Wrongful dismissal lawsuits continue to plague employers. Consider these two employers:
- Employer A terminated a longstanding sales employee and paid a judgement of $205,148 plus likely $100,000+ in legal fees.
- Employer B terminates a longstanding employee, pays 8 weeks’ severance pay under an enforceable written employment contract and pays lawyer $0 to defend wrongful dismissal action.
Employers and employees should both have written employment agreements. Agreements bring clarity to the relationship and avoid the anxiety and costs associated with a termination. The termination provisions in these agreements are key because they help avoid wrongful dismissal suits.
In a wrongful dismissal suit, the employer has terminated the employee without cause or working notice. The claim is usually for damages (not severance pay) based on the loss of employment during the notice period. In the absence of an enforceable written agreement, the court will determine the amount of notice (which can be up to 24 months) based on key criteria. It will then decide what damages are included in the claim. Loss of salary is not the only issue – courts can include lost bonuses, pension, benefits, stock options and more. Claims for mental stress, defamation, punitive damages, and legal fees can also arise. If there is no enforceable written contract in place, the amount of notice has to be determined by the courts on a case by case basis. There is no rule of thumb such as “one month for each year of service”. An employee with less than two years’ service was once awarded damages based on 9 months’ notice!
Well-drafted severance provisions ensure fairness and certainty and avoid litigation. Why pay a lawyer tens of thousands of dollars to defend a lawsuit over how much notice should be given or what should be included in the severance pay when that can be determined and agreed upon in advance?
Employers should be wary of internet precedents as there are many pitfalls which can make a written contract unenforceable.
Things to consider include:
- Whether the severance provisions give the employee at least the minimum notice or pay in lieu of notice to which he is entitled under the Employment Standards Act.
- Whether the agreement will be enforceable if the employee’s job changes in a fundamental way.
- A clear statement that all health and other benefits end on termination and that the employer is not liable for any loss of benefits.
How much contractual notice or severance pay should be stipulated in your employment contract? Subject to the legal restrictions noted above, the amount of notice or severance will be determined by the parties’ relative negotiating strength and their mutual goals.
Many employers worry that talking about termination with their employees will put a damper on the hiring process, but a little discomfort at the outset is worth it. Not having enforceable written employment agreements can result in unnecessary, vitriolic and expensive litigation down the line.
First published in Signals, a Publication for Members of the New Car Dealers Association of B.C., Mar-April 2011.
DisclaimerThe content in the Michael Weiler Employment + Labour newsletters is for your general information and should not be taken as legal advice. If you have a specific problem, please contact Mike Weiler to discuss your situation.