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How to Limit your Liability When
Terminating With and Without Cause
by Carissa Tanzola
There are two principal types of termination: “with cause” and “without
cause.”
“With cause” is termination for a
reason that could include, 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 or 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 must not breach a contract or law such as the Human Rights
Code or the Occupational Health and
Safety Act.
you’re
service. (In Ontario, for example, 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.
fired!
How to limit your liability when
terminating with and without cause
By CArissA TAnzolA
Termination without Cause
T
here are
two principal
types
Termination
without
cause comes
of termination:
“with cause”
with a price.
In every employment
conand “without
tract, whether
verbal orcause.”
written, it is
cause” is
terminaimplied that“With
the employer
will
provide
tion for a reason
could include,
“reasonable
notice that
of termination.”
This
for example,
misconduct,
wrongdocould
be working
notice or pay
equal to
ing amount
or poor the
performance.
A “withthe
employee would
have
out cause”
termination
assumes
earned
during
the reasonable
noticethe
employee
is not atnotice
fault, has
but two
the comemperiod.
Reasonable
ployer wishes
to terminate
thelaw.
emponents:
statutory
and common
ployment relationship nevertheless.
For example,Notice
the termination may
Statutory
beProvincial
required due
to restructuring,
employment
standards
insufficient
demand
the employlegislation
sets
out the for
minimum
peee’s of
skills
or cutbacks.
riod
reasonable
notice to which an
In a non-unionized
workplace,
an
employee
is entitled upon
termination
employer
can end
employment
without
cause.
Thisan
is often
referred
relationship
for“termination
any reason whatto
as “notice” or
pay,” and
without
having to justify
itsoever
is based
on an employee’s
length its
of
66
4
4
Fitness Business
Business Canada
Canada
Fitness
July/August2011
2011
July/August
Common Law Notice
Without a valid and enforceable termination clause in a written employment contract, an employee is also
decision.
only caveat
is that
entitled toThe
common
law reasonable
the
reason
the termination
must
notice.
Thisfor
is known
as “common
law
not
breach
such
notice”
and ais contract
awarded or
by law
courts
in
as
the Human
Rights
Code or the
wrongful
dismissal
claims.
Occupational
Health
and Safety
Act.
The underlying
purpose
of common
law notice is to give to the employee
Termination
without
Cause
the time (or pay in
lieu of time)
to seTermination
without cause
cure
similar employment.
Common
comes
with
price. In
emlaw notice
is aassessed
byevery
considering
ployment
contract,
whether
verbal
the employee’s
length
of service,
availor
written,
it is implied
that the emability
of equivalent
employment,
relployer
will provide
“reasonable
noevant education,
training
and experitice
termination.”
This could be
ence,ofand
age.
working
notice
or calculation
pay equal to
There is
no easy
tothe
deamount
the employee
would
have
termine common
law notice
entitleearned
during
reasonable
notice
ment, and
it canthe
range
from a low
of a
period.
Reasonable
notice
has two
few weeks
to a high of
24 months.
This
components:
statutory
and
does not take into
account
additional
common law.
damages which may be awarded as a
result 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 prevails (the two are not added
together).
Limiting Liability
An employer can limit its exposure
to common law notice by ensuring
that employees sign a written contract outlining the amount of reasonable notice he/she will receive if
they are 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
that the employee execute a full and
final release in favour of the employStatutory
Notice
er.
This can prevent
an employee from
Provincial
employment
standards
bringing
future
claims against
the emlegislation
the minimum
peployer,
limitsets
the out
employer’s
exposure
riodbring
of reasonable
notice
to which an
and
closure to
the issue.
employee is entitled upon termination
without cause. This
is often
referred to
Termination
with
Cause
as In
“notice”
or “termination
pay,” and
both unionized
and non-unionit is based
on anan
employee’s
ized
workplaces,
employer length
can terof service.
(In Ontario,
example,
minate
an employee
for for
cause.
In this
it is roughly
one week
every year
case,
the employer
is notfor
required
to
of service
up to
a maximum
of eight
provide
either
statutory
or common
weeks.)
law
notice.
concept,
ItA isseparate
impossible
to listoften
all of conthe cirfused with notice
or termination
cumstances
that could
constitute pay,
is severance
pay. Depending
the
just
cause. However,
generallyon
speakemployer’s
total number
of employing,
the following
are examples
of just
ees, the size of its payroll and the
cause:
employee’s length of service, severance
pay may
be owed in addition
to »»
• Serious
misconduct Such
as theft,
»legal
which meets the minimum statutory
termination pay. In Ontario, severrequirements.
ance
pay
can
be
up
to
an
additional
employer may want to secure a redishonesty and assault.
26 weeks. These statutory minimums
lease for the reasons outlined above.
cannot
be contracted
outduty
of by
Release
Technicallyaspeaking,
the release may
• Habitual
neglect of
or the
incom- Securing
employer
or the
employee.
possible,
whenless
thethan
proobtained for
a payment
petence The
employee
must clearly un- beWhenever
posed
settlement
payment
above
the minimum
statutory
or is
contracderstand the requirements of the job,
and
the contractual
statuCommon
Lawmust
Notice
tualbeyond
requirement.
However, or
there
is a
the requirements
be reasonable
should
Without
a valid and
risk minimum(s),
to structuringthe
theemployer
settlement
in
and
the employee
mustenforceable
have been giv- tory
request
inifexchange
for the
termination
clause in
written emthis way;
in the future
thepayment
employee
en the opportunity
toaimprove.
that
the employee
execute
full and
ployment contract, an employee is
successfully
challenges
thea allegation
final
release
favour
of adjudicator
the employ-to
also• entitled
common law
reasonof cause
it isin
open
to an
Conducttoincompatible
with
the
er.
from
able
notice. This
is or
known
as “comsetThis
asidecan
theprevent
releasean
onemployee
the basis it
was
employee’s
duties
prejudicial
to
bringing
future
claims against
the emmon
law notice”
and isduring
awarded
by
secured for
insufficient
consideration.
the business
Activity
working
limit
employer’s
courts
wrongful
dismissal
To avoid
thisthe
possibility,
it isexposure
advisable
hours in
that
interferes
with theclaims.
employ- ployer,
bring
closuretotopay
thean
issue.
The
underlyingobligations
purpose ofor
comfor an
employer
amount at
ee’s
employment
is com- and
mon
law notice
to give totothe
least equal to the statutory minimum.
petitive
with orisdamaging
theememployee
the
time (or pay in lieu of
Termination
Cause
Alternatively, anwith
employer
should enployer’s
business.
time) to secure similar employment.
In both
unionized
and an
non-unionsure
the release
includes
agreement
Common
law
notice is assessed by
ized
workplaces,
anthat
employer
can teramong
the parties
the employee
• Wilful
disobedience
considering the employee’s length of
minate
an employee
for cause. In this
was terminated
for cause.
service,
Onus availability
of Proof of equivalent em- case, the employer is not required to
provide
either
statutory or common
The onus is on the employer to
Practice
Tips
notice.terminating an employee, ask
prove just cause on a balance of prob- lawWhen
is impossible
to list all
of the cirabilities. Just cause must be based on
theIt following
questions
to assess
and
cumstances
that could constitute
incompetence or misconduct rather
limit your liability:
than on mere dissatisfaction with per- just cause. However, generally speakfollowing
are examples
of just
formance or concern for potential mis- ing,• the
Is there
an employment
contract
cause:
conduct. If an employer is unable to
with the employee limiting notice to
InbotH
unIonIzedand
non-unIonIzed
WorkplaCeS,an
demonstrate just cause, the terminaemployerCan
tion is considered to be without cause
and the employee will be entitled to
termInatean
reasonable notice.
employeefor
Securing a Release
CauSe.
Even in a case of just cause, an
ployment, relevant education, training, experience and 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 as a result 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 prevails (the two are not
added together).
Limiting Liability
An employer can limit its exposure
to common law notice by ensuring
that employees sign a written contract outlining the amount of reasonable notice he/she will receive if
they are terminated without cause. A
carefully worded termination clause
usually provides for a notice period
8
4
Fitness Business
Business Canada
Canada
Fitness
July/August 2011
2011
July/August
•Seriousmisconduct
Such as theft, dishonesty and assault.
•Habitualneglectofdutyor
incompetence
The 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.
•Conductincompatiblewiththeemployee’sdutiesorprejudicialtothe
business
Activity during working hours that interferes with the employee’s employment
obligations or is competitive with or
damaging to the employer’s business.
Securing a Release
in a case
of just cause, an
the Even
statutory
minimum?
employer
may want tocontract
secure adoes
re• If the employment
lease
fornotice
the reasons
outlined above.
not
limit
to the statutory
miniTechnically
speaking,
the release
mum,
does it address
notice
at all? may
be• Why
obtained
a payment
less than
is thefor
employee
being
the minimum statutory or contracterminated?
tual
requirement.
However,
there
• How
long has the
employee
beenis a
risk to structuring the settlement in
employed?
this
way.isIfthe
in the
future the
employ• What
employee’s
position,
ee successfully
the allegaand
how easy willchallenges
it be for him/her
to
tionsimilar
of cause
it is open to an adjudifind
employment?
cator
to senior
set aside
the company
release onis the
• How
in the
the
basis it was secured for insufficient
employee?
consideration.
To employee?
avoid this possibil• How old is the
ity,
it the
is advisable
ancause
employer
• In
case of a for
with
ter- to
pay an amount
leastsense
equaltoto
the
mination,
does it at
make
offer
statutory
minimum.
an
some
amount
of noticeAlternatively,
in exchange for
should
ensure the release
aemployer
full and final
release?
includes an agreement among the
parties that the employee was terminatedTanzola
for cause.
Carissa
is a lawyer with Sherrard Kuzz
LLP, a management-side employment and laPractice
bour
law firm inTips
Toronto. Contact her at 416Whenorterminating
an employee, ask
603-0700
by visiting www.sherrardkuzz.
the
following
questions
to assess and
com.
limit
your liability:
The
information
contained in this article is provided for general information purposes only
• Is there
an employment
contract
and does
not constitute
legal or other
profeswith
the
employee
limiting
notice
sional advice. Reading this article does not to
the statutory
minimum?
create
a lawyer-client
relationship. Readers
• If thetoemployment
contract
are advised
seek specific legal
advicedoes
in
not limit
notice
to the
statutory
minirelation
to any
decision
or course
of action
mum, does it address notice at all?
contemplated.
• 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 for him/her to
find similar employment?
• How senior in the company 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? FBC
•Wilfuldisobedience
Onus of Proof
The onus is on the employer to
prove just cause on a balance of probabilities. Just cause must be based on
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 is considered to be without cause
and the employee will be entitled to
reasonable notice.
Carissa Tanzola is a lawyer with Sherrard Kuzz
LLP, a management-side employment and
labour law firm in Toronto. Contact her at
416-603-0700 or visit 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 in relation to any decision or course
of action contemplated.