The field of employment law is fraught with misconceptions concerning employee terminations. One of the most common relates to terminating employees on a without cause basis. In such situations, it’s often thought that employees are only entitled to the notice of termination or pay in lieu prescribed by employment standards legislation.
However, this is often not the case. An employee’s termination entitlements can, in the absence of carefully drafted employment contracts, be governed by statutory and common law considerations. As such, it is important that employers understand the difference between notice or pay in lieu pursuant to statute and common law, the risks that accompany the difference between the two, and the ways in which such risks can be mitigated.
SEVERANCE ENTITLEMENTS
Employment standards laws set out the minimum requirements that employers must meet with respect to the employment relationship, including hours of work, wages and termination entitlements. Statutory notice of termination or pay in lieu entitlements, are generally based on an employee’s length of service.
Nothing prohibits employers from providing more than the minimum standards of employment. Indeed, some employers choose to exceed these standards by, among other things, providing more than the minimum wage or vacation time. However, with respect to termination, in the absence of a contractual provision that deals with the issue, the law imposes a requirement that reasonable notice of termination or pay in lieu be provided, which often exceeds the statutory minimum requirements.
REASONABLE NOTICE
There is no formula for determining what constitutes reasonable notice or pay in lieu at common law. In considering what would be reasonable, the courts will give consideration to such factors as the employee’s age and years of service, the availability of alternative employment and the nature of employment, including the employee’s salary and the position held.
While the most substantial awards—up to 24 months pay in lieu of notice—are generally reserved for long-standing, highly paid employees occupying senior positions, the courts have on several occasions provided significant awards to short-term employees and those who occupy lower level positions.
MITIGATING RISK
The uncertainty and expense that comes with court proceedings to determine common law entitlements should provide ample incentive for employers to enter into employment contracts containing, among other things, termination provisions. To do so effectively, employers should be mindful of the following issues:
> Provide consideration: To be enforceable, all employment contracts require that consideration—something of benefit or value—be provided to the employee. For new employees, the offer of employment will typically constitute consideration. However, where an employer seeks to enter into a contract after the employee has commenced employment, continued employment by itself may not constitute sufficient consideration. In such situations, employers should provide employees with some form of additional benefit in exchange for entering into the contract.
> Use clear language: Employers must ensure that the language used in the employment contract, and particularly the termination provision, is clear and unambiguous.
> Provide at least the statutory minimums: Employers must ensure the termination clause does not provide for less than the statutory minimum standards.
Terminating an employee can be expensive, time-consuming and stressful. By taking proactive steps, many of the difficulties and expenses that accompany termination can be mitigated considerably. Best practices dictate that employers enter into employment contracts that clearly set out the extent of their obligations to their employees upon termination. Consideration must be provided and clear language must be used.
This article is provided for general information only and may not be relied upon as legal advice.
