Terminating Employees for Underperformance and Wrongful Dismissal Claims

Can an Employee Be Terminated for Poor Performance in Ontario? A Guide for Employers

In a competitive business environment, especially in small or mid-sized companies, every employee’s performance has a direct impact on operations and profitability. When an employee consistently lacks strong productivity, employers often consider terminating an employee for underperformance. However, before proceeding, it’s essential to understand the legal implications of ending employment due to performance issues. Mishandling a dismissal can lead to costly employment disputes, such as wrongful dismissal claims or constructive dismissal claims, which can be significantly more expensive than initially anticipated.

This guide outlines what Ontario employers need to know about dismissing an employee for underperformance, including legal requirements, proper procedures, and the difference between termination with cause and termination without cause. Whether you’re a business owner or an HR manager, speaking with a qualified Toronto employment lawyer can be key to avoiding serious legal missteps.

Is It Legal to Terminate Someone for Underperformance in Ontario?

Yes, employers in Ontario are allowed to terminate an employee for underperformance. However, the way in which the termination is handled is critical and determines your legal and financial obligations.

There are two primary categories of termination under Ontario employment law:

1. Termination Without Cause (most common)

2. Termination With Cause (much harder to justify)

1. Termination Without Cause: The Most Common Route for Employers 

In most cases of poor performance, employers opt to terminate an employee without cause. This option does not require the employer to justify the termination as long as they provide the proper notice of termination or pay in lieu of notice.

What Does the Law Say?

Under Ontario’s Employment Standards Act, 2000 (ESA), an employer can terminate an employee without cause provided that:

• The employee receives written notice of termination, termination pay, or a combination of both.

• In some cases, severance pay may also be required, especially for employees with long service or where the employer’s payroll exceeds a certain threshold of $2.5 million annually.

However, the ESA outlines only minimum standards. Many employees are entitled to significantly more under common law, unless their employment contract includes a legally enforceable clause that limits notice to ESA minimums.

Employment Contract Review Is Crucial

Before terminating an employee, it is critical to:

• Review the employment contract: Does it contain a valid termination clause?

• If it limits notice to ESA minimums, your liability may be limited.

• If no valid clause exists, the employee could be entitled to several months of common law severance pay.

For a detailed contract analysis, it is always best to consult an employment contract review lawyer or severance package review lawyer in Toronto.

2. Termination With Cause: A High Legal Threshold

Termination for cause means ending the employment relationship without any notice or severance. This is a serious step and is reserved for the most severe situations where the employment relationship is deemed irreparably damaged.

ESA Standard for Cause

Under the ESA, termination without notice or severance is only allowed if the employee engages in:

• Wilful misconduct

• Wilful disobedience

• Wilful neglect of duty

The misconduct must be intentional, deliberate, and serious. Courts have often referred to this as behaviour that is “being bad on purpose.” Common performance-related issues like errors, lack of skill, or general incompetence usually do not meet this strict standard.

Common Law Standard for Cause

The common law standard for cause is somewhat broader than the ESA’s. An employer may be able to establish cause if:

• There is well-documented repeated underperformance

• The employee has been given clear warnings and expectations of performance standards or requirements

• The employee has had a reasonable opportunity to improve

• There is strong documentation proving that the employment relationship has broken down

In these cases, a pattern of chronic poor performance – especially when supported by a performance improvement plan (PIP) – may support a cause-based dismissal. But this still carries risk, and it’s strongly recommended to speak with a constructive dismissal lawyer or wrongful dismissal lawyer before proceeding.

How to Document Underperformance Properly

To build a defensible case and reduce the risk of wrongful dismissal claims, follow these key steps:

Step 1: Implement a Performance Improvement Plan (PIP)

Clearly outline the areas where the employee is falling short and provide realistic:

• measurable goals

• timelines for improvement

• support, resources and training to employees

Step 2: Issue Warnings

If performance does not improve, issue one or more formal warnings. Each warning should:

• Be in writing

• Reference the Performance Improvement Plans (PIP)

• State that failure to improve could result in termination

Step 3: Final Written Warning

If issues persist, a final warning should make it clear that termination is imminent unless improvement occurs immediately.

Step 4: Maintain Detailed Records

Keep all communication and documentation, including:

• Performance Improvement Plans (PIP)

• Meeting summaries in detail

• Emails

• Performance reviews

This evidence can help defend your decision if the employee claims wrongful dismissal or constructive dismissal later.

When Serious Misconduct Justifies Summary Dismissal

While underperformance rarely meets the standard for cause, certain serious misconduct can justify immediate termination without notice or pay.

Examples include:

• Theft or fraud

• Workplace violence

• Sexual harassment

• Serious breaches of trust or confidentiality

These acts may qualify as wilful misconduct under the ESA and may also meet the common law test for just cause. If you are dealing with this type of situation, contact a Toronto employment lawyer experienced in workplace investigations and summary dismissal cases.

Avoiding Common Employer Mistakes

Termination for performance reasons must be handled carefully. Many employers unintentionally expose themselves to legal claims by:

• Not providing proper notice or severance

• Failing to properly document performance issues

• Relying on invalid termination clauses in employment contracts

• Assuming poor performance automatically justifies cause

To reduce your legal exposure:

• Ensure employment contracts include enforceable termination provisions
• Communicate expectations clearly from the outset
• Use progressive discipline methods consistently
• Seek expert legal advice before termination decisions

When to Consult an Employment Lawyer

If you are considering letting an employee go for poor performance or misconduct, speaking to an experienced lawyer can help you:

• Understand your legal rights, obligations and entitlements under Ontario employment law

• Determine if cause exists

• Minimize the risk of a wrongful dismissal claim

• Draft enforceable contracts and termination clauses

• Negotiate severance packages that comply with legal standards

Look for a professional who specializes in:

• Ontario employment law

• Severance package review and negotiating severance packages for employees across Ontario

• Employment contract review

• Constructive dismissal claims

• Wrongful dismissal claims

A lawyer to negotiate severance package terms or a lawyer to review employment contract details can be a valuable ally in protecting your business.

Final Thoughts

When considering the option of terminating employee for underperformance in Ontario is legally permissible – but only if done the right way. While it may seem simple, failure to follow legal protocols can lead to significant financial and reputational consequences.

Termination for just cause requires a very high threshold of proof and should not be attempted without strong evidence and legal counsel. In most cases, employers should rely on termination without cause, paired with appropriate notice or severance, unless serious misconduct is involved.

For peace of mind and legal protection, always consult a qualified employment lawyer in Toronto before making termination decisions.

Call Toronto Employment Lawyer Now

It is important for an employee (or an employee) to obtain a legal consultation before taking any action that could affect the situation at workplace. Sezar has experience advocating for both employers and employees, which allows him to anticipate the other side’s arguments and develop an effective strategy, including termination of employment.

If you are looking for a wrongful dismissal lawyer in Toronto, call us today at 647-822-5492 for a case evaluation with an experienced employment lawyer.

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