I agree documentation is everything and if you don't have documentation of write-ups and fire someone, many times they will be awarded unemployment if they file. The more you pay out in unemployment the higher your risk factor and then your rates go up.

Paperwork is not the fun part of being a business owner, but if you do not have an Employee Handbook, Posters of where to go if injured (workers comp), Safety Program, MSDS etc...sooner or later it will cost you $$.