What Do I Need to Do When an Employee Quits?

There are a number of reasons employees may be leaving the company. Perhaps they found a better opportunity elsewhere. Perhaps they are heading to grad school. Perhaps they hate their job, won the lottery or want to travel the world. The exit may be on good terms, or there may be bad blood. No matter the reason and the sentiment, this article will give you a general game plan for their exit.

Of course, every situation is different, so it’s important to work with legal counsel and Human Resources (HR) professionals to ensure that you’re taking the appropriate course of action. If you’re looking for legal counsel, feel free to reach out to us here.

Assess Whether to Accept Resignation or Influence a Change of Heart

As a general guideline, it can be beneficial for a startup founder to try to convince a quitting employee to stay, but it ultimately depends on the specific circumstances and reasons behind employees’ decisions to leave.

In some cases, it may be worth exploring the reasons for employees’ departure and discussing potential solutions or adjustments that could address their concerns. This could involve offering additional incentives, adjusting their roles or responsibilities, providing additional support or training, or exploring opportunities for growth and advancement within the company. Open and honest communication can help determine if there is a possibility of retaining employees and addressing any underlying issues.

Deciding whether to encourage employees to stay or let them go can be a complex decision, especially for startup founders where every team member might play a crucial role. Here are a few factors to consider:

  • Reasons for Leaving. Understand why they want to quit. If it’s about work-life balance, growth opportunities, team dynamics or salary, see if there’s something you can do to address these issues. However, if they are leaving due to personal reasons or they have received an opportunity they are really passionate about, it might be hard to persuade them to stay.
  • Role and Contribution. Evaluate employees’ roles and contribution to your startup. If they play a pivotal role and their departure would significantly impact your operations, you might want to discuss ways to retain them. Similarly, if they bring unique skills, relationships or institutional knowledge to the team, you might want to negotiate with them.
  • Cultural Fit. Employees’ fit with your startup culture is also important. Even if they’re highly skilled, if they don’t align with your values and culture, their departure might be a good thing for the team.
  • Cost and Effort. Assess the cost and effort required to replace them. In a startup, hiring a replacement can be costly and time-consuming. If the cost of replacing them is high, it might make more sense to incentivize them to stay.
  • Long-Term Commitment. You want to build a team that is committed to the startup’s vision. If employees already decided to quit, they might not be as committed as needed. Persuading them to stay might be a short-term solution, but they could leave again soon.

However, it is important for the startup founder to assess the situation objectively. If employees’ departures are due to personal reasons, a better opportunity elsewhere, or a fundamental misalignment between employee goals and the startup’s vision, it may not be in the best interest of either party to try to convince them to stay. Respect for employees’ decisions and a smooth transition can be more productive in these cases.

Ultimately, each situation is unique, and the startup founder should carefully consider each worker’s value, the impact of their departure and the potential for retention before making any efforts to convince them to stay.

Assuming they in fact are leaving, follow the steps below.

Reviewing Contracts, Agreements and Policies

Before employees depart, review any relevant contracts, agreements or policies related to their departure. This includes non-compete clauses, confidentiality agreements and intellectual property rights.

Non-compete clauses [Link to: Non-compete] restrict employees from working for a competitor or starting their own competing business for a certain period of time after leaving the organization. It’s important to ensure that departing employees understand the terms of their non-compete clause and comply with them.

Confidentiality agreements protect sensitive information such as trade secrets, customer data and financial information. Departing employees need to be reminded of their obligations to maintain confidentiality even after they’ve left the organization.

Intellectual property rights protect original creations such as inventions, designs and software code. Organizations need to ensure that departing employees do not take any intellectual property with them when they leave or use it inappropriately.

By reviewing these contracts, agreements and policies before employees depart, organizations can ensure that all parties are aware of their rights and obligations. This can help prevent any legal disputes down the line and maintain positive relationships with departing employees.

Separation Acknowledgment / Agreement

Typically, companies like to have documentation from employees (via email is a good way) of their effective resignation date. Once this has been received, the employer can provide clear documentation to employees that the employment relationship has ended. This can be achieved through either a Separation Agreement or a Separation Acknowledgment.

  • Separation Acknowledgment — This is a simple one-page document that notifies employees that the employment relationship has ended and reminds them of their existing obligations under their employment agreement. It is signed by the company only and does not require the departing employee’s signature.
  • Separation Agreement — This is a lengthier document that documents the termination of the employment relationship, covers intellectual property issues and releases the company from any future claims by employees. The company needs to provide some consideration for employees giving up their right to sue, so the separation agreement requires some amount of severance payment. The separation agreement is generally a few pages longer and requires a signature from both parties.

Consult with your HR professional or legal counsel to determine which document best suits your situation. If you need legal counsel, feel free to contact us here.

Stock Power

The stock power is a short document, usually one paragraph long, that allows the company to repurchase employees’ unvested shares. It is typically one of the last pages of a restricted stock purchase agreement (RSPA) and is generally pre-signed by employees when the RSPA is first executed.

The stock power is necessary because of the way that a vesting schedule works. Initially, employees are issued all of the shares in the equity award, but the company has the option to repurchase the shares. As employees continue to provide services to the company, the company loses the right to repurchase a portion of those shares, and they become fully vested. For example, if the vesting schedule is four years, the company loses the right to repurchase 1/48th of the total equity award each month.

If there are unvested shares, the company has to actually repurchase them (typically at a nominal value) in the stock power. Generally, there are a few blanks that need to be filled in by the company. Then, the company cuts a check to employees for the owed amount, and the company now owns the unvested shares, which generally go back into each employee’s pool.

Lastly, remember to update the cap table after the repurchase.

Final Paycheck and Benefits

This one is pretty simple. Make sure the departing employee gets their final paycheck. That paycheck should include all accrued but unpaid wages. Depending on the paid time off (PTO) policy the company has in place and the state of employment, this may include payment for unused time off. Additionally, ensure that there is a clearly communicated process for the termination of benefits and insurance. Work with your HR professional to ensure that each of these steps are complete and compliant.

Return of Company Property

If employees have any company property, it is important to clearly communicate the process for returning it within a specific timeline — and often this requirement is in a separation agreement. Company property may include hardware, such as a phone, laptop or car, but it may also include intellectual property, such as code bases, customer lists, business plans, and financial or legal documents. Additionally, you should communicate the process and timeline for terminating access to the company’s email, Slack, project management and other software tools.

Notify Relevant Departments and Individuals

When employees decide to leave, notify relevant departments and individuals about their departure. This includes HR, Information Technology (IT) departments and managers of affected teams.

HR needs to be informed so they can update employees’ records and ensure all paperwork is in order. They also need to communicate any changes in benefits or compensation to the departing employee. HR also typically coordinates the rest of the offboarding process with other departments.

IT needs to be informed so they can revoke access to company software, email accounts and other systems that the departing employee had access to. This helps prevent potential data breaches or security issues.

Managers of affected teams need to be informed so they can make arrangements for covering the departing employee’s workload. This might include redistributing tasks among current employees or working with the HR team (specifically recruiting or talent acquisition) to hire a replacement.

For small startups, sending a company-wide email when employees quit is important because it helps maintain transparency, manage expectations and foster a positive work culture. The email should inform everyone about the departure, express appreciation for employees’ contributions and provide any relevant information regarding the transition of responsibilities. This ensures that all team members are aware of the change and can adjust their workflows accordingly. It also shows respect for the departing employee and helps preserve relationships within the company. By openly addressing the situation, it promotes open communication and builds trust among team members, creating a supportive and informed work environment.

Develop a Plan for Communicating Departures to Clients, Customers or Other Stakeholders

When employees decide to leave, it’s important to develop a plan for communicating their departure to clients, customers or other stakeholders who may be affected by the change. This helps maintain positive relationships and ensures that everyone is aware of any potential changes in how work will be conducted.

The first step in developing a communication plan is identifying who needs to be notified. This might include clients with ongoing projects or contracts with the departing employee, customers who have established relationships with them or stakeholders who rely on their expertise.

Once you’ve identified who needs to be notified, it’s important to consider what information should be shared. This might include details about the departing employee’s replacement or how work will be redistributed among remaining staff.

It’s also important to consider how the message will be delivered. Depending on the situation and audience, this could involve sending an email announcement, making phone calls or scheduling in-person meetings.

In addition to notifying clients and customers about the departure, it can also be helpful to provide resources or support during the transition period. For example, if a client has ongoing projects with the departing employee, you may want to offer additional support from other team members or provide regular updates on progress.

Conduct a Knowledge Transfer Session and Collect Written Documentation

When employees decide to leave, conducting one or multiple knowledge transfer sessions is important so that they can share their expertise and skills with their colleagues before they go. This helps ensure that their knowledge is documented and shared with others in the organization.

The sessions can take various forms, depending on the departing employee’s role. For example, a software developer could provide code reviews or walkthroughs of specific projects, while a salesperson could share tips on how to close deals or manage client relationships.

In addition, collecting written documentation of a team member’s standard operating procedures, external work contacts and training materials for incoming hires can be a useful way to prevent knowledge loss.

Conduct an Exit Interview

When employees decide to leave, conducting an exit interview with the departing employee is valuable. This non-mandatory interview, typically conducted by HR, provides an opportunity to gather feedback and insights that can help improve the workplace for current and future employees.

During the interview, it is important to make employees feel comfortable and encourage honest feedback. The interviewer should make it clear how information from the interview will be used. There are many questions that could be asked, and a sample includes:

  • What made you decide to leave?
  • Was there anything you liked about working here?
  • Was there anything you did not like about working here?
  • Do you have any suggestions on how we can improve as an organization?

Conducting exit interviews can provide valuable insights into areas where the organization needs improvement. It also shows departing employees that their opinions are valued, which can help maintain positive relationships even after they have left.

Offering Professional Reference

Offering a professional reference to a quitting startup employee is an optional, but kind gesture that can help maintain a good relationship and support their career progression. By providing a reference, you demonstrate your willingness to vouch for their skills, work ethic and contributions to the company. It can also be seen as a sign of respect and gratitude for their time with the startup.

However, before offering a reference, it’s essential to consider a few factors. Evaluate your relationship with employees and their overall performance during their tenure. If you have positive experiences and believe they would make a valuable addition to another organization, offering a reference can be beneficial. On the other hand, if you have concerns about their performance or suitability for certain roles, it may be more appropriate to politely decline or provide a limited reference. Ultimately, it’s important to be honest and genuine in your assessment, as your reputation as a reference is also at stake.

Evaluate the Impact on Team Dynamics and Morale

When employees leave, it can affect team dynamics and morale, especially if they have a good relationship with other team members.

Managers should evaluate the impact of the departure and identify potential issues such as resentment, workload, or productivity during the transition period. They should communicate with their team about any potential issues and provide support or resources to manage workload, offer professional development opportunities or facilitate team-building activities to improve morale.

Managers should also avoid using negative language or gossip that could create a toxic work environment. Instead, they should focus on highlighting positive aspects of the departing employee’s contributions and expressing gratitude for their time with the organization.

By evaluating the impact of a departure on team dynamics and morale, managers can maintain a positive workplace culture and ensure that remaining staff feel supported during transitions.

Conclusion

In conclusion, the departure of employees can be a complex and emotional process, especially for early-stage companies. However, by following a clear game plan, communicating effectively and maintaining a positive workplace culture, organizations can manage the transition effectively and minimize disruptions. Remember to work with legal counsel and HR professionals to ensure that you’re taking the appropriate course of action. By handling departures with respect, transparency and professionalism, you can preserve relationships with departing employees, maintain productivity, and build a strong and committed team.

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