Hire Slowly and Fire Gracefully

We have all heard the saying "Hire slowly and fire quickly." This is certainly good advice but sometimes firing quickly can cause unanticipated consequences. It is always in your best interest to end any employment relationship amicably even if that employee didn't meet your standards. In this article we identify some of the basic steps you can take to minimize your liability when terminating an employee. 1. Classify your employee correctly.

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The groundwork for successfully terminating an employee begins when you hire them. Establish the relationship properly upfront and you will have fewer potential problems down the road. Most real estate assistants, even if they are licensed are considered employees by the IRS and not Independent Contractors. Misclassifying an employee as an independent contractor is illegal and doing so could put you at significant risk of being sued by the employee and subject to large fines by the IRS. Here is an example of how an agent gets caught misclassifying an employee:

An agent hires an assistant who works for them for 25 - 30 hours per week. The assistant is licensed and they do some work for other people on the side. The agent classifies the assistant as an independent contractor and has their bookkeeper mail the assistant a check every two weeks. Even though the assistant is being paid as an independent contractor they are technically an employee as defined by the IRS. For example, they are required to work a set schedule and when in the office they use the agent's computer and supplies. At some point, business slows down and the agent decides to lay off the assistant. In response, the assistant applies for unemployment benefits and is denied because they were not paid via W-2 and they do not qualify for unemployment benefits. The IRS is notified and an investigation begins.

The IRS is very motivated to pursue these cases and the California courts do not look kindly on employers who misclassify employees. If you have any doubt about the classification of your employees contact your attorney or your CPA for advice.

2. Have your assistant sign an employment agreement outlining the specific terms of their employment with you. This includes all types of compensation and benefits being offered, work hours, job duties and responsibilities. It is also very important that the contract include an employment-at-will clause. In California, employees are presumed to be "at will." At-will employees may be terminated for any reason, as long as the reason is not illegal. Generally, employees that work under an employment contract can only be terminated for reasons specified in the contract, unless that contract states the employment is "at will". In California, the at-will presumption can be overcome by evidence that despite the absence of a specified term of employment, the parties agreed how the employer's power to terminate would be limited in some way. For example, if the employment agreement stated that the employee agrees to remain in the position for one year that language might negate the "at will" assumption because the agreement implies that the employee is guaranteed employment for one year.

3. Document everything. Keep a complete employee file for every employee. Document each time your assistant is late, takes time off, and any significant mistakes they make. You should sit down with your assistant at least yearly for a performance review. Quarterly reviews, however, are much more effective in promoting good performance and continued growth. If you are unhappy with your assistant's performance conduct more frequent performance reviews, document your conversations, and ask your assistant to sign your notes from the meeting as proof that you did, in fact, have the conversation.

4. Do not do or say things to entice your assistant to quit. Just like dating, some people prefer to avoid breaking up at any cost. This is not an effective strategy when you are an employer (or in a relationship, for that matter). Do not start acting like a nightmare boss in the hopes that your employee will quit. By creating a negative atmosphere you increase your chances exposing yourself to liability and you hurt your reputation in your office and in the real estate community. If you are unhappy with an employee's performance address it with professionalism and terminate the relationship if necessary.

5. Follow proper procedure when terminating an employee. Understandably, most people are very uncomfortable firing an employee. The idea of it brings up all kinds of stress, emotions, and both real and imagined fears. If you followed suggestions 1 through 4 in this article you will find that most assistants will know that they are about to get fired and will not be as surprised or upset as you might expect. When you are ready to terminate an employee these are the steps you should take.

Step One -  Find a private office so you can maintain the employee's personal dignity. It is best to have another member of the management group present when you notify the employee that he is terminated from employment.

Step Two - Make certain you have worked out all the details on the termination ahead of time. This includes the amounts and dates of pay checks as well as benefits information.

Step Three -  Write down, in a couple of short sentences, what you need to say to the employee. Something like, "I am sorry to inform you that your employment is terminated as a result of company restructuring. You will be paid through May 4 and will receive two weeks severance pay. Any vacation you have earned is also included with your final check." Always have their final check ready to give them when you terminate them.

Step Four - If the employee has questions about their termination try to answer their questions with general, non-combative answers. Do not get into a discussion about why they are being let go.

Step Five - Give the employee a few moments to express their emotional response, but don't linger too long. Allow them to leave immediately or, if possible, accompany them to their workstation so they can gather their belongings. Collect their key and parking pass and walk them to the door.

6. Never provide negative or damaging information when giving a reference for a former employee. Remember when your mother told you, "If you don't have anything nice to say don't say anything at all"? This is a good time to take that advice. Whenever an employee leaves, whether because you terminated them, or they resigned it is a good idea to let them know what kind of reference they can expect you to provide. For example, when you terminate an employee you may tell them that they can provide you as a professional reference that that you will only provide the caller with dates of employment and ending salary. If, on the other hand, you feel that you can provide a positive, constructive appraisal of the employee's performance and that employee would like to list you as a reference ask them to sign the Authorization for Release of Information and Waiver of Liability for Employment References.

This article is intended as information and not as legal advice. Readers requiring legal or other advice regarding the matters discussed here should consult with experienced legal counsel.