The hedge fund industry has recently been battered by performance struggles and rising operating costs from increased regulatory pressures. Amid these circumstances, many fund managers find themselves facing difficult employee-related decisions – from which employees deserve bonuses to which warrant the proverbial pink slip. While issuing performance bonuses is a purely financial decision, serious legal risks are associated with a manager’s decision to terminate employees. In addition to the recent spate of SEC actions against employers alleging that provisions within their employment documents violated the SEC’s whistleblower rules, there is also the risk of lawsuits from former employees who believe they were improperly terminated. For coverage of a wrongful termination suit against a fund manager, see “Four Recommendations for Hedge Fund Managers Designed to Minimize Risk and Damage From Employment Discrimination Lawsuits” (Oct. 11, 2012). This article outlines certain steps fund managers should take prior to terminating employees – including reviewing their documentation and delivering feedback to poor performers – to mitigate regulatory and litigation risks. For more on important employment considerations for investment managers, see “Trending Issues in Employment Law for Private Fund Managers: Non-Compete Agreements, Intellectual Property, Whistleblowers and Cybersecurity” (Nov. 17, 2016); and “Non-Competition and Non-Solicitation Provisions and Other Restrictive Covenants in Hedge Fund Manager Employment Agreements” (Nov. 23, 2011).