As an employment lawyer, my consistent advice to employers is, whether you have one employee or one hundred employees, every employer needs to have written employment contracts. There are a number of ways that employment contracts can avoid or reduce liability, but the single most valuable term to include is a termination clause. In a written employment contract, employers have the opportunity to limit what can otherwise be a significant liability to their employees for termination pay, also referred to as severance or reasonable notice of termination.
Every year, in British Columbia and across Canada, employees sue employers for “wrongful dismissal.” In essence, a wrongful dismissal action is a legal claim that an employer terminated the employee without enough or “reasonable” notice. The amount of “reasonable notice” can be dictated in an employment contact, but if it is not included in the employment contract, then the judge will decide how much notice is due, and can find significant severance is owed.
Case analysis
One such case is from the British Columbia Court of Appeal decision in Munoz v. Sierra Systems Group Inc., 2016 BCCA 140. In this decision, the Court of Appeal considered an appeal of a wrongful dismissal action by an employee who worked as an IT Consultant. Mr. Munoz was 43 years old, and had been employed for 2.5 years at the time of his dismissal. While there were some written contractual terms between Mr. Munoz and Sierra, there was nothing in the employment contract dealing with the amount of notice, or pay, that would be provided on termination.
The trial judge considered a number of factors in determining how much notice was appropriate for Mr. Munoz, and awarded 10 months notice. The Court of Appeal reconsidered this award and reduced it to 8 months notice. With a properly drafted termination clause, the company could have limited the termination pay to the Employment Standards minimum (two weeks notice for an employee of 2.5 years service), and could have also avoided a what must have been a very costly court action and appeal.
Lesson for employers
Many employment contracts limit the notice to the minimum set out in the Employment Standards Act, which ranges between zero to 8 weeks, depending on the length of service. If you are an employer and your contracts do not include such a limitation, I recommend that you consult with an employment lawyer. It is relatively inexpensive to get expert advice on termination clause language and implementation, particularly as those costs compare to the alternative of a wrongful dismissal action and potentially large award of reasonable notice.
Sara Forte
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I have been telling employers that for years, and although more of them use contracts than a few years ago, the majority of employees are still governed by verbal agreements. Good post!