In my practice, I often receive inquiries from clients who are faced with difficult and often stressful decisions to either reduce their workforce, restructure or to terminate an existing employee who may not be working out. There are a variety of reasons why an employer may need to terminate the employment relationship, but before one does, there are some top considerations:
- What is the reason for the termination, is it with or without cause?
- Will you provide the employee with working notice or pay in lieu of notice?
- Do you have a valid employment contract with this employee?
- What will your termination pay obligations be?
- Ensure you calculate all earnings that are owed as well as accrued vacation pay, and any outstanding commissions (if any) which are payable to the employee on their next regular pay.
- Continue the employee’s benefits during the notice period.
- Are there any other issues you need to consider: retrieving company property, changing passwords, public relations issues, removing the employee from the website etc. There are usually many steps to be taken when you decide to terminate this important relationship.
My Top Tip: Don’t use contracts from the internet
Many entrepreneurs and start ups have recruited their workforce informally, they often do not have employment agreements, which fine when the relationship begins and all is well but is hard to manage if things grow sour and you need to terminate an employee. It is really important to have an employment contract with a valid termination clause in order to provide certainty to both parties. The law around termination clauses in contracts changed in the summer of 2020, and there is a good chance your old contracts you have been using are out of date and may not be legally enforceable anymore. If you are unsure, you should speak with your lawyer to review them before getting into a situation where a terminated employee comes back with a lawsuit.
I often see employers DIY’ing it with contracts they have found on the internet. In many cases, the templates are contracts from the US and would not be enforceable in Canada. Secondly, plain language is a key component of a good contract and we strive to ensure all of our contracts are easy to understand each party’s rights and obligations.
Getting legal advice early on
Most employment relationships begin on a positive note. The employer has found the right candidate; the new employee is happy with the new position. However, employers must always remember that there is inherent risk in every employment relationship and should be prepared for when it goes wrong. When things go wrong you want to be able to terminate the relationship.
The costs of drafting a legally enforceable employment contract when hiring an employee, then preparing a legally compliant termination letter when terminating that same employee are far less than if you are faced with a demand letter or potential lawsuit.
This is an increasingly common scenario, given recent changes in the common law and the general judicial direction toward decisions that are informed by the perceived power imbalance between employees and employers. A matter like this could easily end up in court – whether in a motion or trial – and involve numerous hours of legal services. All because of some legally unenforceable language in the employment contract – language which most employers are not even aware of. The ever-evolving nature of employment law, compared to many other practice areas, makes it even more critical that employers seek legal advice from employment lawyers right from the outset.
In the past several years, there have been major shifts in the workforce and expectations around workplaces, the result of which is that turnover rates are higher than they were in previous generations. The amount of time that an employee spends at a single workplace is shorter than in the past. Employers must be prepared for and adapt to a work culture in which employees are more likely than ever before to begin and leave their workplaces within a much shorter time frame.
Despite the upfront costs for employers seeking legal advice from employment lawyers prior to any actual employment-related crises, the risks and legal costs employers will encounter down the road will almost always be much lower in comparison to the costs faced by those employers who choose to retain counsel only after the occurrence of a major event. Sooner is most certainly better than later in the context of human resources and employment relationships.