Breakfast for Business

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

2. Introduction: Employee Terminations • 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

3. Just Cause and Without Cause • 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

4. Just Cause and Without Cause 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?

5. Just Cause and Without Cause 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

6. Just Cause and Without Cause 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

7. Just Cause and Without Cause 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”

8. Just Cause and Without Cause 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 employee’s conduct did not amount to wilful misconduct under the ESA

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

10. The Termination Package 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

11. The Termination Package 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

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

13. The Termination Package 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

14. The Termination Package 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

15. The Termination Package 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

16. The Termination Package 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 employer’s notice payment is less than it would otherwise have been

17. The Termination Package 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

18. The Termination Package 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

19. The Termination Package 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

20. The Release • 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

21. The Release • 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

22. No Settlement • 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

23. No Settlement • 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

24. No Settlement: ESA Entitlements • 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

25. No Settlement: ESA Entitlements • If an employee’s 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”

26. No Settlement: Benefits • 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

27. No Settlement: Benefits • 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

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

29. No Settlement: Reference Letter • 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 • 905-940-5505 • dcondon@wvllp.ca • Christine Ashton • Wilson Vukelich LLP • 905-940-0526 • cashton@wvllp.ca • Carole McAfee Wallace • Wilson Vukelich LLP • 905-944-2951 • cmcafee@wvllp.ca