Content supplied by Pekin Insurance

What Your Dealership Needs to Fight Wrongful Termination Lawsuits

January 30, 2019

4 min read

Combine a disciplinary action plan and employee practices liability insurance (EPLI).


Sometimes, dealership employees don’t work out. It could happen for a variety of reasons: attitude, performance, attendance, or a more serious offense like theft.

What if an employee gets fired and files a wrongful termination lawsuit? According to the 2017 Hiscox Guide to Employee Lawsuits, $160,000 is the average cost of charges resulting in a defense and settlement.

Continue reading to discover what your dealership needs to fight wrongful termination lawsuits.

Wrongful Termination Defined

According to FindLaw, wrongful termination happens when an employee is “fired for an illegal reason, which may involve violation of federal anti-discrimination laws or a contractual breach.”

By law, employees can’t be terminated based on:

  • Age
  • Disability
  • Ethnicity
  • Gender
  • Information they supply to a regulatory body
  • Legal complaints filed against an employer
  • Race

Your status as an at-will employer won’t save you from a wrongful termination lawsuit. You might include a line in your employee handbook about not having to justify a firing, but that shouldn’t be your legal defense.

Retaliation Accounts for Nearly Half of Charges

In its most recent Enforcement and Litigation Statistics study, the Equal Employment Opportunity Commission (EEOC) found that retaliation accounted for 48.8% of work-related charges. Retaliation happens when an employer disciplines an employee or applicant for legally protected job activities.

Retaliation actions include:

  • Not being hired (for applicants)
  • Demotion
  • A poor performance evaluation
  • Salary reduction
  • Termination

You might feel legally justified for letting a member of your staff go, but what if that employee thinks the firing qualifies as retaliation and wrongful termination? How do you navigate these gray areas?

Wrongful Termination Scenario

The following scenario shows how a potentially perfect hire could lead to a wrongful termination lawsuit at your dealership.

A Sales Manager Turns Sour

Larry seems like a perfect fit for the open sales manager position. He has 35 years of industry experience, and you’re hiring him away from a regional competitor. During his first few weeks, Larry pulls out all the stops to close deals. Everyone loves him. Unfortunately, Larry starts showing up late and missing meetings. He’s supposed to help the sales team set monthly goals, but he makes excuses for ignoring this responsibility.

One afternoon, you overhear Larry saying he’s too busy to work numbers for a deal. When you get closer, you see he’s sending dog memes to someone on Facebook Messenger. Larry then takes a 45-minute smoke break before disappearing for a few hours.

You think the situation will improve, but it doesn’t. A salesperson says he heard Larry lying to a customer about the condition of an as-is car. Your front desk staff tells you Larry curses and goes on long, loud political rants.

Larry’s behavior could bruise your dealership’s reputation, and he creates an unpleasant environment for your employees and customers. You know what you have to do. You bring Larry in to your office and tell him his services are no longer needed. When you ask him if he has any questions, he says nothing. He leaves your office, packs his things, and drives away.

A few months later, Larry files a wrongful termination complaint against your dealership. He says he was fired because of his age. Now, you have to decide between meeting Larry in court and settling out of court.

Check Your Disciplinary Action Plan

Larry’s bad behavior escalated, but he didn’t face any consequences until his termination. He probably thought he did nothing wrong.

Documented warnings could’ve dissuaded Larry from filing a claim. With his poor behavior described in detail, his legal representative would have a more difficult task proving age was the key factor in the termination. Don’t wait to explain and document employee infractions at your dealership.

Follow this disciplinary action plan to strengthen your defense against wrongful termination claims:

  • Infraction 1: Issue a verbal warning and update the employee’s personnel file with the reason for the warning.

  • Infraction 2: Issue a written warning and have the employee sign it. This warning should state that any further infractions could lead to termination. Place the warning in the employee’s personnel file.

  • Infraction 3: Issue a final written warning, but terminate the employee if the behavior justifies it. If you fire the employee, cite all the infractions that led to the decision.

EPLI Gives You an Extra Layer of Protection

It’s great to know the definitions of wrongful termination and retaliation. It’s even better to use a thorough disciplinary action plan.

Before you say, “I’m in the clear,” you should know what employment practices liability insurance (EPLI) can do for you.

EPLI is designed to cover you when employees file lawsuits related to:

  • Breach of contract
  • Discrimination
  • Harassment
  • Wrongful discipline
  • Wrongful termination

EPLI reimburses you for legal costs, judgements, and settlements up to policy limits, but it doesn’t cover punitive damages, civil fines, or criminal fines.

Do you want the protection of EPLI at your dealership?
Contact A1 Insurance and Financial Services LLC to add EPLI to your business insurance plan.

Get a Quote