How to navigate the dangerous waters of employment termination

Making the decision to fire an employee is never easy. Neither is it easy to navigate the mechanics of a termination.

The first difficult decision in many cases is whether the termination will be for just cause or without cause.

If an employer has just cause to terminate an employee (a high standard to meet), the employee is not entitled to any notice of termination or pay in lieu of notice. Often, he or she will be ineligible to collect employment insurance. Absent just cause, an employee will be terminated without cause.

Well-intentioned employers often compromise their interests unnecessarily in an effort to take a kinder, gentler approach to a termination. For example, one common scenario involves employers that don’t terminate an employee for just cause even where there might be justification to do so.

Instead, they pay the employee termination pay he or she would have been entitled to under the Employment Standards Act (ESA) to help the transition to new employment.

This is an understandable approach and can be appropriate. Indeed, it might ease the blow to an employee and help maintain an amicable relationship.

However, if not done carefully, it can lead to unexpected consequences. It often comes as a shock to well-meaning employers when they subsequently receive a letter from the disgruntled employee’s lawyer claiming wrongful dismissal and demanding several months of pay in lieu of notice of termination.

We recommend contacting an employment lawyer for assistance in preparing a termination package that allows for a compassionate approach to a termination (in appropriate circumstances) without leaving the employer vulnerable to expensive wrongful dismissal claims.

The first question that most counsel for employers will ask in these circumstances is whether the employee had a written employment contract and whether that contract contained a termination clause.

Unless the employment contract specifically limits the employee’s notice entitlement to the minimum ESA standards (up to eight weeks’ pay depending on length of service), then that employee is entitled to “common-law notice” of termination.

Common-law notice periods are almost always significantly longer than the ESA minimum standards. Particularly for long-service employees in senior positions, notice periods can be many months or even years, although a notice period of more than 24 months is uncommon. Generally, common-law “reasonable notice” depends on a number of factors including:

•the employee’s age;

•the employee’s length of service with the employer;

•the character of the employee’s employment, including the nature of the position held, compensation and degree of responsibility; and

•the availability of similar employment consistent with the employee’s experience, training and qualifications.

The theoretical rationale of a notice period is to approximate the amount of time it will take the employee to find comparable alternative employment. An individual who is nearing retirement and working in a highly specialized field in a smaller community with a less robust job market is likely to be entitled to considerably more notice than an employee in his or her 30s with easily transferable skills in a field with good re-employment prospects, even if both employees had the same length of service with the employer.

It is also important to understand that there is no such thing as “near cause.”

A notice period does not get reduced because the employee was a poor performer or had otherwise engaged in misconduct unless the employee’s conduct or performance was sufficiently poor to meet the high standard necessary to constitute just cause for termination. In such case, the employee would not be entitled to any notice or pay in lieu. In other words, when it comes to terminations, it is an all-or-nothing decision.

Also, unless an employer explicitly states that the termination is for just cause (and has a reasonable basis for that decision), then it will likely be characterized by the courts as a without-cause termination even if the employee is aware of the employer’s dissatisfaction with his or her performance or conduct.

Finally, it is critical for employers to decide whether a termination will be for just cause prior to the termination being implemented and to have a reasonable basis for that decision.

Employers have been subjected to significant damage awards (in addition to lengthy notice periods) for attempting to correct their procedures by asserting that a termination was for just cause after the fact or for asserting that they had just cause to terminate when there was no reasonable basis for doing so. Such conduct has sometimes been characterized as being in bad faith by courts.

Two of the key steps employers can take to mitigate their liability when terminating employees are to (1) ensure that their employment contracts contain well-drafted termination clauses, and (2) get advice when preparing termination packages, particularly in circumstances where they are navigating the grey zone between just-cause and without-cause terminations.

Jennifer Russell is an employment, labour and human rights lawyer and a partner at Roper Greyell LLP. This article is for general information purposes only and does not constitute legal advice.