When employers come to me looking to terminate an employee, my first and biggest task is to review the employment agreement terms. One of three things come out of this review (1) the employer has no contract; (2) the employer has an employment contract, but its terms are flawed; or (3) the employer has an employment contract and its binding with no ambiguity. 

This blog addresses situation number 3. The employer has the perfect employment contract. It meets legal requirements and is unambiguous. Notwithstanding, a good employment agreement still needs to be used properly. This is the information I give to every employer on my client list. It’s logical and practical advice on what to consider when letting go of an employee with a binding contract in place. 

HOW TO USE A VALID TERMINATION PROVISION

1. DEFINING THE TERMINATION

Generally speaking, there are two ways employers look to terminate an employment relationship: with or without cause. With cause terminations are rare and commonly avoided. The Employment Standards Act ( ESA ) places a high threshold to find a viable cause for termination. In other words, an employee can do a lot wrong without meriting a with cause termination. Notwithstanding minor issues with the employee, my suggestion to employers is typically to dismiss without cause. I have exit meeting strategies prepared for my clients that help guide the termination meeting and explain to the employee what “without cause” means while limiting any potential misunderstandings.

2. LOOKING AT THE CONTRACT 

The perfect employment contract has a termination provision that spells out the employee’s entitlements on a without cause termination. For example, the provision might appropriately limit entitlements to ESA minimums. 

3. PREPARING THE TERMINATION PACKAGE

The next step is to prepare a written termination package. I typically draft these on my client's letterhead. We work together to set out a clear road map to navigate the termination process and draft the appropriate terms in the termination letter. It’s a little more complicated than what you see below, but these are the main topics that need to be addressed with every employer:

A. PAY WHAT IS OWED: First things first, pay all accrued wages, expenses, vacation pay… This is a non-negotiable term of the employee’s termination.

B. PAY AS PER THE CONTRACT:  Let's say, for instance, the employment contract says the employee should be given the ESA minimum entitlements if terminated without cause. In this case, the employer is obligated to pay the ESA minimums for notice, vacation and benefits (if applicable) NO MATTER WHAT. I’m placing some emphasis here because some employers believe that if the employee does not agree to the terms of the termination package, they then don’t have to pay the ESA minimum entitlements. Don’t fall into this trap. This is, again, non-negotiable. It’s standard practice to pay the ESA minimums on the next payday regardless of ongoing negotiations. 

C. CONSIDERING OFFERING MORE: This is where I sometimes get some preliminary push back from employers, especially when I’m the one who drafted the employment contract. I explain that a well-drafted contract still requires a cost-benefit approach to termination pay. The cost might be an additional two weeks’ notice pay. The benefit is the full and final release signed by the employee in exchange for those extra two weeks. Yes, the employee is not entitled to the additional two weeks, but it’s the only way to get the release. Employers cannot offer the ESA minimum and request a release; it’s inappropriate. To protect themselves from a frivolous lawsuit and unredeemable legal costs, time and expenses, it’s suggested that the employer offer an additional sum of money in exchange for a full and final release. 

There’s a lot more to consider when drafting a termination letter for an employee. You should consult a lawyer. Your employment contract is your strongest asset, but it needs to be used properly with both legal, industry and practical consequences in mind. Reducing staff and terminating employees isn’t the ideal scenario, but good management has to make tough decisions. Don’t make them harder than they already are. Consult a lawyer and get a customized roadmap to navigate the employment relationship.