DON’T SWEAT IT - How to Limit your
Liability When Terminating
By Carissa Tanzola, Sherrard Kuzz LLP
With and Without Cause
There are two principal types of termination: “with cause”
and “without cause”. “With cause” is a
termination ‘for a reason’ including, for example, misconduct, wrongdoing or
poor performance. A “without cause”
termination assumes the employee is not at fault, but the employer wishes to
terminate the employment relationship nevertheless. For example, the termination may be required
due to restructuring, insufficient demand for the employee’s skills, cut-backs,
In a non-unionized workplace, an employer can end an
employment relationship for any reason whatsoever without having to justify its
decision. The only caveat is that the reason for the termination may not breach a
contract or law such as the Human Rights
Code or the Occupational Health and
Termination without cause comes with a price.
Reasonable NoticeIn every employment contract, whether verbal or written, there is an implied term the employer will provide “reasonable notice of termination” by way of working notice or pay equal to the amount the employee would have earned during the reasonable notice period. Reasonable notice has two components: statutory and common law
1. Statutory Notice
Provincial employment standards legislation sets out the
minimum period of reasonable notice to which an employee is entitled upon
termination without cause. This is often
referred to as notice or termination pay. Notice or termination pay is based on an employee’s length of
service. In Ontario it is roughly one
week for every year of service up to a maximum of eight weeks.
A separate concept, often confused with notice or
termination pay, is severance pay. Depending on the employer’s total number of
employees, the size of its payroll and the employee’s length of service,
severance pay may be owed in addition to termination pay. In
Ontario, severance pay can be up to an additional 26 weeks. These statutory minimums cannot be contracted
out of by the employer or the employee.
Without a valid and enforceable termination clause in a
written employment contract, an employee is also entitled to common law reasonable
notice. This is known as “common law
notice” and is awarded by courts in wrongful dismissal claims.
The underlying purpose of providing common law notice is to
give to the employee the time (or pay in lieu
of time) reasonably required to secure similar employment. As such, common law notice is assessed by
considering the following factors
- The employee’s length of service
- Availability of equivalent alternative employment
- Relevant education, training and experience
- The employee’s age
There is no easy calculation to determine common law notice
entitlement, and it can range from a low of a few weeks to a high of 24
months. This does not take into account
additional damages which may be awarded on account of the employer’s poor
behaviour during the termination process.
If the amount of common law notice to which the employee is
entitled is greater than the statutory minimum notice entitlement, the common
law notice subsumes the statutory notice (that is, the two are not added
together –the common law notice prevails).
An employer can limit its exposure to common law notice by ensuring the employee signs a written contract clearly outlining the amount of reasonable notice he/she will receive if the employee is terminated without cause. A carefully worded termination clause usually provides for a notice period which meets the minimum statutory requirements.
Securing a Release
Whenever possible, when the proposed settlement payment is above and beyond the contractual or statutory minimum(s), the employer should request, in exchange for the payment, the employee execute a full and final release in favour of the employer. A signed release can prevent an employee from successfully bringing future claims against the employer limiting the employer’s exposure and bringing closure.
Termination WITH Cause
In both a unionized and non-unionized workplace, an employer can terminate an employee for cause. In such a case, the employer is not required to provide either statutory or common law notice.
It is impossible to list all of the circumstances that could constitute just cause. However, generally speaking, the following are examples of just cause:
- Serious misconduct. Theft, dishonesty and assault.
- Habitual neglect of duty or incompetence. For such behaviour to constitute just
cause, an employee must clearly understand the requirements of the job,
the requirements must be reasonable and the employee must have been given
the opportunity to improve.
- Conduct incompatible with the employee’s duties or prejudicial to
the business. Activity during
working hours that interferes with the employee’s employment obligations
or is competitive with or damaging to the employer’s business.
- Wilful disobedience.
Onus of Proof
The onus is on the employer to prove just cause on a balance
of probabilities. Just cause must be
based on real incompetence or misconduct rather than on mere dissatisfaction
with performance or concern for potential misconduct. If an employer is unable to demonstrate just
cause, the termination will be considered to be “without cause” and the
employee will be entitled to reasonable notice.
Securing a Release
Even in a case of just cause, an employer may want to secure
a release for the reasons outlined above. Technically speaking, the release may be obtained for a payment less
than the minimum statutory or contractual requirement. However, there is a risk
to structuring the settlement in this way. If in future, the employee successfully challenges the allegation of
“cause” it is open to an adjudicator to set aside the release on the basis it
was secured for insufficient consideration. To avoid this possibility, it is often advisable for an employer to pay
an amount at least equal to the statutory minimum. Alternatively, an employer
should ensure the release includes an agreement among the parties that the
employee was terminated for cause.
terminating an employee, consider the following in order to assess and limit
- Is there an employment contract with the employee limiting notice to the statutory minimum?
- If the employment contract does not limit notice to the statutory minimum, does it address notice at all?
- Why is the employee being terminated?
- How long has the employee been employed?
- What is the employee’s position and how easy will it be to find similar employment?
- How senior is the employee?
- How old is the employee?
- In the case of a ‘with cause’ termination does it make sense to offer some amount of notice in exchange for a full and final release?
To learn more or for assistance with these and related issue, contact a member of Sherrard Kuzz LLP.
is a lawyer with Sherrard Kuzz LLP
a management-side employment and labour law firm in Toronto. Carissa can be reached at 416.603.0700
(Main), 416.420.0738 (24 Hour) or by visiting www.sherrardkuzz.com.
The information contained in this article is provided for general information purposes only and does not constitute legal or other professional advice. Reading this article does not create a lawyer-client relationship. Readers are advised to seek specific legal advice from Sherrard Kuzz LLP (or other legal counsel) in relation to any decision or course of action contemplated.