Wrongful Dismissal - A Primer

As a business owner with non-union employees you may be forced to consider terminating one or more employees, but are concerned how to go about doing so without receiving a nasty lawyer's letter. On the other hand you may wrongly believe that it has to cost a lot of money to fire an employee regardless of the reasons for doing so. The following exemplifies some of the misguided comments that I have heard from business clients:

"I did not fire her without just cause. I legitimately simply could not afford to keep her."

"He has known for the past couple of years that I have not been happy with his performance and that business has been slow. So how could he sue me?"

"I looked at the Employment Standards Act and called the Ministry and no one said that I had to give five or six months' severance pay."

"I am going to have to let her go sooner of later, and I guess it's really going to cost me."

Provincial Legislation covers only minimum standards that must be followed when terminating employees under certain circumstances. The law of wrongful dismissal is generally based upon common law tradition. That is, over the years judges have set down standards, apart from legislation, which has the effect of stating that if you want to fire an employee, and you do not have "just cause" for doing so, you must provide adequate, or a reasonable amount of notice, or else pay that employee an appropriate amount of money instead of providing notice.

Two important points are as follows:

Firstly, if you fire an employee, and provide adequate advance notice of the effective date of termination, you may not have to pay a severance allowance even if the individual was a great worker. So the employer that figured it was going to cost a bundle to fire the employee sooner or later, may be mistaken. If you know that eventually your staff will have to be trimmed, and you are prepared to have a disgruntled employee hanging around for a few months after you have provided written notice, then you might want to consider having that employee continue to work for you until the effective termination date.

Secondly, there is the matter of defining "just cause". I would like to first explore this matter, and then return to the point about providing adequate severance pay in lieu of notice.

The boss who fired the worker for financial reasons, and the employer who complained about the employee having known for the past couple of years about unsatisfactory performance, may be asking for problems because they did not have just cause for termination.

For you to be in a position where you can fire an employee for just cause and not have to worry about a wrongful dismissal lawsuit, your employee must have been warned about the problems with performance, advised how to improve those problems, given a reasonable opportunity to do so, and notified of the implications of not reaching a satisfactory level of competence within a specified period of time. How do you achieve those ends? Larger companies may have formalized performance reviews on a periodic basis which cover all the bases, with a written format. It may not be practicable for smaller companies to adopt such practices and procedures, but they nevertheless can protect themselves by following certain guidelines:

• Written warnings.
• Employee must be advised of the standard of competence required (what is the test of competency).
• The employee must know that his job is in jeopardy.
• The employee must be told exactly what is required to correct performance.
• A reasonable opportunity to improve should be given, with a follow-up after a specified period of time in order to evaluate improvement.
• The employee should be shown that her performance is worse than others in the same category.
• You should be able to demonstrate that the employee has had a reasonable opportunity to learn the requirements of the position and perform accordingly.
• Ensure that you have provided adequate training, both initially, and so as to enable the employee to improve after the reprimand.
• Illustrate that his poor performance potentially can damage the company, if it hasn't already.
• Distinguish any temporary factors which may have contributed to incompetence such as increased performance required on an emergency basis, and as a corollary, you should ensure that it is made clear that nothing the company has done contributed to the incompetence. On one hand you are making your best efforts to improve the performance of the employee, while providing a clear indication as to the implications of failing to improve.

On the other hand by following these guidelines your self-serving "paper trail" may assist you in the event that you must terminate. In other words, you are trying to protect yourself from a fired employee complaining that he did not know that there was anything wrong with his performance.

Let's assume you either have not followed the "rules" for proving just cause, or simply want to dismiss an employee for reasons which are not really very compelling. You must provide notice, severance pay or a combination of the two.

You may have heard of a rule of thumb such as a requirement that you pay one months' salary for each year of service. At best, such simplistic notions can only be used as a starting point which must be adjusted depending on a number of factors. A thirty year old receptionist who has been with your company for ten years and presently earns $22,000.00 per year may only be entitled to two months' notice. However, a forty-eight year old employee with specialized skills whom you lured away from one of your competitors two months ago may be entitled to ten months' severance pay. Lawyers and judges try to approximate how many months it would reasonably take for the employee to secure alternate comparable employment, looking at factors including the following:

• Number of years of service with the company.
• Age of employee. Level of pay and responsibility of the employee.
• The degree to which the job responsibilities were specialized.
• The availability of other jobs along the same pay scale for the employee, based upon market conditions.

Your lawyer should be able to tell you a range within which a particular case will likely fall at the conclusion of a trial. Frequently, the task becomes quite easy once the court proceeding has commenced. For example, if you are served with court papers two months after you fired an employee, and four months later the employee gets a job, the cap on the value of the lawsuit would in most cases, be six months' severance pay, plus interest, a contribution towards the employee's legal fees, and reimbursement for costs incurred by the employee in finding the alternate job.

There are, however, circumstances under which other forms of compensation are payable. These include damages for mental distress, and punitive and exemplary damages. Fact situations supporting such awards are quite restricted.

As dismissal issues arise, it is important that you consult your lawyer at the earliest stage possible. Your lawyer will be able to explain the other types of damages mentioned above, as well as other financial issues such as accrued vacation pay and RRSP rollovers. Your lawyer will also be able to advise you as to how to go about terminating employees with a view to minimizing the financial effect that such action will have on your company.

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