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Heather A. Kmetz
503.243.1661 x 226

How to Properly Handle Employee Terminations

November 2012

Heather A. Kmetz
503.243.1661 x 226
The recession has presented employers with both difficulties and opportunities.  Greater efficiencies have in some instances increased profits.  High unemployment rates have increased the pool of highly-skilled workers seeking employment.  While employers have innovated and added, they have likely also been faced with the unpleasant task of terminating some existing employees.

Oregon has unique statutory provisions relating to payment of wages on termination of employment, and there are significant penalties for failure to comply with these statutory provisions.  Presuming that an employee is "at will" (not subject to employment agreements or collective bargaining agreements), the following checklist is a starting point for employers looking to terminate an employee in Oregon.

When an employer terminates an employee, all wages earned and unpaid at the time of the termination become due and payable not later than the end of the first business day after the termination.  It is generally best to deliver the final paycheck at the time of termination, and the terminated employee should sign a receipt, acknowledging calculation and receipt of the final paycheck.  Further, if a severance is offered to the terminated employee, you will want the employee to sign a release.

In calculating the final paycheck, include (in accordance with company policy) any accrued but unused:

  • holiday leave
  • sick leave 
  • vacation leave 
  • flexible time off

Also consider any commissions that were earned but unpaid at the time of termination.  In determining whether a commission is earned at the time of termination, you will want to consider whether the terminated employee was the "procuring cause" of a transaction.  In Lenchitsky v. H.J. Sandberg Co., 217 Or. 483 (1959), the court frames the issue as "whether the plaintiff can claim commission on sales made by him for furnaces installed and billed to the purchaser after the termination of his employment."  And, in Christenson v. Oregon Modular Designed Inc., Corp., 273 Or. 499 (1975), there was an executed sales agreement between the third-party plaintiff and the plaintiff prior to the termination of the third-party plaintiff's franchise agreement with the defendant.

Ask your terminated employee to provide a mailing address to which all future notices may be mailed.  This information can be incorporated into the paycheck receipt, whereby they direct you to send all notices to the specified address.  It is also helpful to request a phone number and email address.

All company property should be promptly retrieved from the terminated employee, including, but not limited to keys, personal data devices (e.g. iPhone, Blackberry, Droid), laptops and tablets (e.g. iPad), parking pass, and company books and records (including any not maintained on company premises).

Confirm all user names, passwords, and other electronic access information with the terminated employee and take the necessary action to ensure company information and accounts cannot be accessed (e.g., remote access to company server and on-line banking).

If the terminated employee is an officer in the company, ask the terminated employee to sign a resignation.  If it is an essential officer position, you may need to appoint a replacement officer.  Consider filing an amended annual report with the Oregon Secretary of State if the terminated employee is listed in their records.

If the terminated employee is an authorized signer on any company account, contact your financial institution(s) in advance of the termination to obtain any paperwork required to remove that person as an authorized signer.  Some institutions may require the terminated employee's signature, so have this paperwork ready for signature at the time of termination.

The health care plan administrator must be notified immediately of the employee's termination.  The plan administrator has 14 days from the date of termination to send the terminated employee notices required under the Consolidated Omnibus Budget Reconciliation Act (COBRA).  COBRA requires that terminated employees (and their families) who lose their health benefits be given notice of their right to choose to continue group health benefits provided by their group health plan for limited periods of time.  The plan administrator must send the required notices within 14 days from the date of termination.

Generally, qualified retirement plans (i.e., 401(k) and profit sharing plans) provide for rollover or payments of benefits after terminating employment.  The plan's Summary Plan Description (SPD) should set forth the plan's rules for notifying the terminated employee of their options and required timing for completing the rollover/distribution.  Be sure to note vesting schedules (as unvested portions are generally forfeited on termination of employment), and confirm the plan administrator takes all necessary actions to ensure the plan remains in compliance with tax and ERISA rules following termination of the employees.

Assuming your terminated employee seeks unemployment benefits, you will be contacted by the state.  You will want to ensure that your information on record with the Oregon Unemployment Insurance Department is current – and submit a Business Contact Change form if it is not. 

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