Employee Termination—A Risk You Can Manage

Steven Frye and Alex Kowal | September 14, 2009

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• Employee Termination—A Risk You Can Manage
• Using Data Analytics to Maximize Company Performance
• Give It Up—Vehicle Fires & Frauds
• Overview of Detection & Investigation Techniques

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With every hire an employer makes there is the potential that the employer may have to terminate that hire in the future due to circumstances which may or may not be within the employer’s control.

Such terminations can be very expensive and damaging to the organization if not managed properly.

The key to managing the risk of expensive and damaging terminations is not too dissimilar to managing certain insurance risks—it’s about prevention and process.

The best prevention is to have a solid foundation in human resource practices:

• Enter into easy to understand written contracts with all of your employees before they start, which would include, in the context of this discussion, a defined job description and expectations, a probationary period and termination provisions, including a defined notice period in the event of a termination without cause. It is also very important that your employment contracts comply with the applicable employment standards legislation to ensure their enforceability.
• Have a clear and easy to understand employee policy and procedures manual (including a performance improvement policy), require your employees to read it and understand it, and make it easily accessible to all.  Where possible, the policy manual should be incorporated into the employment contract by reference.  
• Apply all polices in a fair and consistent manner to all staff. This also helps with keeping up staff morale and avoids condoning inappropriate behaviour, which may come back to haunt the firm at a later date.
• Perform regular performance appraisals, refer back to expectations set out in the contract, and, in particular, consult and interact with the staff in question on matters which may require improvement.
• Have a defined process for handling poor performance and inappropriate behaviour. This process should include meeting with staff in question, defining the corrective action to take, clearly outlining the future expectations, offering assistance for improvement, outlining the consequences for non-improvement and documenting your efforts—establishing a paper trail will act as support for your corrective action, up to and including termination. Also, the act of documenting will force you to confront the issue(s) and deal with the consequences of the actions you are contemplating. That being said, build flexibility into policies and avoid lockstep procedures and hard to follow policies.
• Obtain legal assistance in drafting polices and procedures that comply with applicable laws.
• Designate a person within the firm that is (or will be) educated on your region’s minimum statutory and common law employment law obligations associated with terminations; or have access to someone who can provide you with this information.

Nevertheless, not all terminations can be prevented!

Terminations for Cause

By way of background, every employment relationship is a contract—written, oral, and implied or some sort of combination. Unless indicated otherwise, the employment contract is deemed to be a contract of indefinite duration. The contract, and therefore the employment relationship, can be terminated by the employer either for “cause” or “without cause.”

Where the employment relationship is terminated without cause, the employer must provide the employee with working notice of termination, pay in lieu of notice of termination, or a combination of notice and pay in lieu of notice.

Some terminations result from matters beyond your control, i.e. serious breaches by the employee of his or her employment obligations. The law recognizes that employers have the right to summarily dismiss employees without notice or pay in lieu of notice where they have just cause (or “cause”).

“Cause” is narrowly defined and can include:

• gross insubordination;
• theft;
• conflict of interest;
• breach of company policy;
• breach of fiduciary duty;
• failure to act in the best interest of the company;
• poor job performance (once advised of the necessary standard and given the opportunity to achieve the standard);
• and similar sorts of conduct.

While there are various types of misconduct that may give rise to cause, in determining whether cause exists, the employer must consider the nature and extent of the misconduct, the surrounding circumstances and whether dismissal is warranted in those circumstances. Because cause is a high standard to establish, when faced with misconduct that may give rise to cause, immediate action is required, including:

• Consulting legal counsel to determine if a termination for cause is supportable and how to carry out the termination properly.
• Investigating the circumstances/incident and collecting the appropriate evidence independently.
• Conducting necessary interviews, including an interview with the employee in question - allow the employee an opportunity to respond to the circumstances/incident. 
• Document the breach and the action to be taken in a letter to the employee.

The Poor Performer

Despite a well-managed performance improvement process, sometimes termination is inevitable.

Poor performance would have been documented in performance appraisals, and the guidelines and reasons under which these appraisals are made should be open knowledge to the employee.  This gives the employee and opportunity to improve their performance.

If the employee’s performance does not improve to company standards after documented discussion on the matter, formal disciplinary action should be taken. Ensure that procedures are fair and proportional with regards to the infraction and consult legal counsel if there is any doubt.

Terminating an employee for cause based upon poor performance should occur only after the employee has received adequate written warning clearly identifying that his or her employment is in jeopardy and been given a reasonable chance to improve their job performance.

Even still, depending upon the circumstances, a termination for cause may not be supportable.

Even if cause does not exist, an employer can decide to terminate the poor performer without cause provided it complies with any statutory, contract and/or common law obligations it may owe to the employee in relation to that termination. Sometimes terminating the poor performer prior to having cause is a necessary business decision.

Reduction in Workforce

Reductions in Workforce (RIF) occur when employees are terminated through no fault of their own.

A RIF constitutes a without cause termination and therefore an employer is required to provide notice or pay in lieu of notice (and potentially severance pay) to employees.

Reasons for RIFs may include economic downturn; decreases in sales or production for reasons other than economic downturn, such as loss of market share; technological change rendering jobs obsolete; relocation of the business; sale, merger or takeover of the brokerage; or changes in the structure of the brokerage or the marketplace.

When a company is in the position of having to terminate employees as part of a RIF, careful advance planning is required. Depending upon the province and the number of employees affected, employers may have additional statutory obligations. Consulting with legal counsel to determine your legal obligations is imperative.

Open communication with employees affected by a RIF will also act to decrease the risk associated with the terminations. Specifically, employees are more likely to accept the fact that they have been terminated when it is part of a RIF—employees will feel like they have been treated more fairly if they know that it is the job that has become redundant, not the employee. Open communication with those employees who remain following a RIF will also be important from an employee morale standpoint going forward.

Termination Protocols

When should your legal advisor be consulted? Most times, legal counsel should be consulted for assistance in advance. Lawyers who specialize in human resource law can help you to avoid making mistakes, which may put you on the defensive of a wrongful dismissal lawsuit. It is better to use legal counsel before terminating an employee than to require legal counsel after terminating an employee.

• Who should be present at the termination meeting? The employee meeting should include the employee in question, and two people in positions of authority (e.g. managers or HR staff).  It is important to have more than one person conducting the termination to act as a witness, and to assist if the situation becomes difficult for whatever reason.
• What notes need to be kept at the termination meeting? During the course of the meeting, record what was said and by whom for clarity and adequate follow-up.
• Is confidentiality an issue? Do your best to protect it. Other employees should not find out first and respectful treatment is important. Taking measures to preserve confidentiality can go a long way toward helping the employee being terminated feel respected and avoiding additional exposure.
• How should the termination meeting be conducted? The person conducting the termination meeting should explain the reasons for termination clearly, taking sufficient time to ensure understanding, provide access for questions, explain the separation package (if applicable) and highlight any post-termination obligations (i.e. obligations to protect confidentiality, restrictive covenants, etc.). All of these items should also be documented in a termination letter.
• Where the termination meeting should be held? Termination meetings should always be held in privacy at the office, not offsite or in a coffee shop.
• What level of support should be provided to the employee? Always be approachable and respectful. Depending on the circumstances around the termination, employers may provide references and/or a placement specialist/outplacement services. Also, if working notice is being provided, employers may consider providing employees with reasonable time off to attend interviews.

Administrative Details

Upon terminating an employee, it is important to ensure that everything is secure—office premises, IT network, staff, and the terminated employee. Maintain security of your physical premises by obtaining any passwords and keys that were handed over to the employee. Lock out their user name and change any passwords they may have had to ensure security of your IT system.

In order to ensure security of your HR staff, have two people in the termination meeting.

If there is any question as to the security of the terminated employee as they leave the premises, arrange a ride home for them.

Other things to remember to take back: company credit cards, company car keys, company ID, business cards, equipment (laptop, cell phone), and material (handbook, brochures).

Damage Control

Now that you’ve terminated an employee, take precautionary steps to uphold your company’s reputation and employee morale. When the front desk takes messages, make sure that they avoid long pauses and poor explanations—perhaps have a standard phrase used whenever an employee leaves the company.

Other employees who will be taking over the terminated employee’s duties or files should be informed immediately so that they are aware of the situation when clients call.

In some cases, subject to maintaining the confidentiality of the termination, it may be prudent to contact clients to let them know of the staffing change (who, when, how).

Lastly, take into account the possibility of harm to other employees’ morale that the termination may cause and take steps to counteract that, such as open communication about the situation (while respecting confidentiality) and taking feedback from other employees about the situation.

Things to Avoid

In the course of terminations, know what to avoid making the process run as smoothly as possible:

• Steer clear of emotional reactions by management; 
• Don’t overreact to unverified information; 
• Don’t get into an argument with the employee;
• Don’t allow someone without authority to act;
• Avoid rushing into things—take time to prepare for the interaction but interact. Don’t “chicken out”—stick to process;
• Don’t bypass your written policies, this creates a bad precedent and possible grounds for legal action by the terminated employee, so make sure you follow your own rules;
• Treat the employee with dignity and respect. 

In Summary

1. Have written contracts;
2. Document performance standards;
3. Document HR policies;
4. Document workflow standards;
5. Follow a process for performance appraisal, discipline and termination;
6. Seek legal counsel.

H. Steven Frye, CA.CBV of Cookson Walker Consulting can be reached at sfye@cooksonwalker.on.ca; Alex Kowal, associate lawyer at Greenberg Turner, A Human Resources Law Firm can be reached at akowal@gt-hrlaw.com.