Employment Law

Reducing the Cost of Employee Terminations: Part 2

By June 19, 2019 No Comments

This is my second of four blogs on this topic.

My first blog discussed how to manage the costs and legal risks associated with employee terminations by including a well-crafted legally enforceable termination clause in your employment contracts.

This blog discusses just cause terminations and how an employment contract can take away a judge’s power to determine whether just cause exists in certain situations.

Just Cause = No termination pay owing most of the time

An employer is not required to pay an employee any termination pay at common law if it has just cause for termination.

Unless the employee agrees in their employment contract that certain misconduct constitutes just cause then a judge decides whether the misconduct is sufficiently serious that it “strikes at the heart of the employment relationship”.

Common Law Legal Test for Just Cause

When deciding whether just cause exists, a judge will consider three factors; namely: (i) the nature and extent of the misconduct; (ii) the surrounding circumstances; and (iii) whether dismissal was warranted.

It is generally very difficult for an employer to convince a judge who is applying this test that just cause exists.

Contracting out of the Common Law: Specific Penalty Clauses

An employer can take away a judge’s right to apply the above-noted test by including a specific penalty clause in an employee’s employment contract. In essence the employee agrees in advance that certain misconduct is just cause for termination.

For example, a retirement home can include a clause in an employee’s employment contract which states that any interaction with a resident (including abuse) that must be reported to a funder or regulator is just cause for termination.

Changing Without Cause to With Cause Terminations: After Acquired Cause

Sometimes an employer terminates an employee without just cause and later discovers misconduct that occurred prior to the termination. In these situations, an employer can change a without cause termination to a just cause termination. In this scenario, the courts will permit an employer to rely on this after acquired cause.

Common Law Notice of Termination vs. Statutory Notice of Termination

At common law, an employee is entitled to reasonable notice of termination (or pay in lieu of this notice) unless an employer can prove just cause.

Under Ontario’s Employment Standards Act (ESA), an employee is entitled to a minimum notice of termination unless a statutory exemption applies. One exemption is for an employee “who has been guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.”

Accordingly, there are situations where an employer can prove just cause for termination at common law but cannot prove that the misconduct was wilful and the employer is therefore required to provide the employee with termination pay under the ESA even though it had just cause for termination.

My third blog will discuss without just cause terminations and how you can significantly decrease termination pay owing. Did you know that you can decrease your organization’s obligation from 104 (or more) weeks termination pay to 8 weeks of pay if your payroll is under $2.5M?

 

For 30 years, Doug MacLeod of the MacLeod Law Firm (www.macleodlawfirm.ca)  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 doug@macleodlawfirm.ca

 

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