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Abiding by the rules if you need to fire an employee

Guide Legal: It's best to understand not only the law, but its principles

The best “strategic business thinking” requires not only knowing the law, but also understanding the policies behind it. Many readers will have had to terminate an employee. In this article, I discuss the principles behind the rules for termination “without cause,” that is, where an employee has not done anything that merits being fired, but the relationship simply no longer works. I also note two areas where evolving policy is pushing employment law to change.

When terminating any employee (except for those with a fixed-term contract), an employer must give appropriate notice that the employment is being terminated or give termination pay “in lieu of notice.” The purpose is to give employees, who depend on an income, a reasonable cushion to find alternative employment. An employer can thus give the required notice and the employee will keep working, or pay the employee a lump sum for the notice period but the employee stops working.

The length of notice is determined by a number of factors, including how long the employee has worked, his age and qualifications, and the availability of replacement employment. Each province has a statute that sets out the minimum amount of notice based on the length of employment, but the other factors will usually increase the required time.

Severance pay, on the other hand, is intended to compensate employees for their loss of seniority and their investment in the employers’ business. Severance pay is an additional entitlement that some provinces require employers to pay to longtime employees. In Ontario, for example, employees with more than five years of service are entitled to severance pay if the employer has a payroll of over $2.5 m, or is shutting down completely.

Duty to mitigate

A dismissed employee has a duty to mitigate his damages. That is, he must make the best of the situation. He must take reasonable steps to look for new work and to accept that work if it is available. He is not required to take any available job — he can look for a position with a comparable salary, similar working conditions, and in an environment that is not acrimonious or demeaning.

The same principle applies whenever a harmed party seeks compensation in court. For example, a landlord has a duty to look for another tenant when a tenant breaches a lease and a seller must try to resell his goods if a committed buyer fails to purchase them. This is consistent with the long-standing social policy to encourage people to find a solution before seeking relief in the court, and to preserve (or create) economic value where possible.

Aggravated damages

The manner in which an employee is terminated can also affect his entitlements. In the course of a dismissal, an employer ought to be candid, reasonable, and forthright. If the employer treats the employee in a way that is unfair, misleading or unduly insensitive, the employee may be entitled to an extra level of compensation called aggravated damages.

An employee might also get aggravated damages if an employer tries to fire him “for cause” where there was no true basis for doing so.

The courts set a high bar for aggravated damages. Employees take a job knowing that it might not last forever. Aggravated damages are only available where the employer’s conduct in terminating exceeds what reasonable people would expect in a professional relationship.

Two areas of development

As the business landscape in Canada changes, protections for employees are increasing in two areas in particular.

First, employment law has long distinguished between employees and independent contractors. Courts determine if someone was an employee by looking for the indicia of a “master and servant” relationship, such as how the person is paid, who directs the activity, and who owns the tools of the trade. Employers have notice obligations to their employees, but not to independent contractors who work for them.

However, in recent years the courts have expanded the idea of “dependent contractors.” These self-employed contractors are entitled to notice or payment in lieu where they have hallmarks of being employees, such as working exclusively for one employer or being economically dependent on that employer.

Second, courts are expanding the extent to which employers must accommodate employees with disabilities. The general rule is that if an employee is no longer able to perform the tasks of the job, the employment relationship has been “frustrated” and can be terminated, subject to notice and severance entitlements.

However, if an employee cannot perform the tasks because of a disability — and the courts apply a broad definition of disability — termination is only permitted where it would create “undue hardship” to accommodate the disabled employee. Employers may therefore have a duty to reallocate tasks, purchase special equipment, and adopt creative solutions to accommodate an employee. The guiding principle is that employment provides not only income but a sense of identity and self-worth, and courts increasingly require employers to facilitate employment.

An employer’s duties will always depend on the situation, but it is helpful to understand the principles and policies that inform these obligations.

Naomi Loewith is a lawyer at Lenczner Slaght in Toronto. As a business litigator, Naomi advocates and manages risks for clients in a variety of sectors, and has experience in actions involving all levels of government. 

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