As an employer, you can generally terminate an employee in two situations: (1) for “just cause” or (2) without cause.
In the first case, when an employer dismisses an employee for “just cause”, the employer must have a legitimate reason for the termination, as the employee will not receive any termination or severance pay. Canadian employment law requires a very high standard to dismiss an employee for just cause. Generally, there must be serious misconduct by the employee (such as theft, violence, fraud, etc.) to warrant receiving no termination or severance pay.
Terminate Without Cause
However, employers can also terminate without cause, so long as the reason is not discriminatory in bad faith. Perhaps you have to rearrange your business or it’s simply not the right fit. In most cases when an employee is terminated without cause, the employer must either provide the employee with the appropriate notice of termination, or pay in lieu of notice of termination. At the very least, the employee is entitled to the minimums contained in the Employment Standards Act.
However, employees can also seek common law reasonable notice, which usually works out to a higher amount that what the Employment Standards Act requires you to pay as termination pay.
Employers are sometimes allowed to limit the termination pay that someone will receive by inserting a termination clause into the employment contract. However, in order for it to be successful, the termination clause must be carefully constructed and enforceable under the law.
If done properly, the termination provision can displace the presumption of common law reasonable notice that an employee would otherwise receive, which provides valuable savings for an employer. However, a termination provision must be unequivocal, explicit and found to be a valid term of the employment agreement for this to occur.
Technical violations of employment standards legislation like the Employment Standards Act can render harsh termination provisions void. The result of this can be very dramatic. Contracts which try to limit statutory severance to a few weeks can be declared illegal, with common law reasonable notice of several months being substituted by the court. Recent cases in this regard include decisions such as: Miller v A.B.M. Canada Inc. 2014 ONSC 4062; Wright v. Young & Rubicam Group of Companies, 2011 ONSC 4720 and Stevens v Sifton Properties Ltd., 2012 ONSC 5508. In order to be valid, termination provisions must acknowledge the minimum notice periods that are set out in the Employment Standards Act, among other requirements. General contract law principles such as unconscionability, undue influence and duress also apply to employment contracts and termination provisions.
As an employer, you should contact Ball Professional Corporation for assistance drafting enforceable termination provisions that will not run afoul of the law. Failing to do so could mean costly (and avoidable) payouts to terminated employees.
Canadian Employment Law
Mr. Ball is author of the authoritative and definitive text Canadian Employment Law - published by Canada Law Book (a division of Thomson Reuters). The text is used and cited by lawyers, law schools and judges across Canada.
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