Married to the job: why you need a prenup

Hollywood celebrities have proven the value of an iron-clad pre-nuptial agreement, so isn’t it high time companies implement a corporate version to prevent costly legal battles when it comes to terminating staff?

Canadian companies spend millions of dollars in legal fees and wrongful dismissal pay-outs each year but their exposure can be limited by planning for separation even before signing up an employee, according to legal and labour specialists.

“Breaking up is hard to do. But working into the employment contract what is expected of the employee and employer will help companies avoid a lot of hardships down the road,” according to Jeffrey E. Goodman, partner and labour lawyer for Heenan Blaikie LLP, in Toronto, Ont.

According to Goodman most employment termination court battles are fought on three main issues: Legitimacy of the reason for termination; amount of notice time given to employee; and treatment the terminated employee received from the employer.

In Ontario and most regions of Canada, companies have the right to terminate employees that belong to a union for just cause or as long as they can prove the position is being cut as part of a downsizing. Generally, employees of non-unionized companies can be terminated as long as they have been given proper notice, Goodman said.

Most challenges arise from arguments that the employee’s termination was discriminatory due to issues of race, disability, sex, sexual orientation or age, he added.

Corporations can limit risks, Goodman said, by including in the hiring contract what performance or production output is expected of the employee. The contract must also clearly state the length of termination notice that the employee is entitled to.

In Ontario, the minimum notice period is one week per year of service for a company that has a yearly payroll of $2.5 million.

Goodman stresses that before initiating termination procedures companies should ensure they have a strong case backed up by well-documented evidence to establish the legitimacy of the dismissal.

Granted that the company’s reasons are valid, organizations must have the following in place:

  • Mutually agreed upon set objective criteria that employees need to meet
  • Regular performance appraisals to enable employees to judge “where they stand”
  • Reasonably spaced series or warnings and chances for remedial action

While employers need to provide a reasonable notice period or pay in lieu of notice to a an employee that is dismissed without cause, recently Canadian courts have been emphasizing that companies deal with such employees in good faith.

This obligation was addressed in 1997 by the Supreme Court in the Wallace vs United Grain Growers case. The Wallace Doctrine now stipulates that employers have an obligation of good faith and fare dealings in how they treat an employee and handle his dismissal.

Goodman cited the prolonged court battle between Honda Canada Inc, and one of its factory workers, Kevin Keays.

Between October 1996 and December 1998, the worker was on long term and short-disability and then long-term disability. He was diagnosed with chronic fatigue syndrome in 1997. The motor company dismissed Keays after he refused to see a company doctor, said Goodman.

The courts awarded Keays 15 months of notice for his 13 years of service, plus an additional nine months for Wallace damages (amounting to nearly $50,000). The company was also made to pay $500,000 in punitive damages for breach of the human rights code and told to shoulder the $400,000 legal fees racked up by Keays, Goodman said. The case is now on appeal before the Supreme Court.

“This was a shop-floor employee. Imagine how much the damages would have been of Keays was a vice-president,” he said.

The message from the courts, Goodmand said, is that companies are risking Wallace damages “if they played hardball with the employee and took advantage of their power.”

Surefire ways of catching a Wallace ruling can include the following:

  • Making false allegations
  • Advertising an employees position even before firing
  • Refusing to give an employee a reference letter
  • Providing an undeserved negative reference
  • Refusing to provide an agreed upon severance and
  • Having a terminated employee escorted by guards

Ensuring the best fit between employee and employer through advance testing and assessment procedures is also an important step often neglected by firms, according to Debbie McGrath, CEO of online hiring firm HR.com.

“A lot of complications can be avoided by making sure the employee and company match, in terms of expectations, behaviour, corporate culture and goals,” McGrath said.

Unfortunately, she said, most companies shy away from these steps because of the up front cost and for fear or alienating candidates.

She also said, most employees leave a company because of poor management and “the feeling that they are not valued and respected.”

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