What You Need to Know When Terminating Employment

/ Business Law

Individuals come and go, and especially in our current business environment, businesses can expand and shrink fast. It is important for employers to know their legal entitlements, with regard to the circumstances where employees can be terminated, and what obligations arise out of such terminations. In Alberta, there are essentially five ways for an employee’s employment to be lawfully terminated:

  • Termination with a just cause.
  • Termination when an employee is hired for a fixed term contract and that term comes to an end.
  • If an employer provides the employees with the amount of advance notice or severance pay which was agreed upon by the parties.
  • Termination by giving a reasonable amount of advance notice for the compensation and benefits lost if the employee had been given reasonable notice.
  • The contract of employment has become frustrated.

Altogether, these five scenarios put the termination of an employee into two categories, with cause and without cause. It is important to distinguish the differences between the two categories.

What is termination with cause?

An employer may immediately terminate an employee without severance where there is ‘just cause.’ Just cause exists where the employee has done or failed to do something which is so serious on its own or coupled with a poor history, that it results in an irreparable breakdown in the employment relationship and justifies immediate termination. Just cause is an all or nothing situation, there is no middle ground. If the employer cannot prove just cause on a balance of probabilities, it will be responsible for paying the monetary damages arising from what would be a wrongful dismissal.

A single isolated act or omission on the part of the employee can constitute just cause for immediate dismissal without severance pay only in exceptional circumstances. Examples of this include the following:

  • Dishonesty;
  • Fraud;
  • Theft; or
  • A fundamental mistake that results in, or could have resulted in loss of life or injury.

It is important to note there is no steadfast legal rule which states that these types of serious employee infractions will automatically warrant immediate termination. Rather, the court will look at the entirety of the situation and do a contextual assessment.

Misconduct as just cause

Aside from the above examples, misconduct must generally be repeated for just cause to arise. Misconduct in this category includes:

  • Absenteeism and lateness;
  • Moderate insubordination;
  • Breach of company rules;
  • Incompetence; and
  • Non-performance of duties.

With these types of lower level employment infractions, the employees must be warned that they have engaged in misconduct, that it is not acceptable, and that it must not happen again. Because employee misconduct generally needs to be repeated before just cause exists, it is very important for the employer to document specific incidents as it implements progressive discipline.

What is the process of documenting employee incidents?

 A typical progressive discipline program involves steps of verbal and written reprimand before termination is considered. It is wise for employers to meet with the employee and present him or her with a written reprimand containing:

  • A description of the incident that was a mistake;
  • A statement that such misconduct is unacceptable to the employee, and what the correct behavior would have been;
  • A way to remediate the situation, such as additional job training, education, and the like; and
  • A warning that any future misconduct may result in termination with cause.

The employee should also be asked to sign the reprimand, with an acknowledgment that he or she understands and has read it.

There is no legal rule for how many verbal warnings before moving to written warnings. Moreover, there is no legal rule for how many written warnings there must be before termination. A general rule of thumb is three verbal warnings must be issued before a written warning is put in place, and the written warning is more discretionary depending on the entirety of the circumstances at hand. Putting in the number of warnings that will be issued before termination resulting would be an excellent item to include into an employment agreement, or company’s policy procedure.

 What is termination without cause?

 Where an employee has been hired for a definite term and in the absence of just cause or a defined severance clause, he or she can be terminated only upon full payment of the salary and benefits owed for the remaining term of the contract. However, where there is no just cause and no term of employment is contractually agreed to, the law presumes a contract of indefinite employment which may be terminated upon such notice as is required by statute and common law, or upon payment in lieu of such notice. Once an employee is terminated without cause, the employer might not be able to claim that the termination was just as a means to avoid paying damages that an employee may be entitled to.

With regard to statutory requirements, in Alberta the Employment Standards Code provides the minimum amount of notice, or payment in lieu, that must be given to an employee based on his or her length of employment. For example, s.56(b) states that an employee of 2-4 years must be given two weeks of written notice termination, at the very minimum. To add, s.57(1) states that instead of giving a termination notice, an employer may pay an employee termination pay of an amount at least equal to the wages that the employee would have earned during the termination notice period. Nonetheless, pay in lieu of notice can be more than the prescribed minimum amount, laid out in the Employment Standards Code.

As a whole, the law requires a longer notice period of a long-term employee. The reason for this is the long-term employee may have a moral claim which has matured into a legal entitlement to receive a longer notice period. Nonetheless, length of service does have a functional aspect to it. as was note in Suttie v. Metro Transit Operating Co., the longer an individual has worked for an employer the more difficult it is to obtain alternate employment.

The courts hold that reasonable notice is not calculated by a ‘rule of thumb,’ of one month per year. All of the relevant factors must be considered and weighed in determining reasonable notice. These factors include:

  • Age of the employee, with older employees entitled to more than younger employees;
  • Break in service, or whether there was continuous service by the employee;
  • Lack of employment opportunities, especially those in the field of work by the employee;
  • Economic downturn;
  • Employee’s family situation and inability to relocate; and
  • The degree of specialization for the employee’s work.

 On top of the factors listed above, the court has established the legal principle of ‘inducement’ and will increase the period of notice where an employer terminates an employee after inducing that employee to leave previous secure employment in order to work for the employer.

 What is constructive dismissal?

 A general rule with any contract between parties is that one party to the contract cannot make the changes to the agreement without the consent of the other party. For employment law, there are a few small differences to this rule. Namely, once an employee is employed, an employer can make some changes to the terms and conditions of employment. Nonetheless, an employer cannot unilaterally change the fundamental terms and conditions of employment without the employee’s agreement. Fundamental terms include:

  • Compensation
  • Level of position
  • Days in the week worked

If an employer makes a change to a fundamental term or condition of employment without the agreement of the employee, the employee can resign and claim that he or she has been constructively dismissed. In assessing a constructive dismissal claim, the courts will base their decision on if a reasonable person would conclude that the employer, based on all the circumstances, is no longer prepared to the employee pursuant to the terms of the original employment, and has, in effect, terminated the employee. Another instance of constructive dismissal is when the employer makes the employment so unbearable for the employee that he or she resigns. The effect in law of a constructive dismissal without cause and an actual wrongful dismissal is the same. A constructive dismissal is a dismissal. The employee in both instances is dismissed without cause and the employer is normally liable.