A 5-step guide on how to legally terminate an employee

Key steps to reduce the legal risk employers face when dismissing employees

A 5-step guide on how to legally terminate an employee

With employers across the country terminating employees en masse, it is important to understand how to approach terminations in a lawful way. This article sets out a five-step guide that any employer or human resource professional can follow when broaching the topic of termination.

Identify the ‘why’

As a first step, identify the “why” at the outset of the decision-making process. Why are you terminating this particular employee? The answer to this question should not be related to the employee’s human rights or based on retaliatory or improper reasons. Otherwise, the employee could claim that the termination was discriminatory, reprisal, or in bad faith, thereby increasing your litigation risk. Rather, you should be basing your decision-making on business reasons, and objective criteria should be used when selecting which employees are to be impacted.

It is a best practice to document the rationale in order to create a contemporaneous record of the business factors that are being considered.

Overall, identifying and documenting the “why” at the outset of your decision-making process will assist you in justifying and defending your decision, should it ever be questioned.

Understand your severance obligations

Next, you must understand your obligations towards the employee upon termination. The employee will be entitled to severance upon any termination without cause and the extent of those entitlements will depend on a number of factors.

One of the most important factors is the termination provision in the employee’s contract. The employment contract should clearly set out the employee’s entitlements upon termination, and if that contract is enforceable, the employee should not be given less than what their contract provides them.

Unfortunately, because the law changes so frequently, the legality and enforceability of contracts change from time to time. You should contact an employment lawyer for assistance in determining whether your employment contracts are enforceable and to ensure they remain up to date.

If there is no enforceable contract, then the employee is entitled to reasonable notice, or pay in lieu of notice, of their termination. What is a reasonable amount of notice will depend on the employee’s individual circumstances, such as their age, length of service, character of employment, prospects of re-employment, and other considerations.  

Employees are entitled to the compensation they would have received had they continued to work over their reasonable notice period. This may include the employee’s salary, benefits, pension contributions, bonus, and equity. In some cases, an employer’s policy may limit those entitlements upon termination.

Employees are required to make reasonable efforts to find alternative comparable employment during their reasonable notice period. If they fail to do so, the court will reduce the amount of notice they deem is reasonable. If the employee earns income from re-employment during the reasonable notice period, those earnings will reduce your severance obligations.

There may also be additional factors that ought to be considered when assessing your obligations upon termination.

Prepare termination documents

Once your severance obligations are identified, the next step is to prepare a severance package for the employee. The general advice is to offer an amount that is attractive enough for the employee to accept without resorting to litigation. You will want to consult a legal expert to come up with a package and prepare the termination documents.

The termination documents should include a termination letter that clearly advises the employee that their employment is coming to an end, the effective date of the termination, and details of the severance package. In many cases, the employer will also want to present the employee with a release to sign. The Release will prevent the employee from claiming, or suing you for, anything more in relation to their employment or termination.

In general, provincially regulated employees have two years from the date of their termination to sue their employers for entitlements arising from their termination (one year if they are making human rights complaints at the Ontario Human Rights Tribunal).

Conduct the termination meeting

Once the termination documents are prepared, the next step is to advise the employee of the termination. The termination meeting should be private, confidential, and brief.

Reasons are not required to be provided; however, from a human resource standpoint, the employer may want to provide a reason to precipitate legal action in some cases. In giving a reason, it is important to be truthful and sensitive. The law recognizes that this is a vulnerable time for an employee.

Employees should not be pressured to sign any paperwork during the meeting. They should be given time to consider the offer and seek independent legal advice.

Issue payments and the Record of Employment

Once the employee is no longer working, a Record of Employment must be issued within five days of their last day of work.

In Ontario, statutory termination payments ought to be issued to the employee no later than seven days after the termination or the employee’s next pay day, whichever is later. Every jurisdiction has similar requirements.

With any termination comes legal liability. Any business looking to terminate employees should ensure it is aware of its obligations.


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