Hiring a new employee is an exciting time. Terminating employment is not so pleasant or easy. Personal considerations aside, there are certain rules to follow when ending someone’s employment. Failure to follow these can result in substantial liability for the employer.
An employer cannot fire an employee simply because he or she is disappointed with the employee’s performance. Every employment relationship is a contract, even when one is not signed. This contract contains an implied term that if an employee is terminated without cause, reasonable notice of termination must be given.
The amount of notice that is reasonable depends on the circumstances, including the employee’s length of service, age, availability of suitable alternate employment and the character of work performed. There is no exact formula to determine reasonable notice. For example, a 55 year old manager who has been working in a small town for 30 years would receive more notice than a 20 year old clerk in the city who had been employed for only a couple of years. The notice is usually pay in lieu of notice. If it is found that 14 months’ notice is reasonable, the employee would receive 14 months’ pay following termination.
There are other potential pitfalls for an employer to avoid. One snare is the manner in which an employee is terminated. An employer must deal with the employee in good faith when terminating the employment relationship. If the employer breaches this obligation by, for example, making a spectacle of the employee when terminating him or her, it could increase the employer’s liability. If the employee can prove that he or she suffered mental distress because of the manner of termination, this can result in money damages from the employer.
Another risk arises when an employee is induced by a new employer to leave an otherwise secure job. If the employee is terminated a short time into the new job, a judge may look at not only years of service with the new employer, but also years of service at the old job in deciding what notice is reasonable. If the employee had been at the old job for many years, this could substantially increase the new employer’s liability.
There are other factors that may increase damages. If the employer knows from the beginning of the employment relationship that an employee will suffer a particular financial loss if the relationship is terminated, this may be compensable. An example could be if part of the employment relationship was for the employee to obtain certain industry credentials, which are no longer possible because of termination.
One way to limit the pay in lieu of notice is through a written and signed employment contract. Labour standards legislation provides mandated weeks of pay in lieu of notice based on length of service, without bringing in factors such as the employee’s age, character of employment and availability of suitable alternate employment. Statutory notice cannot be contracted out of. But the extra “common law” damages can be restricted or eliminated.
The best way to limit or avoid liability when terminating an employee is to use progressive discipline. Instead of automatically terminating an employee if his or her performance is lacking, progressive discipline involves a series of warnings to allow the employee the opportunity to improve.
For example, the first step could be a meeting with the employee to discuss the situation with suggestions for improvement. If this does not have the desired effect, a written warning may be the appropriate next step. This document should set out the issues the employer is having with the employee’s performance, directions for improvement, as well as the sanctions that would be implemented for failure to improve. If termination is a possible sanction, it should be explicitly stated.
If this still is not effective, a suspension with directions for improvement and a warning of termination if there is no improvement would be the “last straw”. If there is still no improvement, termination is the only alternative and this termination would be with just cause.
While ending an employment relationship can be expensive, there are ways to limit your exposure. Having a written employment contract specifically capping pay in lieu of notice may be an option. It is also a good idea to know your employee’s employment and personal circumstances and the impact termination may have on him or her. Finally, before terminating an employee for poor performance, implement progressive discipline to provide the opportunity to improve. If the employee does not improve, then there is not much more that you can do as an employer and there is just cause to end the employment relationship.