Firing A Family Member Employee - Can You Fire A Family Member Employee and Still Keep the Family Together?

Firing A Family Member Employee - Can You Fire A Family Member Employee and Still Keep the Family Together?

One of the biggest challenges in managing a family-owned business is firing an underperforming family member. Ideally, all of the family members working in the business recognize and agree to the need for firing a family member. I have found in these situations that it is difficult to engage in a process that can be accomplished in a way that relationships are maintained and where everyone can still attend family functions in the future with no underlying ill will or bitterness remaining between family members. Unfortunately, it has been my experience that rarely is everyone emotionally and capable of getting to a place where terminating a family member is accepted and doesn’t negatively impact family dynamics.

Recently, I read an article in The Wall Street Journal entitled "You're Fired ... but I hope to see you at the next family reunion." (http://online.wsj.com/news/articles/SB20001424052702303936904579180000200664562)

In that article, there are several valid points about elements and the process of terminating a family employee. Although the article contains good information, it does not address the depth of the challenges inherent in these situations. 

Each Family Business Is Unique

Each situation is different, and the complicating factors also vary from situation to situation. For instance, is the family member to be fired also an equity owner in the company? Often there is a misconception whether an owner can be subject to having his or her position as an employee within the company. Basically, employment status and ownership status are two different things, with the exception of where there are two different agreements in place impacting the legal standing of the individual as an owner and an employee in a company.

Other complicating factors include situations where there are multiple family groups (uncles, aunts, cousins and the like) involved in the business, all of whom have differing opinions about whether a family member should be fired. In addition, in the case where the family member who is being fired is managed by a non-family member who is a key employee and is essential to the success of the business, this situation can also cause challenges based on family members taking sides and making emotional decisions that could lead to a key employee leaving his/her employment and the business suffering as a result. The old adage of blood being thicker than water is alive and well!

Be Quick and Objective

While these situations are never easy, I have found that there are two principals that, when followed, inevitably allow for a better resolution of termination of a family member from employment with the family business. The first is DO NOT PROCRASTINATE. Doing nothing is not a solution; doing nothing and hoping the situation will go away or get better on its own is also not a solution. In fact, procrastination, or sticking one’s head in the sand, in my experience always makes a situation worse in that it allows emotions to fester and can negatively impact a business’ non-family member employees.

A second element leading to a more successful resolution is to engage in a communication process that is moderated by a trusted advisor of the family. Many times, family members left to their own devices as far as discussing these types of issues disintegrate into unproductive conversations and even screaming matches that rarely produce any positive results. A trusted advisor who can act as an objective moderator and keep the conversation within a set of boundaries can minimize the emotion of the overall situation and produce a more factual discussion regarding the circumstances surrounding the proposed firing of the family member.

Another consideration for any family business employing family members is, to the extent it is possible, to establish shareholder and employment agreements that address potential situations involving the termination of the family member from employment. Prescribing a procedure and path toward evaluating and ultimately terminating a family member, and applying that standard to every family member employee, can take some of the emotion out of the process.

Objectivity and Integrity Are Key

In any event, regardless of the facts and circumstances, terminating a family member employee is a difficult task for any family business. Although it is a difficult process, managing the family business also means recognizing a responsibility to the business and all of the employees of the business, and not shying away from dealing with the situation at hand and doing so with as much objectivity and integrity as possible. Although the initial reaction of the family member to be terminated presumably will not be one of acceptance, if the process is handled as objectively as possible, over time the relationships among the family members may be preserved.