When the Time Comes to Fire a Family Member

Terminating an employee isn’t something business owners and CEOs relish. When the situation demands some drastic action, however, it’s necessary to follow through for the good of the business. Family-owned businesses carry with them not only the pressures of maintaining profitability but also the emotional entanglements of personal relationships. When performance issues arise, owners and CEOs face a complex balancing act: how to protect the business while preserving family ties.

As GRF, a CPA firm, wisely notes, “You need to decide which comes first—the business or the family. If the family doesn’t take care of the business, it may not be there to take care of the family.” It's a difficult but necessary mindset for long-term success.

While no single method fits every situation, the following best practices can help make the process of terminating a family member more manageable and, ideally, minimize lasting damage to both the business and personal relationships.

1. Set Expectations and Exit Plans from Day One

Many termination issues can be traced back to unclear expectations at the time of hiring. When bringing a family member into the business, it's critical to formalize their role just as you would for any other employee. This includes a written job description, defined performance metrics, and clear policies regarding workplace behavior and company standards.

Additionally, it’s wise to communicate the company’s standard HR policies—including what happens if performance expectations aren’t met. By setting a precedent of professionalism early, you reduce the risk of future misunderstandings and accusations of favoritism. A known and agreed-upon exit plan, while uncomfortable to discuss at the outset, can prevent much larger conflicts down the line.

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2. Apply the Same Standards to Family Members

One of the most common sources of resentment in family businesses is perceived favoritism. If family members are seen as exempt from the rules or granted special privileges, it can erode morale across the organization.

To avoid this, make it clear from the start that family members will be held to the same standards as all other employees. Their performance should be assessed using the same review processes, and disciplinary actions, when necessary, should follow the same documented protocols. It’s imperative that the family member “follow the same rules and meet the same standards as other employees in similar positions.” By enforcing consistency, you strengthen the integrity of both your family relationships and your company culture.

3. Document Performance Issues Meticulously

When a family member underperforms, it’s natural to hope things will improve without confrontation. However, relying on hope rather than action can lead to bigger problems later. As with any employee, performance concerns should be documented consistently and objectively.

Maintain detailed personnel records, noting both achievements and areas for improvement. If issues persist, ensure that formal warnings are issued, and expectations for corrective action are clearly laid out. Tools such as 360-degree feedback reviews can be particularly valuable here, providing a broader, impartial perspective on performance.

Proper documentation protects the business legally if a dispute arises, but it also ensures the family member is given fair opportunities to improve before more drastic measures are taken.

4. Offer Clear Feedback—and Support for Improvement

Before moving toward termination, it’s important to engage in honest conversations with the family member about their performance. Offer constructive feedback and, where appropriate, opportunities for training, mentorship, or reassignment to a more suitable role.

Sometimes, a family member’s struggles stem not from unwillingness, but from being placed in a position that doesn’t suit their skills. Exploring alternatives can be a way to both protect the business and preserve family harmony. However, this only works if both sides approach the conversation openly and professionally.

5. Involve a Neutral Third Party When Necessary

If termination becomes unavoidable, consider having a neutral third party present during the exit discussion. A skilled HR representative, business consultant, or mediator can help facilitate the conversation, keep emotions in check, and serve as an impartial witness if any legal challenges arise.

As the Family Business Consulting Group explains, an outside facilitator can “promote effective and clear communication, helping to navigate the anger, shame, denial, and sadness swirling around the room.” Having a neutral party present underscores that the decision is based on business necessity, not personal animosity.

6. Offer a Dignified Exit

Whenever possible, allow the family member to leave on their own terms. If they are willing, frame the departure as a resignation rather than a termination. Emphasizing that the role simply wasn’t the right fit—and offering career transition assistance—can help preserve dignity and maintain family goodwill.

Providing references, networking help, or career counseling services shows that while the employment relationship is ending, the personal relationship remains valued. This small effort can make a significant difference in how the situation is remembered and discussed within the family.

7. Maintain a Strict Separation Between Business and Family

One of the greatest challenges in family-owned businesses is separating business decisions from family dynamics. Once a termination decision is made, it’s important not to open it up for broader family debate unless those family members are active stakeholders in the company.

More importantly, the challenge of hiring or terminating a family member is “easier if you consistently separate business discussion from family conversations,” notes Entrepreneur. Don’t bring up business issues at a family gathering and refrain from soliciting advice on employee issues with family members, whenever possible.

If necessary, establish formal family governance policies—such as a family council or charter—to handle disputes and set expectations about how business matters will be managed independently of family gatherings.

8. Lead with Compassion—but Stay Firm

Above all, it’s important to approach the situation with compassion. Terminating a family member is painful for everyone involved. Acknowledge the emotional difficulty of the situation. Show empathy without wavering in your commitment to do what's best for the business.

It may help to remember: protecting the business ultimately protects the family. A struggling company benefits no one—not employees, not owners, and certainly not the broader family that depends on its success.

By staying compassionate but decisive, you demonstrate leadership, protect your business, and—perhaps most importantly—model the resilience and professionalism that can help the family business thrive for generations to come.

Want to learn more about effectively running a family business? Check out what seasoned TAB members have to say in “6 Ways You Can Improve Communication in a Family-Owned Business.”