disputing any potential wage claims against the employer or providing adequate grounds for termination. Employers must remember to remain consistent in their documentation as between different employees (to counter any allegations of disparate treatment) as well as consistency with all company handbooks and other policies that have been communicated to employees. If a current or former employee files a discrimination claim against the company, personnel records are discoverable and will be subject to disclosure.
It can be complicated trying to navigate compliance with law and good practices for hiring employees, outlining employment policies, and terminating employees. Contact the experienced attorneys at Galvanize Law Group, who can help your company mitigate risk and establish proactive employment practices so you can focus on your bottom line. To explore our full presentation on Firing Employees without coming under fire, click here, and view photos from the presentation below.
