How to handle a termination

Terminations are stressful situations and a highway to costly legal battles

One of the most difficult tasks performed by employers is the termination of an employee. But as many businesses struggle to compete in an uncertain marketplace, it is inevitable that employees will be fired.

Terminations alone are stressful situations, but if a termination is mishandled, stressful situations can become disasters leading both the employee and employer down a path that invariably ends in a costly legal battle.

The Supreme Court of Canada has recognized the special relationship and unique characteristics of the employment relationship. In particular, the court has acknowledged the vulnerability of the employee at the time of termination. In the landmark decision of Wallace v. United Grain Growers Ltd, Justice Iaccobucci stated:

“The point at which the employment relationship ruptures is the time when the employee is most vulnerable and hence, most in need of protection. In recognition of this need, the law ought to encourage conduct that minimizes the damage and dislocation (both economic and personal) that result from dismissal… I note that the loss of one’s job is always a traumatic event. However, when termination is accompanied by acts of bad faith in the manner of discharge, the results can be equally devastating. In my opinion, to ensure that employees receive adequate protection, employers ought to be held to an obligation of good faith and fair dealing in the manner of dismissal, the breach of which will be compensated for by adding to the length of the notice period.”

Consequently employers are held to an obligation to act fairly and in good faith when terminating an employee due to the court’s recognition of the nature of the power relationship existing between employer and employee.

Because of this a court will scrutinize the manner in which an employer acts upon the termination of an employee. Acting in good faith and fairly with an employee also includes the duty to inform employees clearly and accurately about their entitlements under the law. Failure to do so can leave employers liable not only for a breach of this duty, but also breach of the employer’s obligation to provide accurate information to the employee as the recent case of Halloran v. Sargeant illustrated.

Joseph Halloran had worked for Crown Cork & Seal Canada Inc. for 31 years as a senior sales representative. Due to a corporate re-organization his employment was terminated in 1990. The company presented him with two compensation options.

The first option allowed him to retire on an unreduced early pension. The second option provided a special retirement package. The termination letter, which outlined the options, stated that these provisions were “inclusive of all amounts payable under any provincial legislation” and that “the above provisions exceed provincial requirements.”

Halloran was advised by a company financial analyst to take the first option - retiring on an unreduced early pension. Halloran relied upon the company’s representation that this option exceeded his entitlement under provincial law and accordingly chose the first option. That representation was wrong.

Subsequent to this other employees of Crown Cork, who had chosen the first option, pursued a claim under the Employment Standards Act for severance pay in addition to the unreduced pension. The referee held the employees were entitled to both, which was also upheld by the Divisional Court.

Halloran started a similar claim under the act. But the referee held Halloran’s claim was statute barred and therefore denied his claim. Upon his appeal in Divisional Court, the majority of the court allowed the application and found the referee’s decision patently unreasonable. Crown Cork appealed to the Ontario Court of Appeal.

Although there were other issues addressed by the court, the Ontario Court of Appeal held the company’s representation to Halloran in its termination letter had been false. Under applicable Ontario law at the time, Halloran had been entitled to severance pay under the act in addition to his pension.

The court also concluded the company had made a “categorical representation” which was wrong at the time, and led Halloran to not pursue his rights under the act.

The court found Halloran was in a vulnerable position in relation to Crown Cork at the time of termination. Given this special relationship, Crown Cork had a clear obligation to provide accurate information to him. It found that to do otherwise was a clear abuse of the relationship. Halloran was an innocent party who had done no more than take the word of his employer of 31 years to his detriment. Consequently the court found that the company had breached its duty of good faith and fair dealing to Halloran and thereby acted unreasonably.

The Halloran case demonstrates how employers must be scrupulous when terminating their employees. The Ontario Court of Appeal has confirmed employers are under a duty to inform themselves of the law, and also to ensure that any representations made to their employees are accurate.

In that regard, it is important for employers to take certain steps to minimize their liability:

•ensure the employer has knowledge of its statutory requirements;

•ensure that full disclosure is made about whatever the employee is entitled to;

•ensure any and all information about the termination is in written form;

•ensure the employee is directed to someone who may answer questions regarding the termination package and that this individual provides responses consistent with the law and the benefits to which the employee is entitled; and

•ensure the employee has an opportunity to seek legal advice with respect to the termination package.

Obviously these steps cannot guarantee an employer will not be exposed to liability, but they will assist in minimizing any potential exposure. When the employee is at his vulnerable state, the employer must do everything in its power to ensure the termination is as smooth and uneventful as possible.

For more information see:

Halloran v. Sargeant, [2002] O.J. No. 3248, 2002 CarswellOnt 2730 (sub. nom Halloran v. Ontario (Employment Standards Act Referee) 217 D.L.R. (4th) 327, 163 O.A.C. 138, 23 C.P.C. (5th) 23, (sub nom. Halloran v. Crown Cork & Seal Canada Inc.) [2002] O.L.R.B. Rep. 765 (Ont. C.A.)

Wallace v. United Grain Growers Ltd., 1997 CarswellMan 456 (S.C.C.)

Natalie MacDonald is an associate with Grosman, Grosman & Gale, a Toronto-based law firm specializing in employment law. She can be reached at (416) 364-9599 or [email protected].

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