Firing someone: If you are successful, at some point you are going to have to do it.
I can’t say how often I have been called the first time an entrepreneur has to fire someone. BTW, I get that call from seasoned execs as well. Nobody likes to do it and everyone is nervous that they will mess up in light of all the applicable rules.
One of my partners, Jonathan Keselenko, who practices in the Employment area, developed a nice simple termination checklist that I have found useful. One thing about this list is that it applies to situations where the employee is an “employee at will.” If there is an employment contract, you will also need to review the contract to make sure you meet its requirements as well. Here is the list, with some additions from me:
EMPLOYMENT TERMINATION CHECKLIST
- Have a good reason for the termination, and make sure that the reason is consistent with the documentation.
- Provide the employee with a truthful explanation for the decision. For example, if the employee is being terminated for poor performance, do not characterize the termination as a layoff.
- Don’t be gratuitously cruel. You should inform the employee of the reason for the termination, but you do not need to convince him that you are right or win a debate.
- Conduct the termination in a private and respectful way.
- If you any concerns about litigation, two people from the company should be present at the termination meeting, and both should take detailed notes.
- Pay: be prepared to pay all compensation due, including unused but accrued vacation pay.
- Explain that the employee will receive notice about continuing group health coverage under the Comprehensive Omnibus Budget Reconciliation Act of 1985 (“COBRA”). Explain that all other benefits will cease as of the termination date.
- Provide state-issued information about filing for unemployment, even if you think the employee is not eligible.
- Collect all company property from the employee. Consider having the employee sign an acknowledgement form that he has returned everything.
- Allow the employee to collect any personal belongings before leaving the work premises.
- Block the employee’s access to the Company’s premises and electronic access to the Company’s computer systems and email.
- If the employee is listed on your company website, remove him from the site.
- Remind the employee of any restrictive covenants (by this I mean noncompetes, nonsolicits, confidentiality and inventions agreements) and provide an additional copy.
- Think about how you intend to communicate the employee’s departure to customers and other employees, if at all. Who needs to know and why? Make sure you have a legitimate business reason for the communication.
- Think about whether you are willing to give the employee a reference.
- Inform the employee about options that may be exercised (or restricted stock that may be repurchased by the Company). Be prepared to repurchase restricted stock (if you intend to). The repurchase agreement may not be “self-executing” with the result that you may have a time frame for acting.
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path where the final destination invariably means losing control of your company. Determining if you want to walk down this path is a question often not given enough serious thought by founders. Think of it as an identity crisis of sorts - one way to determine if the founders are ready to take the VC route is for them to ask themselves: Am I ready to make distinction between myself and the start-up? If the answer is "NO - there is no distinction", then the path from start- up through venture funding to hopefully an exit will be at best more painful and angst ridden than normal and at worse will be a disaster of sorts. 
