Photo of Shannon WilsonBy Shannon WilsonMay 16 2017
Business Law

This Isn’t Working: Minimizing Risk in Employee Terminations

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At the beginning of an employment relationship the employer and the employee are usually both motivated and optimistic. Often times the employer does not find it necessary to put pen to paper in order to solidify the employment arrangement by having a formal written agreement. Unfortunately, this lack of formality will often cause issues during the term of employment and will inevitably cause problems when the employment arrangement comes to an end, particularly when an employer determines that the arrangement is no longer working and terminates the employee on a without cause basis.

Employers can be proactive and minimize their liability and risk when it comes to terminating employees without cause.  Best practices do exist and should be closely followed.  While employers cannot contract out of the statutory minimum entitlements afforded to employees, a properly drafted employment agreement can provide that the employer only has to pay the minimum requirements set out in the applicable employment standards legislation (in Alberta the Employment Standards Code (Alberta)).  Employers should know that it is possible to limit employee notice (or pay in lieu of notice) entitlements upon termination without cause.  However, if the employment agreement is not properly drafted to contain an enforceable termination provision, then employees are entitled to common law reasonable notice (or pay in lieu of notice) which will typically be significantly higher than the statutory minimum entitlements. 

The reality of employment law is that courts tend to favor the employee and generally dislike enforcing termination provisions which seek to limit notice or pay in lieu of notice.  Courts will often try to find a way to declare such provisions void and instead award the common law reasonable notice amounts instead of the employment standards minimums.  It is imperative to have a properly drafted termination provision that will survive judicial scrutiny.  Spending the time and money upfront to prepare and utilize properly drafted employment agreements at the beginning of the employment relationship not only provides certainty regarding the rights and obligations of the employer and employee during the employment relationship but can also be a major cost-reducing strategy for employers when such relationship ends.  

The issue of the enforceability of a termination provision that restricts the employee to only receiving the minimum entitlements under applicable employment standards legislation has been a popular topic in employment law in recent years.  A 2017 decision from the Ontario Court of Appeal, Wood v. Fred Deeley Imports Ltd., provides guidance with respect to the interpretation of termination provisions. This decision highlights that even potential employment standards legislation violations are sufficient to void a termination clause and that post termination conduct (i.e. even if the employer did comply with the legislation) is irrelevant to the analysis. The Wood decision illustrates the importance of carefully drafting termination clauses to ensure they are fully compliant with employment standards legislation.

Common problems with drafting enforceable termination provisions include the following:

  • excluding the continuation of benefits during the notice period;
  • providing a severance amount that is less than the minimum employment standards amount;
  • circumstances and/or the terms and conditions of employment have fundamentally changed since the start date; and
  • ambiguous language.

It all comes down to proper drafting.  If an employer wishes to restrict an employee’s entitlements to the statutory minimums, it is imperative for a termination provision to address notice and termination pay plus it must be clear that the employee will not be entitled to any additional notice other than statutory notice and severance entitlements.

In addition to having a well drafted employment agreement from the beginning of the employment relationship, employers must be prepared to review and revise employment agreements on an ongoing basis in order to keep current with the developments in the law and the changing circumstances in their workplace.

Invitation for Discussion:

If you would like to discuss this article in greater detail, or any other employment or business law matter, please do not hesitate to contact one of the lawyers in the employment or business law group at Nerland Lindsey LLP.

Disclaimer:

Note that the foregoing is for general discussion purposes only and should not be construed as legal advice to any one person or company. If the issues discussed herein affect you or your company, you are encouraged to seek proper legal advice.

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