There are several ways to ensure they’re done properly – to reduce costs and liability
Exclusive to Canadian HR Reporter from Rudner Law.
Have you dismissed an employee and received a demand letter seeking 24 months of pay?
If you have, you are not alone. But don’t worry — there are several ways you can ensure you carry out terminations properly, reduce your dismissal costs, and limit liability.
The first step is to understand the law of terminations.
Types of dismissals
There are two types of dismissals: dismissals for cause and dismissals without cause.
Generally, where there is a dismissal for cause, the employee is not entitled to notice/pay in lieu of notice or severance pay. However, there are exceptions.
For example, if an employee in Ontario is dismissed for cause but it does not rise to the level of “wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer” under the Employment Standards Act, 2000, the employee will be entitled to their minimum statutory entitlements.
Where the dismissal is without cause, the employee will be entitled to receive notice/pay in lieu of notice or severance pay. The question is whether the employee will be entitled to only the minimum statutory requirements, something more under the contract, or reasonable notice of termination at common law.
Impact of contract
If you are dismissing an employee without cause and trying to determine what you owe them, your first guide is the employee’s written employment contract. It can displace the common law requirement (see below) if it is drafted and implemented properly. Among other things, it must comply with the employment standards legislation.
Even if the termination clause could potentially violate the statute, then it will not be enforceable.
If the contract does not include a termination clause, if the termination clause is unenforceable, or if the contract itself is unenforceable due to a lack of consideration (e.g. it was signed after the employee already started their job), then it is likely that the employee will be entitled to reasonable notice of termination under common law.
Reasonable notice of termination at common law
Unlike the employment standards legislation — which clearly sets out how much notice/termination pay or severance pay an employee is entitled to based on their length of service — the common law assessment is more of an art and not a science. In particular, the analysis is based on judge-made law and determines how long it would reasonably take a person in similar circumstances with similar experience to find a comparable role.
That said, there is an unofficial cap of 24 months of notice or pay in lieu of notice at common law, barring exceptional circumstances.
While the calculation is not precise, an employment lawyer will be able to guide you by anticipating what a court would likely say in these circumstances, and how much the employee is likely to be awarded if the matter were to end up at trial. Understanding the estimate of the employee’s common law entitlements can be quite helpful during the negotiation process between the employer and employee (or their counsel).
Why you should care
The difference between a well-drafted contract and an ineffective contract can be huge: your obligations toward the employee could be limited to eight weeks of salary or you could be on the hook for up to two years of pay. If the employee’s salary was $50,000 at the time of dismissal, the difference would be between having to pay around $7,500 versus having to pay up to $100,000.
This is why it is critical that you seek legal advice — not only once the termination has already taken place and you are faced with a demand letter, but from the get-go.
Employers would be well-advised to seek advice to:
- prepare and implement strong, enforceable contracts within the workplace
- determine the most strategic approach to any dismissal by understanding the options available and the pros and cons of each
- make an informed decision about how to proceed
- prepare and implement the necessary documentation (e.g. termination letter and release in favour of the company)
- get guidance through the process to minimize risk and save on dismissal costs.
When it comes to terminations, do the opposite of what Nike says — don’t “Just do it”, instead seek legal advice before proceeding with dismissals.
Nadia Zaman is an associate at Rudner Law in Toronto. She can be reached at (416) 864-8500 or [email protected].
