If you have a poor performer, is it better to make a clean break and fire him, or is it better to prolong his (and your) agony?

That is obviously a biased question, but some employers will do almost anything to avoid firing an employee, including the following:

Earlier this week, a couple of judges on the U.S. Court of Appeals for the Second Circuit were questioning whether “limbo periods” are really a good deal for employees. (A list of the Courts of Appeal and the states they cover is here.) In the case of Castelluccio v. IBM — IBM is appealing an age discrimination verdict in which the plaintiff won $3.7 million (that figure includes his attorneys’ fees) — the company gave the plaintiff six months to find a job elsewhere in the company before they fired him.

According to news reports about the oral argument at the appeals court, two of the judges challenged IBM’s contention that this “limbo period” was for Mr. Castelluccio’s benefit.

A “limbo” period could lull an employee into letting the statute of limitations run out on his claims, the judges said.

(Normally, the statute of limitations begins to run when the employment decision is communicated to the employee, not on the date of termination. So if an employer tells an employee that she is going to be terminated in six months, the statute starts running when she is told – not when she is terminated six months later.)

In addition, the judges said, limbo periods just “prolong the ordeal,” making it that much harder for the employee to get on with her life.

I am inclined to agree with the judges. Employers, make a clean break. Don’t put the employee in limbo.

(Of course, the “clean break” should not occur until after the employer has done its due diligence. I would not terminate for poor performance until I’d made sure that the employee understood the expectations and had received constructive, progressive, documented feedback and a fair opportunity to improve.)

Here are three more reasons why it’s usually better for employers to make a clean break:

  1. Constructive discharge. There is a well-established legal principle that if an employer deliberately makes working conditions so intolerable that a reasonable person would feel compelled to resign, then you have what is called a “constructive discharge.” Maybe you didn’t literally say, “You’re fired!” but in effect you did. And so, legally, they’re the same. If you get sued and go in front of a jury, constructive discharge is usually worse because it strikes most people as devious and cruel.
  2. Infliction of emotional distress. Normally, a “clean break” discharge is not enough for an “infliction of emotional distress” claim. For an intentional infliction claim, the defendant’s conduct has to be “extreme and outrageous . . . atrocious, and utterly intolerable in a civilized society.” Almost all courts say that simply firing an employee (even if the termination was unfair or discriminatory) is not “extreme and outrageous” enough for an intentional infliction claim. Normally, a discharge isn’t enough for a negligent infliction claim, either, because the claim requires “negligent” conduct, and a termination is intentional, not negligent.

If you dither and don’t make a clean break, things may happen during the limbo period that will make you liable for emotional distress. Maybe you’re giving the employee demeaning work to perform that is embarrassing and traumatizing. Maybe the stress of the situation will result in the employee’s mental breakdown. A lot of things can happen in six months.

  1. Sabotage. If you’re that unhappy with your employee, it’s very possible that he is equally unhappy with you. That makes the limbo period dangerous for your company – your disgruntled, idle, frustrated employee has the opportunity to steal your trade secrets and confidential information while scrambling to get a job with your competitor, hack into your information systems, or get “hurt on the job” so he’ll at least have a little workers’ comp money coming in after you fire him. Even if he isn’t that kind of guy, he’ll have six months to talk to your other employees about how mean you are, and some of them may feel sorry for him and get mad at you. Or he may just hide your desk out of spite. That isn’t good, either.

Should an employer ever consider “limbo”? Well, sure. Here are four situations where a limbo period might be a good solution:

  1. The Peter Principle. This is the business philosophy that employees tend to rise to the level of their incompetence. Maybe your employee got promoted one notch too high. Maybe she even realizes it, and is miserable. An employee in this situation may be hurt about being moved back down a notch, but once she gets there, she may be able to thrive again and may even thank you someday.
  2. The “Individual Contributor.” This is a variation on The Peter Principle. That highly talented engineer or scientist or writer is so outstanding, we’ve just gotta promote him into management! But then, Oh, no – he’s a disaster! Suddenly your employees are threatening to quit, you’re getting EEOC charges, and now they want a union! If you’re in this situation, you certainly want to retain the talented individual, but you probably don’t want him as a manager of “people” any more. You may be able to put this person back into a non-management role (with financial and other recognition for the talents that you appreciate so much). Again, everyone wins.
  3. Reasonable Accommodation. Sometimes an employee may need to be demoted (or be allowed to search and post for other positions) as an accommodation for a disability, or for a religious need that conflicts with the requirements of the current position. If so, by all means try it (but only after engaging in the interactive process with the employee).
  4. You honestly and reasonably believe that the employee may be able to find a suitable position elsewhere in the company if she is given the chance. In the IBM case, apparently there was evidence that Mr. Castelluccio did not have a snowball’s chance of getting another job. But that isn’t always the case. You may have a department that is hiring, and you may believe that the employee who isn’t working out where she is will be awesome in this other department. If there’s a good chance that she will be considered for the position and will do well, then that six-month limbo period suddenly looks a lot fairer, and more beneficial to the employee.

In short, if you have reason to believe that the demotion or limbo period will result in a good fit between the employee and the job, then go for it. But if you want to let the employee run out the clock with a few extra months of pay, knowing full well that nobody else wants him — or that you couldn’t honestly recommend him — then make the clean break. (You can still give him the extra pay.)