Here’s a common scenario that we hear again and again. We receive a call from an employer – they’ve had it with their employee, John Doe, and want to fire him. John has been working for the company as a customer service representative for two years, is not a stellar performer, and the owner wants to let him go. How much working notice or severance is the owner obligated to pay?

The first thing we’ll do is ask the caller about the employment letter that they had John Doe sign at the beginning of his employment, and ask what is included in the termination provision.  What? No employment letter? Or, you didn’t include a termination section in the employment letter? These are both very typical scenarios. Unfortunately, these mistakes have just cost the caller thousands of dollars, sometimes tens of thousands of dollars, in additional liability that could have been easily avoided.

Some common objections we hear to putting a termination clause in an employment letter include:

1. I don’t want to ruin the honeymoon phase

When you’re in the process of hiring an employee, everything is fresh and exciting, and you can’t possibly imagine ending the employment relationship. Like with a marriage or a business partnership, it’s best to outline the terms of separation at the beginning while everyone still gets along, so that you’re not negotiating when things are tense, difficult, and contentious.

2. I don’t need a termination clause because I can rely on the Employment Standards legislation

If the employment letter does not detail the termination notice provisions, then there are several factors to be taken into account:

    • Provincial employment standards legislation determines the minimum amount of working notice or pay in lieu of notice that needs to be provided to an employee upon termination of their employment without cause.
    • Working notice is a period of time, after an employee has been advised that their job is ending, that you want the employee to continue working.  Rather than giving working notice, a payment equivalent to the amount of pay an employee would have received during the working notice period, at a minimum, needs to be provided. This is known as severance or pay in lieu of notice.
    • However, if you have not explicitly stated in an employment letter that an employee will receive termination notice equivalent to the employment standards legislation, you may have additional exposure because an employee can claim that they are entitled to more than the minimum notice provisions.
    • Common law (i.e. case law that has been determined by judges through decisions in court) may be relied upon by the employee to claim additional notice or severance.
    • Common law notice for terminations looks at a variety of factors to determine appropriate notice for a terminated employee including, but not limited to:
      • Age of the employee
      • Length of service
      • Education level of employee
      • Job prospects for the employee
      • Economic conditions at the time of the termination
      • Circumstances under which the employee joined the company
      • Other factors which may impact an employee’s ability to find alternative employment.
    • The appropriate amount of termination notice to provide an employee may fall somewhere between the employment standards provisions and common law.

3. I don’t want to lock in to a specific formula

Depending on the nature of the position being filled, we may recommend a formula for termination notice that exceeds the Employment Standards minimums but is likely less than common law (e.g. X weeks notice or severance per year of service, with no cap on years of service).

We sometimes receive push back from clients on this recommendation as they don’t want to be locked in to a specific formula – they want the flexibility to deal with each case separately.  As previously stated, when the employment letter is silent on termination provisions, then the notice or severance liability can increase significantly over the employment standards minimum.

Bottom line – It is strongly recommended to include in an employment letter what the provisions will be in the event of a termination without cause.  Specify how much working notice or pay in lieu of notice, or a combination, to which the employee will be entitled.  Agreeing at the start of employment what the termination provisions will be, will make a termination, if necessary down the road, much easier to handle as both parties are aware of what the payment provisions will be.  This notice period must meet, at a minimum, all requirements under applicable employment standards legislation.  Exceeding the minimum requirements is recommended if it is unlikely that an employee would accept minimum notice requirements, or if the position is more professional or managerial in nature. It will also reduce your potential severance liability and save you money.

As terminating an employee is one of the most difficult things you can do as a manager, it is strongly recommended that you consult with an employment lawyer or HR specialist to determine an appropriate termination offer to provide and to ensure that your legal obligations are met, prior to terminating the employment relationship.

Copyright 2012 Clear HR Consulting Inc. All rights reserved.