Being a Scrooge can increase legal liability for employers – don’t be a bah humbug
For Canadian employers – or American companies or organizations operating north of the border – terminating employees is always a delicate process, but doing so during the holiday season adds an extra layer of complexity. While businesses may face operational or financial pressures that necessitate downsizing or restructuring at year-end, failing to approach terminations with care can lead to reputational damage, reduced morale among remaining staff and costly legal consequences.
Unlike at-will employment that’s often in place in the US, Canadian employment law requires employers to provide notice of termination or pay in lieu of notice, except in cases of just cause – which is a high standard that’s difficult for employers to prove in court. There are two legal elements to a terminated employee’s without cause notice entitlement – the statutory minimum and common law notice.
Each province has minimum termination entitlements under its employment standards legislation. For example, employees in Ontario with three months of service or more are entitled to one week of notice per year of service, up to a maximum of eight weeks pursuant to the Employment Standard Act, 2000. Additional severance pay may be required for long-serving employees if the employer meets certain financial thresholds.
Common law notice considers factors like the employee’s age, length of service, position, and the availability of comparable employment – referred to as the Bardal factors – and is measured based on the body of past court cases dealing with wrongful dismissal. Courts often award significantly more notice than statutory minimums – typically about one month per year of service, with tweaks according to the Bardal factors. The Bardal test is named that from a 1960 case – Bardal v Globe & Mail Ltd – which was precedent setting. Bardal was an advertising manager at the newspaper who commenced a wrongful dismissal claim.
Another important element that employers must consider when terminating employees in Canada is their implied duty of good faith to treat employees fairly and reasonably. This duty applies to the entire employment relationship, but it comes to the forefront at termination of employment. Ending the employment relationship may not be easy for employers, but it’s a particularly difficult situation for the employee being terminated: a loss of their income, a part of their identity, and sometimes a source of embarrassment. If the employer conducts itself in a way that makes the situation even more difficult for a terminated employee, the employer may be liable for aggravated damages on top of statutory and common law reasonable notice.
Increased legal liability in the holiday season?
Naturally, terminations around Christmas or New Year’s amplify the emotional and financial impact on employees. As a result, Canadian courts have shown a willingness to consider the timing of a termination as a factor in determining whether the employer acted in bad faith or if additional damages are warranted. These risks are compounded if the termination undermines an employee’s ability to secure alternative employment in the near term. The holiday period often sees a drop in hiring activity as Canadians take vacation and turn their mind to shopping and decorating.
Take, for example, the Ontario case of Black v Robinson Group Ltd. In that case, the Court found that an employer did not have just cause to terminate a payroll employee who had given herself annual unauthorized raises for several years, as there was evidence that the employer was aware of the raises and the court called the employee’s misconduct “indiscretions” that were not serious enough to warrant dismissal without notice. The court found that the worker, who had 12 years of service, was entitled to 12 months’ pay in lieu of reasonable notice, but also an additional two months for the employer’s “unconscionable decision made shortly before the holiday season.”
In another Ontario case, Zesta Engineering Ltd v Cloutier, a worker was terminated five days before Christmas. In addition to more than $200,000 in wrongful dismissal damages, the court ordered the employer to pay the worker another $75,000 in moral damages for the unfortunate timing of the termination.
In Horner v 897469 Ontario Inc., an employer was dinged for $20,000 in aggravated damages and $10,000 in punitive damages – in addition to wrongful dismissal damages for terminating a worker shortly after she made a harassment complaint. The harassment complaint was made a few days before Christmas and the termination came a few days after, during the holiday period. The court called the manner of termination “cowardly” and “cold.”
Measured, tactful approach
To avoid increased legal liability, employers would be wise to adopt a measured and compliant approach to holiday terminations. Some practical strategies to mitigate potential pitfalls include:
Take more time: If possible, postponing terminations until after the holiday season can avoid the Court’s perception of insensitivity, and it also gives employees a better opportunity find alternate employment – and mitigate damages from termination – when companies resume hiring in the new year.
Compliance with notice and severance obligations: Employers should confirm compliance with both statutory and common law requirements, as providing insufficient notice or severance can expose employers to costly litigation.
Communicate with empathy and respect: Termination meetings should be conducted privately, with clear and compassionate communication. Employees should understand the details of their severance packages and employers can help matters by providing support such as career counselling or outplacement services and a letter of reference.
Avoid opportunistic timing: Terminations that coincide with significant financial events, such as bonus payouts or stock vesting periods at year-end, are going to be subject to scrutiny by courts. Employers should ensure that terminations are not viewed as an attempt to deprive employees of compensation.
Train managers on sensitivity and compliance: Managers who have to deliver termination news should be trained on how to conduct these conversations tactfully and in compliance with the law. Poorly-executed terminations can exacerbate the emotional toll on employees and increase legal risks for employers if they breach the duty of good faith.
Employers often have legitimate business pressures to restructure at year-end, but a measured approach to terminations of employment is key during this period. Knowing the legal requirements and the potential pitfalls at this time of year while considering the broader impact of their decisions, can help employers navigate the complexities of holiday terminations without sacrificing their reputations, disrupting staff harmony or facing unnecessary liability.
While terminations of employment are sometimes unavoidable, handling them poorly – especially during the holidays – can come at a steep cost.