Letting employees go for performance reasons or workforce reduction is never easy. In addition to difficult conversations, laying off employees also involves inherent legal and financial risks. “There are so many layers of complexity related to letting employees go, making proper planning and documentation crucial to mitigating your risks,” says Bailey Nowak, an account executive at HUB International, the parent company of CM&F Group.
If your healthcare organization isn’t large enough to have a human resources team to manage hiring and firing, investing in legal guidance is an important step. There are additional options to help mitigate risk such as looking to your insurance broker or carrier for resources. “You’re paying a premium with added value you might not even realize. Asking for those additional resources that are pertinent for smaller clinics can help mitigate risk.”
Nowak offers the following insight on best practices for laying off employees.
Start Documentation Early
Thorough documentation should begin even before an employee is hired. Clearly defined job descriptions and handbooks set expectations and minimize confusion later. Regular performance reviews are key to identifying and documenting any issues. “Job descriptions aren’t just administrative. They tie directly into compliance and even billing requirements for Medicare for example, plus they help identify performance issues,” says Nowak.
If there’s ever a specific performance-related issue, you should thoroughly document it, similarly to a patient incident report. “Documentation is your first and foremost top priority when you’re looking to remove or terminating an employee,” says Nowak.
Include HR and Legal Counsel Early
If there’s a problem with an employee’s conduct or performance, Nowak strongly advises involving HR or an attorney early on. “Every state’s a little different, and there are complex legal statutes around removing employees, so be sure to speak to someone who understands healthcare and your specific area.”
Clear Communication and Consistent Reviews
Transparent and regular communication is essential for any employee-supervisor relationship. Nowak recommends at least annual performance reviews and more if an employee is on probation. “At minimum once a year, but ideally twice a year.”
Proactive conversations about performance, plus providing mentorship and tools to succeed, help prevent surprises during termination. Keep in mind your employees are likely to see another side of any particular performance issue or incident. “Give employees a chance to offer their insight during difficult conversations,” says Nowak.
Special Considerations for Layoffs
Layoffs due to financial pressures or operational changes also carry risks. This is why insurers will often ask if you’ve implemented a layoff in the last 12 months. Even during layoffs, employees may allege wrongful termination based on perceived or actual breaches of employment agreements or implied contractual promises.
Layoffs unrelated to employee performance must be handled carefully. Communicating the rationale clearly and objectively is critical. Documentation here is just as vital as in performance-related terminations.
Note that the Worker Adjustment and Retraining Notification Act (WARN) requires companies (typically with 100+ employees) to provide at least 60 days’ notice before mass layoffs.
Best Practices to Mitigate Risk:
- Review all employment contracts thoroughly for severance terms, termination clauses, notice periods, and other obligations.
- Clearly document that layoffs are due to business necessity or financial constraints.
- Honor contractual obligations strictly and document adherence.
Get Protection with Employment Practices Liability Insurance (EPLI)
Malpractice insurance alone typically isn’t enough protection against employee-related claims, such as wrongful termination or discrimination. Consider purchasing an EPLI policy if you employ employees or third-party contractors.
Employees often allege discrimination under various protected categories, including:
- Age
- Race, sex, religion, national origin
- Disability
- Pregnancy or family leave status
EPLI covers significant legal risks, including defense costs for lawsuits related to layoffs, wrongful termination and discrimination claims. “If you have employees and don’t have EPLI, your healthcare business is vulnerable,” says Nowak.
Best Practices to Mitigate Risk:
- Use objective, clearly documented criteria to select employees for layoffs.
- Conduct an internal audit before layoffs to confirm that protected classes aren’t disproportionately impacted.
- Provide transparent, documented reasoning for selection criteria.
To summarize, here’s how to minimize your risk:
- Document consistently and comprehensively.
- Engage HR, legal or your insurance carrier’s support early.
- Regularly review employee performance and maintain clear, transparent communication.
- Acquire dedicated EPLI coverage.
By implementing these best practices, your healthcare organization can significantly reduce your vulnerability to costly litigation.
