The ‘capital punishment’ of employment law

When an employee is guilty of misconduct or poor performance, it may seem to be fairly straightforward that there’s a good reason to cut the employee loose without having to worry about notice – especially if there is misconduct relating to harassment or workplace safety that can cause liability for the employer. However, such assumptions can be costly. There’s a high bar for just-cause dismissal and if an employer is going to go that route to try to save on paying termination pay or pay in lieu of notice, it had better be ready to prove that the employment relationship can’t be salvaged.

The rapid developments of the #MeToo era have seen organizations struggle to manage waves of sexual harassment complaints lodged by employees empowered by the movement’s push for widespread workplace reforms. Some of these allegations have resulted in swift dismissals after brief investigations, with employers happy to be rid of alleged wrongdoers and eager to turn the page as they work to restore their workplace cultures.

Indeed, as soon as employers think there is workplace misconduct — or become dissatisfied with employee performance — they’re quick to move to terminate by asserting just cause. The trouble is that most do so without first taking adequate steps to minimize cost obligations through the implementation of effective employment agreement clauses.

A quick termination solves the problem, or so they believe — at least until the bill arrives. Not their employment lawyer’s fees, of course, but the cost to settle the matter when those terminated employees seek compensation for what they allege to be a wrongful dismissal. Many organizations are then forced to open their chequebooks and pay up to avoid protracted, often cripplingly expensive, litigation.

Eliminating or creating more problems?

Paying out an individual who has acted inappropriately or made co-workers’ lives miserable feels like an unjust result to many, but on this issue the law is clear: while an employer does not require a good reason — or any reason — to terminate an employee’s employment, termination for cause requires a high threshold of proof. In fact, the Supreme Court of Canada has called dismissal the “capital punishment” of employment law, meaning that terminating for cause should be viewed as an option of last resort, to be used only after progressive discipline (such as suspensions or coaching) has been exhausted and other mitigating factors have been taken into consideration.

In addition, courts have stood behind the principle that employees cannot be terminated for cause based on a mere allegation. That’s why organizations should be deliberate in conducting comprehensive workplace investigations into alleged wrongdoing, while bearing in mind that invoking just cause to terminate after a single workplace incident can be highly problematic. Only the most severe incidents of workplace misconduct can typically justify for-cause dismissal. Of course, many risk-averse employers will simply terminate an employee without cause and pay out applicable termination entitlements to limit the potential workplace fallout.  

Even when they have cause, employers often undermine their ability to assert it because they misconduct themselves during the termination process, or lack the technical legal grounds to justify dismissal in the first place. Conducting improper investigations is a common pitfall. If it’s determined that an organization has prejudged the outcome of an investigation, hasn’t taken steps to address and remove bias from the process or hasn’t given the employee a full and fair opportunity to respond to allegations he faces and provide an alternative explanation — in the event the inappropriate behaviour was explicable and justifiable under human rights legislation, such as in the case of an addiction or a serious mental health issue that impaired his judgment — the investigation could be compromised. It’s crucial that organizations take aggravating and mitigating circumstances such as these into consideration throughout the process.

In fact, mismanaging the termination process often winds up costing organizations more — sometimes much more — than had they taken a proactive approach and invested in effective and enforceable employment agreements and workplace policies.

Now, it’s important to note that the common law standard for cause can differ from the statutory standard to avoid termination or severance payment. In Ontario, for example, just-cause dismissal is not enough to deprive the employee of statutory entitlements on termination of employment. Not paying statutory minimums requires “wilful misconduct, disobedience or wilful neglect of duty” which is an even higher standard than just cause at common law.

Determining whether just cause for dismissal exists based on misconduct requires an objective, contextual analysis that depends on factors including:

• The nature of the business (such as a safety sensitive environment)

• The position held by the employee

• The actual or possible consequences of the misconduct

• Length of service

• What the employee was doing at the time (if an employee was performing a function outside the duties for which he was hired, courts are less likely to find that just cause exists)

• The individual’s employment record (was it a one-off or a series of incidents?)

• Whether the employee is entirely or partially to blame

• The employee’s mental state.

It’s even common for employers to assert just cause based on performance factors that may or may not be negatively impacting the business. A shortage of suitable work, the poor financial state of the organization, inefficiencies or dissatisfaction with the employee’s performance are all common reasons. Unfortunately, except in specific, limited circumstances, none of these will justify dismissal for cause.

Onus on employer

The reality is that the onus to prove just cause rests with the employer. They need to take several mitigating factors into account before any dismissal decision is reached:

• The employee’s performance in a new position relative to their total service (when applicable)

• Employer contribution to the circumstances

• Any provocation or mistreatment by the employer

• Difficulty or stress experienced by the employee in the workplace

• The employee’s intent to harm (or lack thereof)

• An employee’s admission of fault

• The employee’s rehabilitated attitude

• The employee’s mental state and health

• Whether the employer has investigated the allegations in good faith.

Organizations that design effective and enforceable employment contracts and employee policies can mitigate employment law risk and minimize legal costs with properly drafted termination clauses which generally state that the employer has the right to end the employment relationship for cause as recognized by law. Doing so can provide an effective employment escape hatch that limits termination payments to employment standards minimums — in the absence of justifiable wilful misconduct, disobedience, or wilful neglect of duty that would justify a for-cause dismissal without a minimum employment standards payout.

Even so, employers should be prepared to embrace several key best practices. That means actively enforcing workplace policies, while ensuring progressive discipline and meticulous record-keeping when incidents occur. Investigations into misconduct that may lead to a decision to terminate employment for cause must not be prejudged and must include objective interviews with key witnesses, allegations must be provided to the affected parties in advance and those individuals must be afforded ample time to draft a response. If wrongdoing is proven, punishment must be proportionate to the offence. Any decision to proceed with a just-cause dismissal must be objective.

An employer’s responsibilities don’t end there. Termination clauses may determine what an employee is owed upon dismissal, but employers also have an obligation to treat outgoing workers appropriately. Slandering the individual or harming their reputation could expose the organization to punitive bad-faith damages over and above termination notice requirements.

A lower-risk option in some circumstances is to terminate an employment relationship without cause and potentially avoid a protracted investigation that could harm the organization’s productivity and workplace culture.

Further, paying the outgoing employee something more than the employee’s entitlement on termination of employment to secure a release from further liability or legal action can be an effective strategy to sever the employment relationship quickly and cleanly. For senior managers or executives, that could mean paying the equivalent of several weeks’ or months’ salary more than they may be entitled to, but many organizations will see it as a worthwhile exchange of value to protect their brand, particularly in the event of a high-profile case of sexual harassment.

In the end, employers are wise to view just-cause termination not as a tool to be wielded indiscriminately, but as a process to be undertaken with meticulous care, sparingly, and with a strategic consideration of all relevant circumstances. Countless organizations have learned the hard way that tackling that process with haste and hubris can be costly and lead to damaging legal and reputational repercussions — all of which are avoidable with a proactive approach.