Costly Termination Mistakes to Avoid


From honeymoon to divorce, the latter stage - inarguably, poses the most risk to an employer from a reputational and litigation perspective.  As a final chapter to the Small Business HR Mistakes blog series – “What You Don’t Know Can Cost You”, this article will highlight common mistakes employers make at “the end” of the employment relationship that can take a big bite out of their profits.   If you missed the previous posts in the series, you can read them here


Firing in haste 
This is probably one of the biggest liability employers expose themselves to at the bitter end.  Pulling the trigger without thinking through all the risks and having documentations in place can cost the employer big time in terms of costs to defend a claim, settlements, brand damage and most of all, management's time and resources.   In Canada, to terminate a permanent employee, the law requires employers to provide notice or payment in lieu of notice.  Only in rare situations where ‘just cause’ exists can notice/severance costs be avoided.  Frankly, the vast majority of terminations does not meet the standard of cause which requires significant documentations to prove.  However, many employers assume by alleging cause, they can save on termination costs.  This cannot be farther from the truth as anytime such uninformed decisions are made, it is done at the employer's peril.

Judges have been known to punish employers by awarding significant punitive or moral damages in cases where just cause to terminate an employee was not substantiated.  For example, in Morison v Ergo-Industrial Seating Systems Inc., 2016 ONSC 6725 on top of the $100,000 awarded by the judge for wrongful dismissal, another $50,000 in punitive damages was also awarded for terminating in bad faith.  This means that rushing to pull the trigger without due diligence, documentation or a proper investigation, can be a very expensive ordeal for businesses.  Why not just write a blank cheque with your company’s funds?

Tip:  Seek professional advice before making any decisions to terminate.  You may have to invest in some money and time to do it right but it would be a lot less costly than doing it wrong.  


Resignation pitfalls
Resignations can be another area where employers trip up sometimes.  For example, when an employee submits a resignation notice (i.e. 2 weeks), unless the employment contract stipulates otherwise, the employer is obligated to pay the employee up to the end date specified even if the company does not require the person to continue to work.  If the employer decides to change the termination date by pulling the plug earlier, the company has in effect, terminated the employee instead whereby termination/severance liabilities may now exist. 

Other times, there could be situations where an employee resigns in the heat of the moment and the employer accepts it at face value.  This can also be risky as the law expects employers to give the person a cooling off period to ensure his/her intent to resign is clear and unequivocal.  If this is not done, the resignation may not stand if challenged as some recent court cases have indicated (i.e. Johal v Simmons da Silva LLP, 2016 ONSC 7835).  Again, the employer could be liable if wrongful dismissal is alleged.

Tip:  To mitigate the first risk, employers should be careful not to arbitrarily change the resignation date.  In the event working notice is not required by the company, payment in lieu of working up to the resignation date is standard unless there are other complexities to be considered.  With regards to the second risk, it’s a good idea to always have employees submit resignations in writing to ensure that nothing is misconstrued and clear intentions are documented. 


Letting fixed-term contracts lapse
Hiring employees on fixed-term contracts for time-limited projects or to cover a maternity leave is common practice.  However, what often gets overlooked by employers is staying on top of those contract end dates where there’s documentation of the contract completion or an extension prior to the end date.   

The risk lies in employing the person beyond the contract end date without any documentation of the employer’s intentions.  When this happens, the contract in place may no longer be valid which means that a temporary employee may now be regarded as a permanent one entitling them to termination/severance rights when you want to end the relationship which could be a significant exposure.  

Tip:  Keep track of all contract end dates to be sure to follow-up on next steps and have it documented prior to the expiry date. 


Temporary contracts resembling permanency
Another common mistake employers make on this front is renewing fixed-term contracts year after year which is problematic at time of termination. Often times, employers use fixed-term contacts to maximize flexibility and limit their obligations as it relates to benefits entitlement and termination costs.  However, when temporary employees are retained on a series of fixed-term contracts, the courts may consider the employment relationship to be that of an indefinite duration.  Therefore, the business is now exposed to the very costs and entitlements it was trying to avoid which means that the employer would be on the hook to provide the temporary employee the same entitlements as that of a permanent employee, if challenged. 

Tip:  Avoid renewing a fixed-term contract automatically or in succession.  Temporary contracts can make sense for different reasons (i.e. for trial purposes, seasonal work) if there is a definite end date.  However, if there isn’t, consider reclassifying the job to a permanent position should the work be expected to continue beyond the end date or the employee is a good performer who you wish to retain. 


Relying on statutory minimums to terminate
When it comes to notice or termination obligations for employers, the provincial Employment Standards Act (ESA) and federal Canada Labour Code (CLC), provides only the baseline of what employers cannot go below.  On the other end of the spectrum, common law standards determine the upper ranges employees may be entitled to in the absence of a contract containing an enforceable termination clause.  This means that notice entitlements can range widely (from 1 week to as much as 3 months per year of service in some cases where executives are involved) when factors such as age, level of authority, position, seniority, inducement and economic conditions are considered.

However, many employers assume that the statutory minimums is all that they are obligated to provide not knowing that in the absence of a valid agreement with an enforceable termination clause, common law notice entitlements also apply.  The significant gap in entitlements would then be what employees commonly fight for via a wrongful dismissal claim.  Even in the case where a termination clause exists to only offer the minimum standards upon termination, more and more employees have been challenging these contracts to invalidate such clauses so that common law rights can apply.  I’ve written about this in the past which you can read more about here

Tip:  To lessen the risk of wrongful dismissal claims in these situations, a well thought out and executed termination strategy is critical.  One that is aligned with the company’s values and strategic vision so employees would feel less compelled to fight for more via legal means. 


If you find the information shared in this blog helpful, follow me on LinkedIn as I regularly post HR insights and tips for employers. 


The content shared in this blog post is for general information only and does not constitute legal advice. 

At Strategywise HR, we understand the HR challenges SMEs face and the workplace laws that affect you.  If workplace issues are keeping you up at night, or you are simply looking for a professional sounding board to determine the best course of action for your situation, please contact us for a free consultation.  Our focus is in helping SMEs make informed people decisions that reduce risk and costly exposures. 


About the author

Belle Yuan is the founder of Strategywise HR. She is professionally designated as a Certified Human Resources Leader (CHRL) with a wealth of corporate experience in human resources and labour/employee relations. Her passion lies in working with conscientious employers in developing proactive strategies that will engage, problem solve, and reduce HR risks and costs in managing staff.

She genuinely loves to help and regularly shares her expertise through blogs, and social media and has been featured in the Canadian HR Reporter. To learn more about her, follow her on social media.


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