Breakfast for Business A Practical Guide for Employee Terminations Dan Condon Christine Ashton Carole McAfee Wallace March 6, 2013

Introduction: Employee Terminations 2 Employee terminations can be very costly for an employer It is important that employers are fully aware of the potential liabilities prior to terminating an employee In addition, it is important that employers take steps to minimize the cost of employee terminations

Just Cause and Without Cause 3 Generally, employer can terminate an employee without cause provided that: reason for termination is not based on a prohibited ground under applicable human rights legislation (such as age, gender, disability) the termination does not breach a statute (i.e. job protected leave); and the employee is given reasonable notice of termination Exceptions Employer can terminate employee immediately, and without notice, for cause cause exists when the employee has engaged in serious misconduct that is incompatible with the fundamental terms of the employment relationship

Just Cause and Without Cause 4 What Constitutes Just Cause Contextual Approach To Assessing the Misconduct Was there misconduct? Nature and extent Evaluate the surrounding circumstances Is dismissal without notice the proportional response ?

Just Cause and Without Cause 5 Recent Ontario Cases – No Cause Plester v. PolyOne Canada Inc., January 11, 2013 Ontario Court of Appeal Barton v. Rona Ontario Inc., August 3, 2012 Ontario Superior Court of Justice

Just Cause and Without Cause 6 Recent Ontario Cases – Cause Dziecielski v. Lighting Dimensions Inc., March 19, 2012 Ontario Court of Justice Bennett v. Cunningham, August 17, 2012 Ontario Court of Appeal

Just Cause and Without Cause 7 Just Cause v. Wilful Misconduct Just cause – common law concept which relieves employer from providing reasonable notice or pay in lieu thereof Employment Standards Act, 2000, Reg. 288/01, S.5. 2(1) provides that an employee is not entitled to statutory notice (or severance) where the employee is guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer

Just Cause and Without Cause 8 Just Cause v. Wilful Misconduct Two concepts are not identical Generally more difficult to prove wilful misconduct See Oosterbosch v. FAG Aerospace Inc., March 14, 2011, Ontario Superior Court of Justice found dismissal for cause, but the employees conduct did not amount to wilful misconduct under the ESA

The Termination Package 9 When preparing a termination package an employer must first consider whether the employees entitlements are limited to the minimum provisions contained in the Employment Standards Act or whether the employee is also entitled to notice of termination at common law

The Termination Package 10 Notice Of Termination At Common Law The general purpose of notice at common law is to put the employee in the position they would have been but for the termination of employment While this, of course, includes base salary, it most times will also include other items

The Termination Package 11 Variable Compensation Depending on the type of variable compensation provided and how it has been structured by the employer, this may need to be recognized through the notice period

The Termination Package 12 Variable Compensation Common types of variable compensation include: Commissions Bonuses Profit Sharing Plans

The Termination Package 13 Commissions Commissions generally need to be recognized Commissions are considered wages Often, an employer will have to consider commissions which may have been earned but not payable up to the time of termination, as well as the amount to be included in the notice payment Commissions through notice periods are generally based on historical averages

The Termination Package 14 Bonuses/Profit Sharing Plans Whether these kinds of variable compensation must be recognized through the notice period will very much depend on how the employer has structured the plans Also, the larger the percentage of the overall compensation which is comprised by a bonus or profit sharing plan, the more likely a Court will be to hold these must be included through the notice period

The Termination Package 15 Payment of Notice at Common Law If a notice period exceeds approximately two months, the general practice is to provide pay in lieu of notice by way of salary continuance This is due to the possible impact of mitigation If providing pay in lieu of notice in a lump sum, an employer should consider the discounting of the notice period

The Termination Package 16 Clawback Payments When providing pay in lieu of notice by way of salary continuance, an employer should also consider whether to offer a clawback payment A clawback provision can encourage an employee to obtain alternate employment more quickly It can lead to a situation where the terminated employee receives more pay in lieu of notice than would be the case if they litigated while, at the same time, the employers notice payment is less than it would otherwise have been

The Termination Package 17 Benefits/Vacation Pay If an employer provides its employees with benefits, these also are required to be recognized through the common law notice period Medical/Dental vs. Life Insurance and Disability benefits It is important to advise terminated employees of any conversion rights they have with respect to benefits It is also important to address any accrued and unused vacation pay which may be owing to the employee at the time of termination

The Termination Package 18 Post Employment Restrictions If a terminated employee is subject to non-solicitation or non-competition covenants, it is important to make reference to these in the termination materials If an employee is not subject to any restrictive covenants in some instances it may be appropriate to attempt to obtain these as part of the negotiated settlement

The Termination Package 19 Miscellaneous Matters In the termination materials, the employer should also address matters including return of Company property, payment of outstanding expenses, provision of a letter of reference Employers can also consider whether it is appropriate to offer outplacement counselling as a term of the package

The Release 20 If a terminated employee is being offered notice of termination in excess of what they are entitled to under the Employment Standards Act the provision of any additional amounts should be made contingent upon the employee executing a Full and Final Release in favour of the employer It should be a comprehensive Release which addresses not only notice of termination under the Employment Standards Act and common law but also benefits and any potential claims under other legislation including the Human Rights Code

The Release 21 Employers must be mindful, however, that if a negotiated settlement is not obtained, the terminated employee must still be provided with their entitlements pursuant to the Employment Standards Act

No Settlement 22 On occasion, and for a variety of reasons, the termination package presented by the employer is not accepted and a settlement cannot be reached In such instances, the employee will be at liberty to pursue the matter further by way of an action, MOL claim, and/or a Human Rights application

No Settlement 23 Where no settlement has been reached, the employer still has certain obligations which it must satisfy If it fails to satisfy these obligations, the employer can be exposed to more significantly liability

No Settlement: ESA Entitlements 24 Employees whose employment is terminated on a without just cause basis must be given their ESA entitlements on termination These are: Termination pay Severance pay (only applicable in certain situations) Benefits continuation during the termination pay period; and Vacation pay on the termination pay

No Settlement: ESA Entitlements 25 If an employees employment is terminated on a just cause basis at common law, but is not terminated on a just cause basis under the ESA, then the employee must be given their ESA entitlements on termination In order to have just cause under the ESA, the employee must be guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial

No Settlement: Benefits 26 The ESA provides that during the termination pay period the employer must continue to make whatever benefit plan contributions are required to maintain the employee's benefits until the end of the notice period This applies even if employment is terminated effective immediately and the employer pays termination pay instead of continuing the employment

No Settlement: Benefits 27 If the employer fails to continue the benefits during the termination pay period, the employer can be held liable for any damages which flow from this

No Settlement: ESA Entitlements 28 If an employer fails to provide an employee with their entitlements under the ESA upon termination, the employee is entitled to additional damages

No Settlement: Reference Letter 29 If no settlement is reached, the employer should still offer to provide, and should provide where requested, a letter of reference (where no cause is alleged) or a letter confirming employment (where cause is alleged) If an employer improperly refuses to provide such a letter, the employee may be entitled to additional damages as a result of the employer hampering mitigation efforts

30 QUESTIONS? Wilson Vukelich LLP can help ensure that your employment law matters are handled effectively and efficiently, and in manner that is reflective of new legal developments and obligations. If you have any questions or require further information, please contact: Dan Condon Wilson Vukelich LLP Christine Ashton Wilson Vukelich LLP Carole McAfee Wallace Wilson Vukelich LLP