Problems with Problem Employees
Fresh from a top biochemistry Ph.D. program, Beth was your fifth employee. Her technical expertise and ability to charm investors, lenders and prospective customers made her the obvious choice when, as the company burgeoned, you decided to formalize a roster of senior officers. As Executive Vice President for Biotechnology, Beth has since had a hand in every aspect of company business and operations.
Over the last year or so, however, Beth has moved from core asset to affirmative liability. She has missed critical internal and client meetings, and may go days without responding to calls or e-mails. According to her direct reports, she’s become largely invisible to them as well. You have no hint of what may be behind the situation.
And what about her behavior when she is in the office? Colleagues report phone calls hastily concluded and the laptop shifted or shut whenever they appear. Has some personal vice taken over? Is she shopping herself to competitors, or even planning her own competing startup?
Convinced you’ve met every expectation that fairness and friendship impose, and tumbling rapidly from anxiety to paranoia about the risks the situation poses to the company, you’ve spent a sleepless weekend pondering your options. It’s now inescapable: Beth has to go, now.
Can you terminate the problem employee? Terminating anyone, and particularly a key senior employee, can be a minefield. Rather than attempting first to track down Beth, you call Angie, your outside employment counsel. Angie has a checklist of issues, and the two of you need to work it through. Angie first establishes that Beth is based at your company’s North Carolina headquarters. She reminds you that employment law varies widely from state to state, and that the answers to the issues may vary dramatically if Beth were resident in your California, New Jersey or Florida offices.
You first confirm your prerogative to fire Beth under these circumstances. In North Carolina, the default rule is that, absent an employer-employee contract (which could be created by a personnel handbook—as discussed below) or collective bargaining agreement, employment is “at will.” This means that either party may terminate the employment at any time and for any lawful reason. Many employment contracts restrict the rights to terminate and require notice or other procedural steps the employer must take before it can terminate (e.g. board of directors’ approval).
Happily for you at this stage of the analysis—though less so later— Beth has no contract, and there are no union issues.
Angie reminds you that your company’s personnel handbook addresses discipline and termination. Reviewing it, you see that it outlines a three-step disciplinary procedure for performance-related deficiencies: an initial notice to be given orally; a second notice to be given in writing and placed in the employee’s file; and termination as a third and final step if the deficiencies persist. You are relieved when Angie reminds you that the company has, in the provision itself, effectively reserved the right to deviate from the three-step procedure as it deems appropriate. Angie also points out that the title page of the handbook proclaims in boldfaced, capitalized type that nothing in the handbook creates any form of employment contract or disturbs the “at will” relationship.
Angie next works through with you the terms and covenants in the agreements between your company and its various investors. These sometimes impose or imply restrictions on the company’s ability to terminate key personnel. Satisfied that terminating Beth will not offend any lender or investor, and that your board of directors need not be consulted in advance of the decision (although you are already sweating over the questions you know you’ll face from the board in its aftermath), Angie and you shift the analysis from “can you terminate Beth” to “how to terminate Beth.”
How to terminate the problem employee. Angie’s first recommendation is that you communicate the termination decision to Beth as fast as reasonably possible. If Beth suspects she is about to be terminated, Angie explains, she may pre-emptively complain that her performance problems are the consequences of, for example, physical or mental ailments or job-related harassment. Such a complaint creates a risk that termination—even though the employer had settled on it before learning of the complaint—will provoke claims of discrimination and retaliation under state and federal anti-discrimination laws.
Angie next observes that Beth’s inaccessibility raises some practical concerns. Ordinarily, termination occurs in a face-to-face meeting, allowing the employer both to announce the decision and to review attendant issues. With Beth’s availability for such a meeting uncertain, Angie suggests that you and she devote the next few hours to preparing a written termination package. The package will include:
A short letter notifying Beth of her immediate termination.
Angie stresses the need, in the letter and in all other communications with Beth on the subject, to be clear, consistent and truthful. She explains that you owe Beth no detail about the company’s reasons for terminating her— a simple statement to the effect that “we have concluded the decision is necessary under the circumstances” is sufficient—but any attempt to explain the decision, including in response to questions from Beth, must be accurate. Yielding to the impulse to soften the message by, for example, characterizing the termination as the result of “elimination of the position,” or assuring Beth that her performance was no factor in the company’s thinking, invites litigation when, as it inevitably will, some version of the truth makes its way to Beth.
The letter will require Beth to immediately turn over her laptop, Blackberry, any physical files, and any electronic storage media containing company information. The letter also directs Beth to sign and return a copy of the letter with these items, and by doing so affirm that she possesses no company information (other than, of course, what is in her head—see below) and has not, at any time, disclosed or used company information other than as authorized by the company.
Noting your raised eyebrow, Angie answers the question before you ask: no, none of these measures can ensure that Beth retains no proprietary information. She goes on to explain that the only way to provide a reasonable measure of confidence that Beth will not use proprietary information to the company’s disadvantage is:
A proposed severance agreement offering Beth significant severance benefits in exchange for signing a noncompetition, nondisclosure and nonsolicitation agreement.
With no contract in place with Beth, she is as free to begin work for your competitor following her termination as you are to fire her, a prospect that freezes your blood. Angie explains that, while there are some constraints on Beth’s ability to use your proprietary information for the benefit of a competitor, including Beth’s own startup should she go that route, your best protection by far is a comprehensive agreement keeping her out of the market for a period of time (the noncompetition feature) and prohibiting her from soliciting other employees to join her elsewhere or from using company information elsewhere.
You note that Beth must still provide any new employer with a written summary of the nonsolicitation and nondisclosure provisions (the required summary is to be part of the agreement) even after the noncompetition period expires. Angie explains that this requirement will tend to enlist new employers in the cause of enforcing these provisions; North Carolina law, like that of many states, could permit your company to sue a competitor that ignores violations.
The agreement will also contain a release of any legal claims against the company, and will liquidate Beth’s rights as a shareholder of your private company.
To obtain such an agreement now, however, you will have to buy it in exchange for whatever combination of cash and non-cash consideration (e.g. post-termination health benefits) proves sufficient to persuade Beth to accept the restrictions. Recognizing glumly that Beth holds most of the cards in this negotiation, you also make a mental note never again to extend an offer of hire or promotion to any key position except on condition that the candidate sign one of these agreements before he or she can assume the role.
Once these documents are in shape, Angie will have them both couriered to Beth’s home and sent there by overnight mail (Beth lives only five miles from the office, but Angie observes that overnight mail transmission will create a paper trail establishing by inference when the company finally settled on termination). She also instructs you to have your IT department immediately cut off Beth’s access to company systems, as well as her Blackberry service. You are to instruct your administrative head that, if Beth shows up at the office, she is to be escorted to a conference room, instructed to wait until you arrive, and watched to ensure she does not access company systems (by, for example, using someone else’s terminal) or records.
Angie suggests that Beth will very likely insist on meeting with you. This meeting should include Angie, with Beth invited to include her own legal counsel. She also cautions you that you may be in for a long legal battle to restrict her from capitalizing on what you view to be proprietary company information unless you can convince Beth to sign the severance agreement.
Now comfortable that you’ve developed a comprehensive plan of action, you begin to make the necessary calls within the company as Angie begins drafting the termination letter and severance agreement. It will be a long time before you’ve fully processed your personal reaction to this difficult situation, but you’re now able to begin to trade exhausting worries over what to do about Beth for constructive thinking about what to do after Beth.
What happened to just ‘YOU’RE FIRED!’