Employer Makes Resulting in Defending Wrongful Dismissal Claims

Top Mistakes Employers Make that Results in Defending Wrongful Dismissal Claims

Wrongful dismissal claims are a significant concern for employers in Ontario. Despite the best intentions, mistakes made during the dismissal process can lead to legal battles that could have been avoided, resulting in them defending wrongful dismissal claims. A recent case highlights the types of errors that employers often make when terminating an employee, and how these mistakes can set the stage for a costly lawsuit. The following are the top mistakes that Ontario employers should avoid to prevent wrongful dismissal claims.

1. Not Providing a Written Warning

One of the most common mistakes employers make is failing to give a written warning before terminating an employee allegedly for just cause. While employers may offer verbal warnings or informal feedback, these do not carry the same legal weight as a formal written warning. For an employment termination to be legally considered “for cause,” the employee must be clearly informed that their behaviour is unacceptable and must be given a chance to correct it.

A written warning serves as both a record of the employee’s misconduct and a notice of the potential consequences should the behavior continue. It must specifically state that continued misconduct will result in dismissal. For example, a proper warning could read, “Any future similar incident will result in your dismissal for cause without severance,” or “if your performance does not improve to meet these conditions under the performance improvement plan, it may result in a termination of employment” Simply telling an employee their performance is subpar, without outlining specific consequences, is insufficient. Without such written documentation, an employer has no solid evidence that they took reasonable steps to address the issue before resorting to termination.

Many employers assume that if an employee is clearly underperforming, dismissal is justified. However, without a written warning, it is difficult to prove that the employee was given a fair opportunity to improve. Courts typically expect employers to follow a progressive discipline process before terminating an employee for cause. This process includes issuing clear warnings, providing training, and giving the employee time to correct their behaviour.

2. Inaccurate or Misleading Termination Letter

Another significant mistake employers often make is issuing a termination letter that provides inaccurate or misleading reasons for the termination. A termination letter should clearly explain the reason for the employee’s termination so employers have a valid justification when defending wrongful dismissal claims. Employers sometimes make the error of claiming the termination was due to something like “company restructuring” or “downsizing,” even when no such changes are taking place. In a recent case our employment law firm dealt with, the employee was given a properly-titled “termination letter,” and when the employee negotiated her severance package and sued for wrongful dismissal, the employer resorted to falsely arguing for the first time that her employment was “frustrated”. In other words, the termination letter said nothing about cause. Indeed, it said the opposite. It declared that she was “permanently laid off” and that her employment was “terminated”. This disingenuous tactic was used to avoid providing the employee with severance pay, and made the employer look dishonest and evasive.

Lesson learned for employers: if the employee’s dismissal was for just cause, the employer must clearly state the misconduct in the termination letter. Any attempt to obscure the truth could lead to complications in court, where the employer may be forced to defend why the reason for dismissal was not disclosed upfront.

3. Relying on an Outdated or Unenforceable Employment Contract

Another common error is for employers relying on an outdated or unenforceable employment contract to justify a termination. Employment contracts should be reviewed and updated regularly to ensure they comply with current laws and best practices. Many employers use standard contracts that they believe are airtight, but often, key provisions, particularly those related to termination, may not hold up in court.

For example, if the employment contract includes a termination clause that doesn’t meet the minimum standards outlined in Ontario’s Employment Standards Act, 2000 it could be deemed legally unenforceable when defending wrongful dismissal claims. Courts have struck down many termination clauses over the past few years because they were too restrictive or unfair to the employee, or for not following the basic employment standards. Employers should work with an employment lawyer to ensure their contracts are up-to-date and comply with all relevant legislation.

If an employer attempts to rely on an outdated or poorly written employment contract in a dismissal case, the court may find that the contract is not enforceable, leaving the employer vulnerable to a wrongful dismissal claim. Employers should make it a priority to review and update contracts regularly to avoid this issue.

4. Offering Severance Pay Below Minimum Requirements

When an employer terminates an employee, they must provide severance package unless the termination is properly for just cause. A common mistake is offering severance that is below what the employee is entitled to under the law. The Employment Standards Act, 2000 sets out the minimum requirements for severance pay, and employers must adhere to these standards.

If the court determines that the dismissal was not for just cause, and the employer offers less than the minimum required severance pay, the employer risks facing significant penalties. Offering an amount lower than the statutory minimum can hurt the employer’s position in court, as it may be seen as an attempt to undercut the employee’s legal entitlements.

Employers must ensure that any severance offers meet or exceed the minimum standards set by the ESA. If an employer offers less than the legal minimum, it could make the situation worse, both from a legal standpoint and in terms of the employer’s reputation.

5. Failing to Account for Bonuses or Other Compensation

Some employers make the mistake of overlooking discretionary bonuses or other forms of compensation when terminating an employee. In many cases, employees are entitled to a bonus as part of their overall compensation, and failing to account for this when offering severance can lead to legal complications.

For instance, if an employee’s employment contract includes a discretionary bonus, the employer may assume that the employee would not be entitled to this bonus if they are terminated for cause. However, if the employer offers a severance package that excludes the bonus, they may face a legal challenge in defending wrongful dismissal claims. If the bonus was part of the employee’s expected compensation, the employer could be required to include it in the severance payment, even if the termination was for just cause.

Employers should carefully review any bonus structures in employment contracts and ensure that all forms of compensation are accounted for when calculating severance. Failure to do so could lead to additional claims and complications in the dismissal process.

6. Failure to Set Clear Performance Targets for Bonuses

Many employers include performance-related bonuses in their employees’ contracts, but fail to clearly define the targets that employees must meet to earn these bonuses. If an employee’s bonus is based on reaching certain targets set by management, it is crucial that these targets be clearly defined and communicated to the employee.

In the absence of clear targets, the employer may find it difficult to argue that the employee did not meet the conditions for earning their bonus. In fact, courts have ruled that when targets are not explicitly set, the employee may be entitled to the bonus they would have received if the targets had been met.

If an employer cannot demonstrate that the employee’s performance fell short of clearly defined targets, they may be required to pay the bonus as part of the severance package. This mistake is easily avoidable by ensuring that any performance-based compensation is clearly outlined and measurable.

Conclusion

The termination process is fraught with legal risks for employers, especially when companies make common but costly assumptions or mistakes, resulting in employers defending wrongful dismissal claims. By understanding the critical steps in proper employee termination and avoiding these mistakes, employers can reduce the likelihood of facing a wrongful dismissal claim. Providing clear written warnings, ensuring dismissal letters are truthful, reviewing and updating employment contracts, offering appropriate severance, and accounting for all forms of compensation are all key steps in mitigating legal risk.

Ontario employers should always consult with experienced employment lawyers to ensure compliance with employment laws and to handle terminations in a fair and legally sound manner. By taking these precautions, employers can protect themselves from costly lawsuits and maintain positive workplace relationships.

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At Bune Law, we understand and are familiar the complexities of workplace law and are committed to helping both employers and employees navigate these challenges, including understanding just cause vs. wilful misconduct. Whether you are an employer or employee dealing with employment contracts, workplace disputes like a wrongful dismissal or constructive dismissal, or simply need guidance on your rights and obligations for a severance package review and negotiation, our experienced employment lawyer is here to assist you.

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