Terminations 101 (Part 1)

By Stuart Rudner

Perhaps unfortunately, an important aspect of many HR professionals’ jobs is the dismissal of employees. While it is a core part of the job, it is one that is often fraught with misunderstanding and errors that can expose the organization to potential liability. This will be the first in a series of posts on the subject.

It is crucial that those tasked with dismissing individuals understand the law. First, in the absence of just cause for dismissal, all employees are entitled to notice of termination or pay in lieu thereof. This specific amount of notice can be established by legislation, contract, and/or common law.

Employment standards legislation always sets out the absolute minimum amount of notice (for purposes of this article, references to notice incorporate pay in lieu of notice) that must be provided.  Generally speaking, these amounts are determined based solely upon the individual’s length of service.  It is easy to quantify an individual’s entitlement.

To avoid any misunderstanding, I note that some legislation also provides for severance pay in certain circumstances. That is different from notice of dismissal or pay in lieu.

However, the employment standards legislation is not the end of the story.  Parties are free to enter into an agreement that sets out exactly how much notice an individual will be entitled to at the time of termination.  The contract must be entered into in a manner that is enforceable (and this may well be the subject of another blog post), and the amounts provided cannot be less than those required by the employment standards legislation.  If there is no enforceable contractual provision in place, then the common law requires that every employee be provided with “reasonable notice” of dismissal.  Not surprisingly, that is where we enter into a grey area.

At the risk of being repetitive, I want to correct a misconception I occasionally encounter. If there is no contract, the common law requirement of reasonable notice applies. The only way for an employer to avoid that obligation is through an enforceable contract.

What is "reasonable" will depend on who you ask.  The reality is that different individuals, and different judges, will look at the same set of factors and reach different conclusions.  Lawyers that specialize in employment law can usually take a particular set of circumstances and provide an estimate as to what is most likely to be awarded if the parties go to trial.  However, this is an art and not a science.  Unlike the statutory minimums, reasonable notice is not calculated based solely upon an individual's length of service. The courts have made it clear there are no hard and fast rules, and no limit upon the factors that are to be considered. The core factors are the individual’s length of service, age, and the character of there position. Another commonly considered factor is whether or not the individual was induced to leave previous secure employment.

While many of us have heard of the mythical “rule of thumb” that everyone is entitled to one month of notice for every year of service, the courts have made it clear that this is not the law.  An analysis of the awards made by the courts in wrongful dismissal cases from the last few decades demonstrates that there is no such pattern.  The data shows that short-term employees tend to receive disproportionately lengthy notice periods, contrary to what many suspect. In addition, the data shows that an individual’s position, and their age, can have a significant impact upon their entitlement. Organizations should avoid formulas or other objective assessments, especially when they are based solely upon one factor.  Each situation should be assessed based upon its own particular circumstances.

I should note that the legislative entitlements to notice/pay in lieu and severance pay are included in the common law entitlements. In other words, if an employee is entitled to five weeks' notice and five weeks' severance pursuant to the Employment Standards Act, and at common law they are entitled to four months, that four months includes the 10 weeks owing pursuant to statute.

Of course, the uncertainty of the common law can be avoided altogether by using a contract. That is why I recommend contracts for every employee. Of course, the form and content will differ based upon the nature of the position. However, dismissal obligations can and should be addressed at the outset for every type of employee. This will save time and money at the time of dismissal, as there will be no need to determine how much notice to provide, seek legal advice on the issue, and then perhaps negotiate or, if that fails, litigate the issue.