Terminations Made Less Terrible (For Everyone)
One of the hardest things every founder and manager has to do in their job is letting people go. Whether it's due to poor performance or a restructuring, there are right and wrong ways to handle it.
Below is an edited transcript from a Closing Time podcast episode on the topic, with my friend and co-host Michael Esquivel, and special guest employment lawyer Sheeva Ghassemi. We cover:
Common grounds for termination including poor performance and reorganization
How behavioral-based performance issues can be harder to support than job description level performance issues
How to handle terminations legally and with fairness and compassion
The importance of documentation and performance management in the termination process
How to conduct termination meetings
When and how to cut off access to company resources and ensure compliance with state-specific requirements
Halle: What are some of the most common grounds for termination that actually kind of hold up are legitimate? And what are things that you've seen employers think are valid, but actually are not and can get them into deep trouble?
Sheeva: The most common rationale I see for termination is poor performance. And performance comes in what I would consider two main flavors flavor.
One is what I call job description level performance. So you've got someone who's just not doing what they need to do, isn't competent, doesn't have the skills, whatever it may be.
And then there's behavioral-based performance, which I think it's lost in the shuffle, and that might be someone who doesn't get along well with others, might be insubordinate to a manager and not do what they're told to do, or is someone who makes it difficult to get things done, serves as a roadblock.
So those are the two main flavors and behavioral-based terminations, as you might imagine, are much harder to support because it's arguably a bit more subjective than job description level performance.
I also see situations, and particularly in the last two years, reorganization or reduction of forced (RIF) based terminations. Fancy way of saying layoffs, right? So with layoffs, a lot of employers will come to me and say, can we just get rid of all the low performers? And what I usually say is the reason for the reduction force should be, we need to cut costs, we need to extend runway, or we lost a big client. That's the distinction, right? The reason shouldn't be, we want to get rid of poor performers. If that's the reason you should do that on an individual basis in the normal course of business.
I never recommend telling an employee, “you're not the right fit” because that could be code for you're not young enough. You're not a guy. You're not X, Y, and Z. And so I think nomenclature, the language around what we do and how we talk to employees really needs to change as well.
Michael: Under employment law and in each jurisdiction under federal law, there are protected classes which you need to be mindful of. Would you share a little bit with our listeners what those protected classes are and how to think about terminations vis a vis someone that's in one of these potentially protected classes?
Sheeva: Yeah, so when I'm on a call with a client who's terminating someone, I always go through my protected class list in my head. And I won't list literally everyone because there are some protected classes that we don't see as often. But the main ones I look at our age (the protection is 40 and over), race, gender, sexual orientation, political affiliation, veteran status.
I'm not going to list all of them, but I also look at what I would call protected class based on how long you've been in a company, this claim called detrimental reliance, which not enough people talk about. This is when you haven't been employed for at least a year.
Halle: I could also see, well, I've been working here for three years. Why do you only recognize the problem now? Like you would actually imagine that performance is something that comes up within the first year?
Sheeva: Yeah. I have so many companies, you know, startups move fast, really fast. And you may have someone on for three months and they're in a key role. You know, they're your chief scientific officer. And you're sitting there going, it's been three months. I haven't seen what I need to see. This employee’s got to go. And if you have employed for such a short period of time, courts can say, yeah, that wasn't really a long enough period of time to see if they can improve, especially if you didn't give them any performance management.
Let's say they even relocated. And so they could bring a claim saying you didn't employ me in a good faith period of time. And I see a lot of this too with RIFs, people getting RIFed or laid off who've only been there a few months and have taken measures like moved or bought a house or broke a lease.
And that can be really, really expensive. I've had mid to high six figure settlements for those kinds of matters.
Michael: In terms of just helpful tips for our founders out there, let's talk about performance management and what that means. And the importance of the written record and and making sure you're giving feedback a common fact pattern you and I encounter.
Sheeva: Absolutely. And I do a training for clients all on performance management because it's such a critical topic that not enough companies make the investment in for their managers, especially new managers who've never done this before. So with performance management, what I tell clients is when you take on the role of a manager it is your job, Guess what, to manage people. It's even in the name, right? Manager manage. And so as part of that real time performance management is critical. And where I usually get traction when I'm doing these trainings with managers is I tell them there's all kinds of things I could tell you about why this is important to CYA for the company, right?
Build the record so that if you end up having to terminate, you have it. But fundamentally at its core, this is an issue of fairness. Fairness to the employee, fairness to you as the manager. If you don't tell someone, hey, there are some issues here and here's what you need to do to improve. It is an unfair thing to then turn around and terminate them.
I truly believe that. And I'm a defense lawyer. Right? I'm a defense lawyer. But I truly believe that. It behooves everyone to do that. So communicating with folks, a simple email recap of a conversation where you discussed a project that went wrong or something that happened, that's date and time stamped.
Halle: Can you walk us through what steps you need to take? So you're a manager. You've been doing these performance reviews. Someone's not improving. You're like, all right, it's time that this person has to go. What are the objective steps you need to take other than call Sheeva?
Sheeva: The first step is checking yourself, okay, is termination the right move here? Have I done what I need to do? Did I create a record? And some clients will say, I've had 10 conversations with this person, but I've never put anything in writing. Does that count? And I say, yeah, it does.
You know, if we're in a lawsuit, you get deposed, you will talk about those 10 conversations. However, of course, it's not as strong as having something in the written record, but I'm not someone that would tell a client you can't terminate someone because you don't have anything in writing. I would just say, well, the risk is higher, you know, this person's over 40 and female and they're the only over 40 female executive you have.
Second, if you're fortunate enough to have an HR function as a startup, please, please go to them right away when you're making this decision. Not after you've made this decision. Or of course go to your lawyer if you don't have HR, if you want another gut check and then prepare for the termination meeting.
Some people will just wing it. This is a consequential conversation where you are ending this person's livelihood, right? You are taking away their job. It may be fully legitimate, but you owe them the duty of preparing for that conversation. Have talking points. Run it by your counsel. Because if you run in with, Hey, got some bad news. We're going to be letting you go today. You just weren't the right fit. But, you know, really appreciate everything you've done… I could poke a million holes in that, right? Versus, you know, we've been having conversations with you over the last couple of months, we've seen very little progress in X, Y, and Z objectives that we gave you, those are critical to the company's function and they've actually kept us behind, given that we need to move forward with your termination and then explaining, you know, what severance package.
Never start off a termination meeting with I have some tough news or you're being terminated. Then the employee shuts down and there's nothing else they hear after that. Clients will tell me their VC told them not to tell the employee why because it's at will employment. IAnd what I say is if you get sued and you told them something that wasn't in fact the reason they can try to poke holes in that later.
And again, you owe them an explanation. You do. This is someone who worked for you.
Halle: And then a release agreement. Is that something that is really important?
Sheeva: Yes, 100%. So you want to have a release agreement drafted that's state specific to where they're located that, that has all the bells and whistles in there that you need, so they can't sue you. And you need to have certain notices. Every state has its own requirements, so you would need to give them certain notices, like unemployment notices, termination notices, etc.
Halle: I always tell my friends who feel like their employment is coming to an end, like don't sign anything, Take a beat to think about it before you sign something and understand what that agreement is.
Sheeva: Absolutely. Particularly if you're at a founder level, you definitely should get counsel involved, make sure you're not signing away more than what you think and make sure you're getting the kind of severance that's commensurate with your role and your contributions.
Halle: So firing someone can kind of be like breaking up with someone and there can be a lot of heat in the moment, a lot of anger. How can founders deal with that?
Sheeva: Co founders that are breaking up is one of the toughest breakups. And it is high level of emotions on both sides. Understandably, these are often people who have become friends, family.
So mitigating measures I'd recommend is one, if you can have a witness on the call, if it's a co founder divorce, have a board member, right? Don't bring in somebody that's at a lower level, because that that would obviously be insulting and create a little bit of perhaps confusion on the side of the founder.
So bring in a board member, someone trusted who can be there as a witness. If it's not someone at a founder level, then again, bring in somebody that makes sense. If you have an HR function, great. If you don't, maybe you're bringing in another C suite executive. So have the witness there to make sure that it doesn't become a he said, she said conversation.
Second is approach your messaging with humanity and with a level of understanding. So you may get vitriol and anger back, but at all times, try to maintain your composure and if and let the person talk for a little bit, they need to, they need to let it out. But at some point you need to tell them, you know, I understand you're upset, I get that.
But at this point, the decision's final. And I'd really like to focus on how we can move this forward in a productive way. And at some point you may just have to end the conversation and revisit it at a later date. But don't spew back that hatred.
Michael: You really highlighted something that I like to practically emphasize which is the humanity aspect and not responding with the same vitriol. In fact, I have found that when founders de-escalate by staying calm, the founder who's terminating the co founder who's vitriolic. Shiva and I just navigated a very thorny co founder divorce. And the remaining founder really just took a very calm and thoughtful approach to the separation. And in the end, even though there was vitriol at the beginning, in the end, we got to a really good result in a relatively quick.
Halle: And do you need the same sort of documentation for co founders? If you're going to try to break up with your co founder, do you need to be having PIPs and whatnot leading up to the firing?
Sheeva: I don't believe in PIPs for anyone in an executive level, because if you're an executive level, what's that PIP going to say? Do better? Manage better? Be a better fill in the blank, like COO? To me, PIPs should really be for non managerial or low level managers. You're not going to have a PIP for a co founder.
Ideally though, you at least have an email recap of conversation, especially if you're the CEO and the person's like the CFO, you're going to have some conversations, recap those at minimum, have your own personal notes, but ideally there's conversations and communications that are employee facing.
But I'll say this. I don't think I've ever seen the record I would want to see for an executive level exit, but because my standards probably unobtainable. I'm the employment lawyer. So I understand people aren't going to live their life trying to please the employment lawyer.
Michael: Can you just walk us through some tactics that need to be followed here, like final paychecks and what, when they have to be delivered. Just give us just a quick nuts and bolts on the actual mechanics after you've made the decision, you've had the humane conversation. There was a lot of vitriol coming from one side. You stayed calm. Now what?
Sheeva: Absolutely. So in California, we have a same day rule. So if you terminate someone, the paychecks owed that day. And that can be tough. Most clients aren't able to cut a cut a physical check and or direct deposit if you use a payroll company that quickly.
I'm telling clients like, I know you want to terminate them. Maybe you have the conversation today. You cut off access. They're effectively doing nothing, but you make their last day a day where you could actually pay them. So you're not violating labor laws, because in California, every day you're late and paying a paycheck, the employee gets a day's worth of pay up to 30 days. So it's a pretty hefty penalty if you pay late. Other states there, there are different rules, like it has to be within the pay period, end of the pay period, or has to be within six days. So, it just depends on the state.
Let's say it's me. You may have the conversation with me today. But you may say, Sheeva, let's pick it up in a couple of days. And then we'll talk about your final day. Maybe we'll call this a resignation. If you'd like, let you put in your two weeks notice, let you go gracefully. I'd only reserve that for the highest level of employees at the company, or if someone was with you for a long time, most other exits are going to be pretty immediate.
You get the paycheck out. You get whatever notices are required under the state. And you make sure you let your payroll administrator know so they can process it.
The employee can, in most instances, elect what's called COBRA. which helps cover their health insurance for a bit. So, mechanically, it's really, notify them, get their final paycheck, get their notices out, get the separation agreement out if you're getting a release, and make sure you notify your, uh, ADP or your other provider.
Halle: What about their access to email, Slack, and any company documents?
Sheeva: You can cut off access when you're notifying them, or you could cut off access and then you could either keep employing them if you're going to do a graceful exit. If it's an immediate exit, you would absolutely cut off all access because I'm sure Michael and you have seen this… I have had situations where the person's told their employee or employment's going to end. Access isn't cut off. And then I had at least one scenario where the person was just blasting all the investors, the whole board. It was awful. And I've had that happen more than once.
Halle: So should you always just cut it off? Even if it seems amicable, is it like just best practice to say we're going to immediately shut these things down?
Sheeva: It's a judgment call. It's definitely a judgment call. I usually tell people, what's the level of professional maturity you think this person has. If you don't know, you should cut off the access. If it's a founder and you think it's going to go smoother, IT needs to be looking over their shoulder.
Michael: Let's not forget to get into your equity management platform, whether it's Carta or one of the other platforms out there. We've had scenarios where it was forgotten. And then a month goes by and the person now in Carta shows they vested another month. And then they want to go and exercise and they're like, well, I'm going to exercise and write the check for that month. And then you're in this really awkward position and oftentimes it can be difficult to take it back and clean that up and get a refund and all of that nonsense.
Halle: Well, Sheeva, Michael, thank you so much for sharing all your wise words of wisdom on this topic.