Bottom Line Up Front: In small to medium businesses, every employee matters more—but that’s exactly why you can’t afford to keep the wrong ones.

While large corporations can absorb underperformers across teams, SMBs feel the impact of every poor hire tenfold.

The key isn’t avoiding difficult terminations; it’s executing them strategically and legally.

The SMB Termination Dilemma

Small and medium-sized businesses face a unique challenge when it comes to employee termination. Unlike Fortune 500 companies with redundant roles and deep benches, every position in an SMB carries significant weight. When someone isn’t performing, their impact ripples through the entire organization almost immediately.

This reality creates a dangerous trap: business owners delay terminations because they fear operational disruption, but keeping underperforming employees often causes more damage than letting them go. 

The result? Declining morale among high performers, reduced productivity, and sometimes toxic workplace dynamics that can destroy years of culture building.

The solution isn’t to lower your standards or accept mediocrity.

It’s to approach terminations systematically, legally, and decisively.

The Ideal Team Player Framework: Making the Termination Decision

One of my recommended frameworks for clear guidance on who to keep is found in Patrick Lencioni’s “Ideal Team Player”. The model provides an excellent lens for this decision, especially in SMBs where cultural fit is paramount.

The Three Essential Virtues

Every team member should possess three core qualities: they should be Humble, Hungry, and People Smart. Understanding where someone falls short helps you make informed termination decisions and avoid keeping the wrong people for the wrong reasons.

Humble: They put the team before themselves, admit mistakes, and share credit. They’re confident but not arrogant.

Hungry: They’re self-motivated, always looking for more responsibility, and driven to contribute to the team’s success.

People Smart: They relate well to others, have good judgment about people, and communicate effectively.

The Four Types of Problem Employees

When someone lacks one or more of these virtues, they fall into predictable categories that help clarify your termination decision:

The Skillful Politician (Lacks Humility): These are your high performers who are toxic to culture. They get results but take all the credit, blame others for failures, and create drama. In large corporations, these people often survive because their numbers look good. In SMBs, they’re cancer that spreads quickly through small teams. Decision: Terminate quickly—their cultural damage outweighs their performance contributions.

The Lovable Slacker (Lacks Hunger): Everyone likes them, they fit the culture perfectly, but they just don’t produce. They do the minimum, avoid additional responsibilities, and coast on their likability. In SMBs, you can’t afford passengers. Decision: Give them the “come to Jesus” conversation first—sometimes good people just need clarity about expectations. If they don’t step up within 60-90 days, terminate.

The Accidental Mess-Maker (Lacks People Smarts): They work hard and mean well, but consistently say the wrong thing, misread situations, and create interpersonal problems without realizing it. Their heart is in the right place, but the damage they cause is real. Decision: Coaching first—some can learn these skills with feedback and training. If they can’t improve within 3-6 months, terminate.

The Ideal Team Player: Possesses all three virtues. Keep them, develop them, and pay them well.

Making the Binary Decision

Here’s the hard truth: if someone is missing two or all three virtues, terminate immediately. If they’re missing one virtue, you have a choice to make based on your specific situation and their willingness to change.

The key insight for SMBs is that cultural fit often matters more than performance because one toxic person can destroy team dynamics that took years to build. Conversely, a great culture fit who’s underperforming might just need better systems, training, or role adjustment.

Building Your Documentation Foundation

Start Before You Need It

Effective termination begins long before the final conversation. In SMBs, where relationships are often more personal and informal, documentation becomes even more critical. You need to create a paper trail that protects both your business and provides clear evidence of performance issues.

Essential Documentation Elements:

Performance Records: Document specific incidents with dates, times, and witnesses when possible. Instead of noting “John had a bad attitude,” write “On March 15th, John interrupted three colleagues during the team meeting and dismissed Sarah’s proposal without explanation. This pattern has occurred in the last four meetings.”

Goal Setting and Reviews: Establish clear, measurable objectives and document whether they’re being met. Vague expectations lead to termination challenges. “Improve customer service” is less defensible than “Reduce customer complaint resolution time from 48 hours to 24 hours by month-end.”

Communication Records: Save emails, messages, and formal warnings. If you’re having verbal conversations about performance, follow up with an email summarizing what was discussed and agreed upon.

Policy Violations: Document any breaches of company policies, from tardiness patterns to more serious infractions. Consistency in enforcement is crucial for legal protection.

The “Come to Jesus” Meeting: Last Chance for Turnaround

One question I often ask my clients before we even start to prepare for a termination is, “Can this person turn it around if given the right feedback?” 

Regardless of the response, we still have to have a meeting—often called a “come to Jesus” meeting. This serves two purpose: 1.) it gives the employee a genuine opportunity to improve, and 2.) it demonstrates to authorities (should legal issues arise) that you attempted remediation.

Preparing for the Conversation

There’s really no way to set this up without the employee at least not suspecting something, but make sure to have documentation with specific examples and lay it out as clear and concrete as possible. Sometimes this could coincide with a weekly, monthly, or quarterly 1-on-1.

Having the Conversation

Start with clarity: “We need to discuss some serious performance concerns that are affecting the business.” 

Present specific examples and their impact. For instance: “Your project deliveries have been late four times in the past six weeks, which has delayed client presentations and affected our reputation.”

Give them space to respond, but don’t let the conversation become defensive or argumentative. The goal is to determine if they understand the severity and are willing and able to change.

Setting Clear Expectations

If you decide to give them another chance, establish specific, measurable goals with concrete deadlines. Put these expectations in writing and have them acknowledge receipt. Something like: “You need to complete all assigned projects by their due dates for the next 60 days, maintain professional communication in all team interactions, and meet weekly with me to review progress.”

Making the Decision

After this meeting, you should have clarity on whether improvement is possible. If they don’t acknowledge the issues, blame others, or seem unable to meet the new expectations, it’s time to move toward termination. 

(I’ve seen situations where people “receive” the feedback and then ultimately just end up quitting shortly thereafter.)

Legal Considerations and Protection: Nebraska-Specific Requirements

At-Will Employment: Nebraska allows termination for any non-discriminatory reason, but specific state requirements still apply.

Key Nebraska Requirements:

• Final Pay: Must be paid by next regular payday or within two weeks (whichever comes first), including accrued vacation if promised in policy
• Protected Classes: Cannot discriminate based on race, color, religion, sex, disability, national origin, age (40+), pregnancy, military service, or tobacco use outside work
• Unemployment Claims: To contest, you must prove misconduct (willful rule violations) or voluntary quit without work-related cause. Poor performance alone usually doesn’t qualify
• Employee Handbooks: Detailed disciplinary procedures can create implied contracts—follow your own policies exactly or avoid specific language
• Wage Requirements: Pay in legal tender/direct deposit, provide detailed pay stubs, limit deductions to taxes, court orders, or written authorization

Document for Protection:

• Policy violations with dates and witnesses
• Progressive discipline records
• Performance improvement plans and outcomes
• Any workplace investigations

Consult an Attorney If:

• Employee filed NEOC discrimination complaints
• Recent workers’ comp claims
• Employee over 40 (age discrimination concerns)
• Access to trade secrets/client relationships
• You haven’t followed handbook procedures

Non-Compete Notes: Nebraska enforces reasonable agreements, but focus on non-disclosure and non-solicitation for SMBs rather than broad non-competes.

The Severance and Non-Disclosure Strategy

Should I offer severance for a fired employee?

In SMBs, offering severance can be a smart investment even when not legally required. It often leads to smoother transitions, reduces the likelihood of negative reviews or social media complaints, and can provide legal protection through accompanying agreements.

The Non-Disclosure Agreement

A well-crafted NDA protects sensitive business information, client lists, and prevents the former employee from disparaging your company. Key elements include:

• Clear definition of confidential information
• Non-disparagement clauses (mutual is often better)
• Protection of client relationships and business strategies
• Reasonable time limits and geographic restrictions if applicable

Additional Agreement Terms

Consider including non-solicitation clauses for employees and clients, return of company property requirements, and cooperation with transition activities. Make sure any restrictions are reasonable and enforceable in your jurisdiction.

Making the Offer

Present the severance package as a gesture of goodwill, not an admission of wrongdoing. Give them time to review (about a week) and consider having an attorney review the agreement.

The Termination Meeting: Direct and Decisive

Timing and Location

Schedule the meeting at the end of the workday or week to minimize disruption and allow the employee to leave with dignity. Choose a private location, preferably not your office, and have another manager or HR representative present as a witness.

Lead with the Decision

This is not one of those “poop sandwich” situations where you start with compliments.

“The reason we’re here today is that we’re ending your employment with the company, effective today.” Don’t build up to it or try to soften the blow with lengthy explanations—nothing you said before will be remembered and it’ll only create confusion.

Keep It Brief and Professional

After stating the decision, provide a brief, factual explanation: “This decision is based on the performance issues we’ve discussed over the past several months.” Important: You’ve already made the decision, so don’t try to justify it.

Cover the Logistics

Quickly move to practical matters: final paycheck timing, benefits continuation (COBRA), return of company property, and any severance arrangements. Have these details prepared in writing.

Maintain Dignity

While being direct, treat the person with respect. Avoid phrases like “This is hard for me too” or “I wish things had worked out differently”—these sound tone deaf.

Handle the Immediate Aftermath

Have a plan for the employee’s departure from the building, access to personal items, and communication with remaining staff. In sensitive situations, consider having security assistance available, though this should be discreet.

Communication Strategy for Remaining Staff

Address the Team Quickly

Don’t let rumors fill the information vacuum. Address the team within 24-48 hours with a brief, professional statement: “John is no longer with the company. We’re committed to ensuring a smooth transition and will discuss how his responsibilities will be handled.”

Protect Confidentiality

Don’t share details about performance issues or the termination process. This protects both the former employee and your company from potential legal issues.

Focus on Moving Forward

Emphasize business continuity and your commitment to the team. Use this as an opportunity to reinforce company values and standards.

Rebuilding and Learning

The Mutual Benefit of Right-Fit Terminations

Here’s a perspective shift that can help you approach terminations with more confidence: firing someone who isn’t a good fit is often a favor to both parties. While it feels harsh in the moment, you’re actually freeing them to find a role where they can truly excel.

Think about the last time you kept someone who wasn’t working out. They likely knew it too. The stress of underperforming or not fitting culturally takes a toll on people. They may have been questioning their abilities, dreading work, or feeling like they were constantly swimming upstream. 

By making the difficult decision to let them go, you’re giving them permission to find an environment where their skills, personality, and work style are a better fit.

When you frame termination as “freeing someone to find their right place” rather than “failing them,” it becomes easier to act decisively. You’re not being cruel—you’re being honest about what your organization needs and what they need to succeed. Both of you deserve better than a poor fit that breeds frustration and mediocrity.

This mindset shift also helps with the conversation itself. You can genuinely wish them well in finding a role that better matches their strengths, because you mean it.

Conduct a Post-Termination Review

Analyze what led to the situation. Was it a hiring mistake? Insufficient training? Poor management? Make the mistake once, and don’t make it again.

Support Your Remaining Team

Terminations can shake team confidence. Be available for questions, provide additional support during the transition, and consider whether workload adjustments are needed.

Plan Your Replacement Strategy

Don’t rush to fill the position. Take time to reassess the role requirements and improve your hiring process based on lessons learned.

Final Thoughts: The Cost of Inaction

In small and medium-sized businesses, every decision has amplified consequences. 

While terminating an employee feels risky, keeping the wrong people often costs more in lost productivity, damaged morale, and missed opportunities.

I have clients who are now on the other side of having made a very difficult termination and looking back they can reflect that it was right decision for their team.

When you handle terminations with integrity and strategic thinking, you protect not just your business, but also demonstrate the kind of leadership that attracts and retains top talent.