Minimizing Employee Termination Costs

Employment contracts can help avoid costly wrongful dismissal claims. Like a marriage, an employment relationship is easier to begin than to end. In my practice I often hear from employers who want to dump recent employees, either because the workers didn’t have the skills they’d claimed, or because their personalities were, well, not a good fit. Worse, some employers have hired executives who proved harmful to their business.

By BCBusiness / May 14, 2010

Employment contracts can help avoid costly wrongful dismissal claims.

Like a marriage, an employment relationship is easier to begin than to end. In my practice I often hear from employers who want to dump recent employees, either because the workers didn’t have the skills they’d claimed, or because their personalities were, well, not a good fit. Worse, some employers have hired executives who proved harmful to their business.

Often, there are legal or factual reasons you may not terminate the employment for just cause, which means that apart from the expense of recruiting and training a new employee, you are required to pay the old employee severance.

Further, if the employee’s company is subject to the Canada Labour Code (e.g., chartered banks, airlines, railways, and trucking companies operating across provincial or national boundaries), she has the right to grieve his termination. As a result, it can be very difficult to terminate her unless you can prove a serious breach.

Often, you can detect problems with a future employee if, before you make an offer of employment, you take the time to scrutinize her resume, conduct thorough reference checks, and search other sources of publicly available information. Prospective employees of value take no offense when employers are careful in their recruitment process. After all, the right fit benefits everyone.

Another way to minimize termination costs is to have an employment contract that deals explicitly with entitlements: What does the employee get if she is terminated without just cause?

A contract will help you avoid wrongful dismissal claims, which can be surprisingly expensive. If, say, the employee holds a senior position and is in her mid- to late-50s or older, she’s entitled to extended notice (or pay in lieu of notice) under common law, even if she was a short-term employee. An employment contract limits this liability.

When drafting employment contracts, two issues are key: timing, and complying with the Employment Standards legislation. Employment contracts should be signed as a condition of being hired. If the employee doesn’t sign the employment contract until after commencing work, it’s likely the employer can’t rely on the severance provisions. (The courts will question whether the contract terms were truly a condition of your offering that employee the job [after all, the employee was permitted to commence work prior to the agreement being signed].) And if the contract severance terms do not meet the minimum standards set out in the Employment Standards legislation, those terms will be void.

Because employment contracts are generally construed strictly, it is important the contract (or template from which it was made) be reviewed by an employment lawyer. The cost of such advice is small in comparison to the potential for severance claims and legal costs if it is later necessary to terminate that employee.

This blog is written by Nicole Byres of Clark Wilson LLP and made available by BCBusiness to provide general information on employment law, and is not a substitute for competent legal advice from a lawyer licensed to practice in your jurisdiction. Neither the reading of this blog, nor the sending of unsolicited comments or emails creates a lawyer-client relationship with the writer or Clark Wilson LLP.