You’re fired! Termination issues and practices to consider
What you need to know before dismissing an employee.
As every business owner and human resource professional knows, despite the best efforts of management, some underperforming employees simply cannot or will not improve. In those cases, ending the employment relationship may be an employer’s only option.
While each employment relationship is unique, and generalizations should be avoided, at the very least employers provincially regulated in Ontario should consider the following issues and best practice tips.
Contrary to what many employers believe, in the absence of an employment agreement limiting the circumstances in which employment may be terminated, an employer may terminate employment at any time and for any reason, so long as the decision does not breach the employer’s human rights obligations or constitute a reprisal under health and safety or other legislation. For example, it’s not illegal to terminate employment because the employer “doesn’t like” the employee. However, it is illegal to terminate employment if the reason (in whole or in part) is because, for example, he or she is of a certain colour or sexual orientation.
Termination is either with or without notice. A dismissal without notice is permitted if the employer has “just cause”, meaning the employee’s conduct is so bad it has effectively destroyed the employment relationship. Absent just cause, an employee is entitled to notice of termination, which can take the form of working notice, or pay in lieu of notice.
Sometimes it’s difficult for an employer to know whether an employee’s conduct or poor performance is sufficient to merit dismissal for just cause. Get it right and an unsatisfactory employee can be removed from the workplace without financial cost to the employer. Get it wrong and the risk to an employer could include liability for wrongful dismissal damages, not to mention negative publicity both inside and outside the workplace.
Before making a decision to terminate employment for just cause, consider – objectively – the extent and quality of the misconduct. Is it bad enough that it has irreparably harmed the trust that underpins the employment relationship? Serious misconduct such as theft, workplace violence or insubordination are often (but not always) sufficient to meet the just cause threshold.
Just cause is more difficult to establish in the case of a chronic underperformer. Thorough documentation is required to demonstrate the employee was aware of the performance requirements, given sufficient time and assistance to improve, and failed to do so. For these reasons some employers decide, on a business basis, it’s less onerous and expensive to simply give the employee notice, or pay in lieu of notice, than to allege cause and risk the additional cost and risk in responding to a wrongful lawsuit.
If there is a valid employment contract that sets out the amount of notice to be provided upon termination, that will be sufficient so long as the notice period in the agreement meets or exceeds any statutory notice requirement. In Ontario, for instance, the minimum statutory notice period is limited to between one to eight weeks depending on the length of employment. An additional amount for statutory severance is also required in some circumstances.
If the employment relationship is not governed by a valid employment agreement, the employee may be entitled to “reasonable notice” determined in accordance with the common law – judge-made law developed by courts. Reasonable notice is intended to reflect the period of time the employee would reasonably take to find alternative, comparable employment and takes into consideration a number of factors such as the employee’s age, length of service and position.
Although there is no formal cap to reasonable notice, informally the cap is roughly 24 months generally (though not exclusively) reserved for an older, senior level employee with many years of service.
A well-drafted employment contract reduces the risk an employer will be exposed to liability for a long common law notice period, and in many cases limits termination entitlements to the minimum amounts established by employment standards legislation. A contract also reduces uncertainty for an employer, as the amount of reasonable notice is already determined.
The best time to introduce an employment contract is at the time of hire, prior to the employee commencing work. In that case the offer of employment is the “consideration” (compensation) in exchange for which the employee accepts the terms of the employment contract. However, all is not lost if an employment contract is not entered into prior to the employee starting work. There are opportunities during the employment relationship when an employment contract may be introduced. However, in those cases, expert legal advice is a must.
In any event, it’s important to appreciate that most employment contracts will be interpreted strictly against the employer and in favour of the employee. Thus, to obtain the maximum protection possible for an employer, any employment contract should be drafted or reviewed by experienced employment counsel. Employment contracts should also be reviewed periodically to ensure the language used continues to be enforceable.
Employment-related disputes can be expensive. A properly drafted release gives an employer comfort that, once the matter is concluded, no other claims will be successfully made by the employee arising out of the employment, including under human rights or employment-related legislation. To ensure your organization receives the full and intended value of a release, remember to follow these guidelines:
Exceed minimum statutory requirements. When terminating without cause, ensure the payment exceeds the minimum requirement under the applicable employment legislation.
Time to review. Provide the departing employee time to review the settlement documentation and seek legal advice if he/she elects to do so. An employee who wants to sign the release during the termination meeting should be advised you can’t accept it and to take it away to review.
Do not provide legal advice. Be careful not to make any representation to the employee about his/her legal rights under the release. If there are questions, encourage the employee to seek his/her own legal advice.
Do not withhold minimum entitlements. When terminating without cause, do not threaten to withhold minimum statutory entitlements (such as termination and/or severance pay) unless the employee signs a release. Not only is it unlawful to do so, this may create an opening for a court or tribunal to conclude the release was signed under economic duress or that the employer acted in bad faith.
When dismissing an employee, an ounce of prevention really is worth a pound of cure, and prior consultation with expert employment law counsel is very often the best medicine.
Lisa Bolton and Samia Hussein are lawyers with Sherrard Kuzz LLP, an employment and labour law firm representing management. Call (416) 603-0700 (Main) or (416) 420-0738 (24 hour). Visit www.sherrardkuzz.com.
This article appeared in the January-February print issue of PLANT Magazine.