Of course, you can terminate an employee at your will or for poor performance. But do you really believe the employee and his lawyer are going to buy that? You have almost admitted in your post that his disability leave is a reason you want to fire him because of the employee morale his absence has caused.
This is a very high risk decision and there is no substitute for buying the advice of counsel after all of the facts, employee records and company policies have been reviewed. As a business owner, you should have counsel available to help make very complex legal decisions.
They say you get what you pay for, and this response is free, so take it for what it is worth. This is my opinion based on very limited information. My opinion should not be taken as legal advice. For true advice, we would require a confidential consultation where I would ask you questions and get your complete story. This is a public forum, so remember, nothing here is confidential. Nor am I your attorney. I do not know who you are and you have not hired me to provide any legal service. To do so would require us to meet and sign written retainer agreement. My responses are intended for general information only.
There are two critical foundational issues here:
1. What is the risk tolerance of your business?
2. What will the documentary record re the employee at issue establish?
As to the first issue, you probably don't know that answer, but every business should, in conjunction with skilled and experienced counsel, work through that question and arrive at a position that will represent your equilibrium point. The results of that analysis will serve as a boundary that can guide and inform you a hundred times over in myriad matters and can save you from making inconsistent impulsive ad hoc decisions that will leave you chronically vulnerable to after the fact allegations.
As to the second issue, you cannot ethically start creating a documentary record of non-disability related reasons for terminating this employee. But you can review the existing record, in conjunction with legal counsel, and determine whether you have sufficient evidence of performance-related reasons to terminate. The record is what it is -- and no one here knows what it will establish. Be objective, but don't buy into hostage mentality. Better still, rely on experienced legal counsel to give you an objective assessment of the adequacy of the record to support a performance-based termination.
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With less than 20 employees, FMLA is not a concern, but California's Fair Employment & Housing Act likely is. FEHA applies to companies with 5 or more employees and requires such employers to "reasonably accommodate" employees suffering from physical impairments that limit a major life function.
No law, including FEHA, limits an employer's ability to fire workers for poor performance. However, without adequate record of performance issues, you risk allegations that termination on such basis is a pretense for unlawful disability discrimination.
This is a circumstance in which you would greatly benefit from consultation with a local employment law attorney. There is no substitute for advice obtained in a confidential setting upon consideration of all relevant facts.
This answer is a general interpretation of the law and is not fact specific to your case. Likewise it does not create an attorney-client relationship. You should seek an attorney for a review of your specific facts and documents.