Frequently Asked Questions
TERMINATIONS FOR EMPLOYERS
Terminating someone’s employment is never an enjoyable experience. As an employer, you are not hiring staff anticipating having to let them go. The goal is to train and support employees to flourish in a role, and ideally help drive the success of the business.
Unfortunately though, letting employees go is just another harsh reality of business. This is why, for example, we always advise including a termination clause in a written employment contract – you may not want to anticipate an unfortunate ending right from the very beginning, but they happen.
The other piece of advice we routinely offer is not to terminate anyone’s employment before first consulting with a lawyer. Employment terminations are a tricky business, and can easily go sideways if not done with the utmost care. Here though, for quick reference as you go through the process, are the 10 most common questions that we encounter from our clients.
If you’re letting go of an employee without cause and trying to figure out what you owe them, your first guide is their written employment contract. If it was done properly, the contract must at least say that you’re paying them out the minimum amounts that they’re owed under employment standards law, plus it may add in an additional period of payment, possibly an extra few weeks or even months, that are designed to support the employee.
If however your written contract does not include any sort of termination clause, or if it was a contract written years ago that had not been updated in some time, it may not offer any restrictions on what you would owe your former employee. In most cases, unless your contract was drafted in the last year by an employment lawyer, it is safer to assume that the contract will not properly restrict what you may owe an employee. In that case, you’ll likely owe them what is known as ‘reasonable notice of termination’ under common law. This is an analysis of judge-made law that determines how long it would reasonably take a person in similar circumstances, of a similar profile and with similar experience, to find a comparable role. It’s not a precise calculation, but lawyers will anticipate what a court would say in these circumstances if they are negotiating an employee’s exit package.
This can be where things get incredibly complicated and it is always good to seek legal advice when contemplating your exit package to assess your obligations and avoid the risk of a legal claim from the employee. The difference between a well-drafted contract and an ineffectual one can be drastic – one may restrict a payout to 8 weeks’ salary and the other can run as long as two years or more in some cases, so it is always smart to seek regular legal advice on your contracts. Learn more about terminations without cause here.
No. This is a common misconception amongst employees – they believe that their employer owes them a reason for their termination, or that they cannot fire them without one. The truth is that any employee can be let go at practically any time for practically any reason, so long as they are paid out properly. This is considered a ‘termination without cause,’ and should be followed according to the section above.
Not only do you not owe the employee a reason in a without cause termination, but it can be risky to provide one. Employers are obligated to follow provincial human rights laws, which means that employees cannot be discriminated against based on personal characteristics such as their race, ethnic origin, sexual orientation, gender identity, marital status, or disability etc. (each province’s human rights code contains a full list of reasons). If an employee connects the employer’s given reasons to a protected human rights ground then the employer could later be on the hook in a human rights claim.
Legally speaking they are sometimes not. The terms ‘termination’ and ‘severance’ are usually used the same in everyday conversation, but according to employment standards law they are two entirely different amounts depending on the province.
In Ontario, for example, termination pay is the base amount owed to an employee under the province’s employment standards legislation. Severance however, is an additional number of weeks per years of service if the employee had been working there for more than 5 years, and if the company had either reached a certain payroll threshold or was conducting mass layoffs. This is not the case in every province however, and some employment standards laws do not mention the term ‘severance,’ so take note of the fact that there may be a difference.
When you are constructing a termination package for an employee, there are two common methods of offering payment. Even though any amount that you offer will effectively be in lieu of their regular salary for a set period, this amount can be offered in a lump sum, or as a period of salary continuance.
Most employers prefer offering salary continuance because it allows them to easily build in what is known as a clawback. An employer is only responsible for keeping a former employee whole until they find new employment, and they are responsible for looking in earnest. A clawback can say that the employee’s pay will extend for a set number of weeks unless the employee finds new employment, in which case they must inform their former employer and they will then receive half of the remaining amount. A lump sum, on the other hand, does not have clawback provisions, and offers an employee their money up front.
There are advantages and disadvantages to both options from the perspective of taxes, benefits and logistics, so it is always best to consult with an employment lawyer before offering up a package.
The short answer is yes. While provinces have different legislation, some such as Ontario require benefits for example to be continued during the notice period as part of employment standards law. There is also nationwide case law on bonuses that states that bonuses generally have to be paid out through the notice period unless there is clear and explicit wording to the contrary. Learn more about that here.
On the whole though, judge-made law states that an employer is responsible for ‘keeping the employee whole’ throughout the notice period. Broadly speaking that includes continuation of their extended benefits, payout of their bonus over the notice period, and compensation for anything else they would have otherwise earned such as a car allowance, phone allowance, gym membership, etc. If an employee does file a wrongful termination claim then these are generally items their lawyer will seek to have compensated, and a negotiated settlement will likely take them into consideration.
The answer is to do so carefully, for a few reasons. The first reason is that you can keep the upper hand and keep control of the messaging. Remember that employees talk to one another, and rumours can easily start to fly. If the circumstances are contentious at all then employees may be excitable, or confused, or frightened for their own job security. Informing them that a person is no longer on the team, and who will be taking over their responsibilities moving forward, can help keep things orderly.
If the departure is somewhat amicable, then allowing the former employee to have some input on the messaging may help them save face. Long-serving employees are usually particularly attached to their workplace, and so a sudden departure can be jarring for both themselves and their colleagues. Allowing them to even review messaging may help them to save face, and in turn may prevent hurt feelings from becoming a key motivator for any aggressive legal action.
We say that ‘just cause for summary dismissal’ (the legal term for cause) is like the capital punishment of employment law. You are effectively sending the employee out the door with nothing – no notice of their termination, no pay in lieu of notice, nothing. The challenge is that while many employers think that they have just cause to terminate, the legal threshold for cause is very narrow, and getting it wrong can be an expensive mistake.
Before you rush to take a heavy hand, think of just cause termination as a last resort. If there is suspicion of misconduct, for example, it may be advisable to place the employee on a paid administrative leave while you are investigating the allegations. This provides the opportunity to weigh your options and your evidence, and make sure that you are acting with an even hand.
Remember, while you may have had a reason in your mind for making the decision to terminate, it usually does not rise to the level of ‘just cause.’ The greater risk, though, is that an allegation of just cause can easily backfire if the court disagrees with your assessment of the fact. A misplaced allegation of just cause can come back as an allegation of bad faith, and increase the employee’s likelihood of being awarded damages if their case goes to trial. Learn more about just cause, and Stuart’s book on the topic, here.
In short – probably not. The answer is that even if you send the employee out the door with nothing, you still may owe them money, and how you handle the situation may determine how much. As outlined above, just cause must be dealt with very carefully. Always consult with a lawyer to make sure that you have a reasonable cause case, and are less likely to be hit with a claim for bad faith in how you’ve carried out the termination.
Judge-made law from Ontario though suggests from previous cases that unless an employee has displayed “wilful misconduct, disobedience or wilful neglect of duty,” they will still be owed at least their minimum termination pay (and other requirements) outlined within employment standards legislation. Moreover, a recent decision from the Ontario Court of Appeal confirms that a written employment contract needs to comply with employment standards legislation minimums in order to be legally valid. While different provinces may weigh each scenario differently, be prepared for the fact that even a termination with cause may wind up costing some money.
When you hire an employee and have a written employment contract, both you and the employee are responsible for upholding what is outlined in that contract. You may have some flexibility built in in places, but generally speaking you have agreed to employ them in their position, at an agreed-upon wage, performing agreed-upon duties, etc. If you single-handedly make major changes to this agreement without the employee agreeing, such as cutting their salary or commission structure, making major changes to their job duties, etc. then the employee can claim that they were constructively dismissed, or essentially fired without actually hearing those exact words.
The term constructive dismissal is often misused by employees who don’t fully understand the implications. Not every small change that you make as an employer will result in a constructive dismissal. Changes need to be substantial, so small changes in duty or a small variation in pay will not meet that threshold. Also, judge made law has shown that a temporary layoff, if not specifically allowed by the employment contract, can be considered a constructive dismissal. Bad faith can take other forms too – making an employee miserable with the hopes that they quit and you can avoid paying out termination and severance can come back as an allegation of bad faith. This can be a common strategy, and courts have viewed it just as seriously as alleging there was just cause without a valid reason.
If the court agrees that there was a constructive dismissal then the employee will be eligible for termination pay, which could become a costly venture, so it is always best to consult with an employment lawyer before making any significant changes. Learn more about constructive dismissal and its implications here.
Terminating an employee is like scrambling an egg – it can be incredibly difficult to undo. In a perfectly smooth termination scenario you would present the employee with their exit package, they would take a few days to review (likely with their own lawyer), and then sign off on your offer as well as sign a release formalizing that the relationship is over and they will not pursue any legal claims. However, just as some employees will try to pull back on their resignation, some employers may have second thoughts about terminating an employee.
If your lawyer is negotiating an employee’s exit with that employee’s lawyer, and reinstatement is an option that you would consider, speak with your lawyer about your potential options. This is not always a workable scenario given the circumstances that can surround a termination, but there are cases where it has worked well. An employee is responsible for mitigating their losses, or finding new employment, and offering them employment could potentially reduce your severance obligations. Speak with your lawyer to see if it is a potential option and how it could feasibly work.