Tuesday morning, 10 a.m.: Your boss calls you into her office to give you some bad news. The market has taken a hit and it's time for the company to scale back. Your job is safe, but your co-worker Julie's is not. And since you're technically her supervisor, you have the dirty job of giving her the boot.
Firing someone is bad. Firing a workplace friend is worse. Much worse. There isn't a lot that can be done to make this terrible task easier, but some clear guidelines will help you gear up for the dirty deed.
Be prepared. HR should have a file on each and every employee, including any reviews, feedback, or critiques that have been given. Even if you gave the reviews, re-familiarize yourself with what's in that folder. Knowing her job description, what was expected from the position, and how she did (or didn't) do her job well is important, especially when she demands to know why she -- and not the slacker in the next cubicle -- is being shown the door.
Rehearse your speech. Firing a friend is extra hard. This is why it is important to take a few minutes to think carefully about what you need to say and how you're going to say it. Do not take lessons from Donald Trump! Offer a softer "You're fired!" by apologizing, gently explaining that she no longer has a job with the company, offering the reason why (economy, poor job performance, downsizing), and then seamlessly moving into any important details like finishing projects, severance, last day, etc.
Do it quickly. Don't rush or be too blunt, but don't turn the firing into an emotional sob session. Yes, you may be friendly, but you were her supervisor first, and when the time comes to fire someone, you must act as a professional. Even if you feel terrible about the situation or know inside gossip, never divulge this information. Vow to make the situation as quick and painless as possible and know that this may demand a high level of poise and professionalism.
Call in reinforcements. If you're worried or uncomfortable about the firing and how your co-worker may react, ask that an HR rep be present for the conversation. Explain to your boss that you've been friendly with the person being fired and you'd feel better if there was an additional person there to help provide support and document the interaction. Better to be safe than sorry.
Extend an olive branch. If you do want to remain friends outside of the office, send a brief e-mail (ideally from personal e-mail account to personal e-mail account) after she has been formally fired. Reiterate how sorry you are, pass along your personal contact information, and tell her you'd like to stay friends. Then wait. She may or may not take you up on your offer, and if she doesn't, you have to respect her wishes.