Employee Termination: Five Issues to Consider Before Firing An Employee

Jun 10, 2012

Employee Termination: 5 Questions to Ask Yourself

1.Are you claiming that your organization has just cause to terminate the employee?

If so, and you can prove just cause then your organization is generally not required to provide the employee with any notice of termination at common law. Unless the employee willfully misconducted herself, however, your organization may still be required to provide the employee with the minimum employee termination notice he/she is entitled to under employment standards legislation.

If not, you must provide the employee with notice of termination or termination pay in lieu of such notice.

2. Can you provide the employee with working notice of termination?

In the vast majority of cases, employers do not provide notice of termination. In some cases, the reason is because there is a concern about the impact on employee moral. In other cases, there are security concerns if the employee has access to sensitive information on the company computer network.

In some cases, however, working notice is a viable option. For example, this option is sometimes utilized when a business is being sold or closed. It is also used in connection with the termination of professionals like accountants and lawyers.

3. If there is no just cause for termination, has your organization included a termination clause in your standard employment contract?

If so, and this clause provides the employee with at least as much notice as the minimum notice required by statute law then this clause will generally be enforced.

If not, you are generally required to provide “reasonable notice” of termination.

We strongly recommend that every employment contract include a termination clause.

4. Should your organization provide a reference letter and/or outplacement counseling to a terminated employee?

Unless just cause is being alleged, we believe it is generally a good idea to provide a reference letter to a terminated employee.

We suggest deciding whether to offer outplacement counseling on a case-by-case basis. There are a number of factors to take into account when making this decision.

5. Should you require an employee to sign a release before paying out any termination pay?

Usually, we suggest that an employer require an employee sign a release before providing the employee with any termination pay in excess of the employee’s entitlement under any employment contract or the minimum notice requirements set out under employment standards legislation.

If you are thinking of terminating an employee and have any questions, please contact us at [email protected] or
call us at 1-888-640-1728 at your convenience.

There are many ways to attack the termination clause in an employment contract. 

I am now surprised if employee counsel does not claim that their client’s  termination clause is not legally enforceable - usually because the termination clause does not allegedly comply with the Employment Standards Act.

This blog considers a case, McKercher v Stantec Architecture Ltd., 2019 SKQB 100, where an employee successfully attacked the termination clause in his contract because he did not explicitly agree to it after being promoted. 

The Facts

In 2006, Mr. McKercher commenced employment as a staff architect. The termination clause in his employment contract stated: 

Termination other than for cause will be with notice or pay in lieu of notice, based on your length of service. If the Employer terminates your employment for other than just cause you will receive the greater of:

  1. a)   Two weeks notice or pay in lieu of notice during the first two years of employment increasing by one week for each additional completed year of employment to a maximum of three months notice or pay in lieu of notice.

      or

  1. b)   The minimum notice of termination (or pay in lieu of notice) required by applicable statutes.

Eleven years later, when Mr. McKercher was employed as a Business Centre Sector Leader, his employment was terminated. The employer paid him the three months termination pay he was owed under his employment contract.

 

Another way to attack a termination clause: What is the changed substratum doctrine?

An Ontario judge in a 2012 case, MacGregor v National Home Services, 2012 ONSC 2042 (CanLII), described this legal doctrine as follows: "The changed substratum doctrine … provides that if an employee enters into an employment contract that specifies the notice period for a dismissal, the contractual notice period is not enforceable if over the course of employment, the important terms of the agreement concerning the employee’s responsibilities and status has significantly changed."

 

The rationale for this doctrine has been described by one judge, Schmidt v AMEC Earth & Environmental Ltd., 2004 BSCS 2012 (CanLII), as follows: "In my view, it was incumbent on the defendants to advise Mr. Schmidt that they intended to continue to rely upon the termination provision set out in the Agreement when substantial changes in his employment occurred. This would have allowed him to consider the matter and to negotiate for other terms. If the defendants wished to continue to rely on the termination provisions there ought to have been a ratification of the provisions as the nature of Mr. Schmidt’s employment changed."

 

Decision

The judge hearing this case relied on the following factors when deciding not to enforce the termination clause in the employment contract: ”...there is no evidence that (the employer) made it clear to the (employee) that the notice of termination provisions were intended to apply to the positions to which he was promoted. The employment agreement contains no express wording to this effect, nor does it contain any wording to support the inference of such an intent. Further, and in keeping with the analysis in Schmidt, the Court received no evidence that, as it promoted the plaintiff, SAL reasserted its understanding and expectation that the notice of termination limit would remain in effect.”

 

Lesson to be learned:

An employer should make it clear that the termination clause in an employment contract applies when an employee is promoted. This expression of this intent should be in writing and should be clear and unambiguous. I recommend that an organization’s employment be reviewed by an employment lawyer every year or two. If your employment contract does not address this issue then think about doing so the next time it is reviewed.

 

For 30 years, Doug MacLeod of   the MacLeod Law Firm has been advising employers on all aspects of the employment relationship. If you have any questions, you can contact him at 416 317-9894 or at [email protected]

The material and information in this blog and this website are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this blog or its links. No person should act or refrain from acting in reliance on any information found on this website or blog. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.

 

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