Terminating underperforming employees a delicate act (Toughest HR questions)

Even if PIP is followed, courts may rule just cause doesn’t exist
By Andrew Treash
|Canadian HR Reporter|Last Updated: 09/27/2011

Question: How do you terminate an underperforming employee for cause when you haven’t done a performance improvement plan (PIP)?

Answer: Even if a PIP is used, it is very difficult to terminate an employee for cause based on poor performance. However, for a termination to have any chance of being upheld in court, the basic principles of a PIP must be followed.

People often associate dismissal for cause, also known as “summary dismissal,” with issues such as employee theft and dishonesty. It is not often you hear about a court finding where poor performance alone gave grounds for summary dismissal.

Part of the reason for this is some courts and lawyers have taken the view just cause for incompetence requires an employee to truly be incapable of doing the job.

This is a very high bar to meet and it requires more than just showing an employee has not been doing his job well enough — there must be no real possibility of him ever doing it satisfactorily.

However, in 2009, the Saskatchewan Court of Appeal revisited this subject and gave employers a new reason to brush up on the use of PIPs.

In Schutte v. Radio CJVR Ltd., Grant Schutte had been hired as program director, music director and morning show co-host to help transition CJVR from a country music station into an “oldies” station. At about the same time, CJVR hired a consulting firm to help with the transition. The firm delivered several reports that were critical of Schutte and contained suggestions for improvement.

The suggestions were communicated to Schutte and he was advised an improvement in his performance was necessary. However, over time, CJVR did not see the improvements it wanted and the radio station let Schutte go with a small severance package. Schutte sued CJVR for wrongful dismissal.

At trial, the judge followed the traditional view on dismissal for poor performance and concluded Schutte could only be dismissed with proper notice. CJVR appealed and won — the Court of Appeal ruled employers may indeed terminate for poor performance in the right circumstances.

Justifying summary dismissal for poor performance

The court set out four things that must happen to justify a summary dismissal for poor performance:

• The employer must provide reasonable, objective standards of performance in a clear and understandable manner.

• The employee must fail to meet those standards.

• The employer must give the employee a clear and unequivocal warning she has failed to meet the standards, including particulars of the specific deficiency.

• The warning must clearly indicate the employee will be dismissed if she fails to meet the requisite standards.

In the Schuttecase, it does not appear a formal PIP was used. However, the employee was given several verbal and written warnings about his performance. The warnings contained the essential elements of a PIP and helped the employer establish just cause, but not without a long battle in court.

So, while it’s possible to establish just cause without a PIP, a well-crafted PIP can help an employer prove the four elements set out above. That being said, there is enough confusion in the law that even if a PIP is executed flawlessly, it may still not be enough to guarantee just cause if the case goes to court.

Making things more complicated, employment standards in Ontario only allow for summary dismissal if an employee’s actions amount to “wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.”

Courts have found an employer can have just cause for summary dismissal under the common law but not under employment standards — for a recent case on this subject, see Oosterbosch v. FAG Aerospace Inc., 2011 CarswellOnt 1702 (Ont. S.C.J.).

Similar rules exist in Newfoundland and Labrador and Manitoba, although Manitoba’s will be eliminated in January 2012.

Because of the uncertainty in the law, employers should obtain legal advice before terminating for cause based on poor performance. However, implementing a PIP or similar mechanism for charting desired improvements to an employee’s performance is a crucial first step.

Andrew Treash is an HR and compliance writer for Consult Carswell, a Canadian HR work solution that delivers best practices, legal compliance, news, articles and a suite of ready-to-use tools in an online service. He can be reached at andrew.treash@thomsonreuters.com or visit www.consultcarswell.com for more information.

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