It's essential for HR departments to cover their backs when it comes to termination
HRD spoke to Michelle McKinnon, associate at law firm Harris & Company, who gave us a 10-point checklist for employers to consider before firing an employee.
This article deals with the law as it applies to non-unionized employers, as opposed to unionized employees. If the termination involves a unionized employee, the employer should carefully review the collective agreement because its provisions will govern any procedural obligations as well as the employer’s obligations on termination of employment (such as notice and severance).
1. For cause or without cause termination
The first question an employer should consider is whether the termination will be ‘for cause’ or ‘without cause’.
a. A termination ‘for cause’ refers to a termination that arises from an employee having engaged in some form of misconduct or other unacceptable conduct that falls short of what is expected of an employee (such as poor performance). The conduct, if proven, must result in a fundamental breakdown of the employment relationship.
b. A termination ‘without cause’ does not arise from any alleged misconduct or wrongdoing on the employee’s part. Instead, an employer can terminate an employee’s employment at any time by providing the employee with what is called “working notice”. An employer will also comply with its notice obligations if it pays to the employee the salary and benefits that would have been paid to the employee during the “working notice” period.
An employer’s legal obligations on termination of employment differ depending on whether the termination is ‘for cause’ or ‘without cause’. These are addressed at points 3 and 4 below.
2. Provincially or federally regulated employer
Next, an employer should consider whether the employment relationship is provincially or federally regulated. This is important because employers that are federally regulated are governed by the Canada Labour Code. Provincially regulated employers are governed by provincial legislation in respect of notice, severance and other legal obligations. The distinction is important because the law as it applies to federally regulated employers under the Canada Labour Code differs in important respects from that which apply in most provinces. For example, the Canada Labour Code “unjust dismissal” provisions significantly restrict an employer’s ability to terminate without cause similar to a unionized workplace. If an employer is unsure how the employment relationship is regulated, legal advice should be sought.
3. Legal obligations flowing from terminations for cause
If proven, an employer can lawfully terminate an employee’s employment with immediate effect, for cause. A termination for cause does not require the employer to give notice or to pay any amount in lieu of notice. However, the threshold to prove cause is high. The onus rests with the employer to prove that the conduct occurred and that the conduct caused a fundamental breakdown of the employment relationship. Generally speaking, for less serious forms of misconduct, an employer must first warn the employee and give them an opportunity to correct the conduct. It is therefore important to seek legal advice if an employer is unsure about whether conduct is serious enough to warrant a termination without notice. An employee can challenge a termination for cause and be awarded an amount of damages equal to what the employee would have been paid had the termination been done without cause.
4. Legal obligations flowing from without cause terminations
Generally, an employer can lawfully terminate an employee’s employment at any time by giving notice to the employee that the employment relationship will terminate at the end of a specified notice period. This is referred to as “working notice”. Alternatively, an employer can terminate the employment relationship immediately and instead pay the employee an amount that represents the salary and benefits that would have been paid to the employee had the employee worked during the notice period. The obligation to give notice is an implied term of every employment contract. If an employer does not comply with its notice obligations, it will be exposed to wrongful dismissal claims for damages equal to the amount of notice that should have been given.
Some of the things an employer should consider before terminating an employee ‘without cause’:
Does the employee have a written employment contract that contains a valid and enforceable termination provision? It is possible for an employer and employee to agree, at the start of the employment relationship, on what an employer’s notice obligations will be to the employee on termination of employment. If there is such a valid provision in a written employment contract, that provision will govern the employer’s termination obligations in terms of notice and severance, provided the clause complies with applicable statutory minimum obligations.
If there is no written employment contract, or if the employment contract does not contain a termination provision, an employer should also consider whether there are employment policies that contain termination provisions that may apply. If there is such a policy, then consideration should be given to whether the policy forms part of the terms and conditions of the employee’s employment, such that the employer can rely on the termination provisions.
If there is no written employment contract or policy that contains a valid and enforceable termination provision, then an employer’s obligation is to provide “reasonable notice”. This is governed by the common law. What is reasonable involves a contextual analysis taking into account the following factors: the character of the employment, the employee’s length of service, the employee’s age and the availability of equivalent alternate employment, having regard to the experience, training and qualifications of the employee. It is difficult to predict with certainty what a Court would consider to be reasonable in respect of a particular employee. In British Columbia, the upper limit of reasonable notice is considered 24 months. This is much higher than, for example, the statutory minimum notice provisions in the British Columbia Employment Standards Act, which provides for a maximum notice period of 8 weeks for 8 years of employment. What the Courts determine to be reasonable notice is typically much greater than the statutory minimums. It is for this reason always advisable to include an enforceable termination provision in a written employment contract when the employment relationship starts. Once again, it is imperative that the termination provision complies with the statutory minimum provided for in the applicable legislation, otherwise it will not be enforceable and common law reasonable notice will apply.
5. Human rights considerations
Irrespective of whether an employer seeks to terminate an employee ‘for cause’ or ‘without cause’, employers should be mindful of their obligations under human rights legislation. If the reason for the termination relates even partially to grounds protected under human rights legislation, such as race, gender or a mental or physical disability, an employer will expose itself to potential human rights complaints in addition to wrongful dismissal complaints. In both cases, employees can claim damages.
6. Workplace retaliatory concerns
Employers should also be mindful of the fact that the law prohibits retaliatory action in certain circumstances. For example, under the British Columbia Workers’ Compensation Act (WCA), an employer may not retaliate against an employee (which can take the form of a termination), for legitimately refusing to perform unsafe work, or for otherwise raising safety concerns in the workplace. In other words, if the reason for the employee’s termination is even partially because the employee exercised their legal right to refuse to perform unsafe work, the termination would be considered under the WCA to be “prohibited action”. Similar restrictions apply to employees who report bullying and harassment or discrimination in the workplace.
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7. Whistleblower concerns
An employer also cannot retaliate against an employee (which can take the form of a termination) for making a good faith report or disclosure about wrongdoing involving the employer, such as illegal activities. For example, British Columbia has whistleblower laws that allow good faith reports to be made about illegal activities, without reprisal. This protection extends to employees who make good faith reports about their employer. These issues can be complex and legal advice should be obtained before taking action against an employee in these circumstances.
8. Public relations considerations
As a practical matter, an employer should consider whether a termination may raise public relations concerns. This is most often a concern when the termination involves a senior executive, and where the reason for the termination involves sensitive issues or issues of public interest (such as sexual harassment). An employer may want to consider hiring a public relations consultant in particularly sensitive cases.
On termination of employment an employer must pay to the employee what the employee is entitled to by statute and contract. This includes notice, severance and any contractual amounts that have accrued to the employee (such as share payments and bonuses). If an employer decides to pay an amount to the employee that is more than what the employee is entitled to by statute and contract (such as additional pay in lieu of reasonable notice), the employer should require the employee to sign a written release in exchange for that extra payment. In a release, the employee will agree to receive the extra payment in exchange for an agreement not to pursue any claims or complaints against the employer.
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However, it is important to emphasize that an employee cannot be required to sign a release in exchange for receiving amounts the employee is entitled to by statute or contract. There has to be something extra. That something extra is what is referred to in Canadian law as ‘consideration’. Consideration simply means something of value that the person is not already entitled to and that flows from one party to another. Pay in lieu of reasonable notice falls into this category because it is an unknown amount until a judge makes a determination as to what is reasonable in the circumstances.
10. Other practical considerations
As a practical matter, an employer should consider issues such as ensuring a seamless handover process before an employee leaves the business, and whether the employment contract or employment policies require certain procedural steps to be followed before terminating an employee.