Top 10 Issues for Employers, #10: Terminating an Employee for Poor Performance

This is the 10th and final instalment in our Top 10 Issues for Employers series. This instalment addresses terminating an employee for poor performance.

OVERVIEW

Under Canadian law, employers may unilaterally and immediately end an employment relationship without notice only if they have a valid reason — or “just cause” — for doing so. Absent just cause, employers must provide reasonable notice of termination, or pay in lieu of such notice, to end an employee’s service. Canadian courts have set a high bar for establishing just cause due to the significant consequences to the employee. As such, an employee’s conduct gives an employer just cause for dismissal without notice only in very limited circumstances, where the contract of employment is fundamentally breached.

A common issue for employers is whether they have just cause to dismiss a poorly performing employee. Certain forms of serious or wilful misconduct, including fraud, theft, harassment, and/or breach of fiduciary duty, often provide clear and immediate grounds to terminate an employee for cause. However, the situation is less clear when it comes to an employee who is incompetent or who simply does not perform his or her duties as required. Courts usually require employers to show that they took proactive steps in managing poorly performing employees before finding that a dismissal was for cause.

To reduce risk of liability for wrongful dismissal, before terminating for cause, employers should take proactive steps to manage poor performers and carefully consider whether the failure to meet performance standards give rises to just cause in the circumstances.  

DISMISSAL FOR CAUSE – POOR PERFORMANCE

To justify dismissal for poor performance, employers must prove that the employee consistently fails to meet objective, reasonable performance standards that are known to the employee. An employer’s subjective dissatisfaction with the employee’s performance will not suffice. In assessing the reasonable performance standard, courts will also consider mitigating factors relating to the employee’s circumstances or workplace. The employer must show that it is the employee’s incompetence — not some other factor such as a downturn in the economy or the employer’s failure to provide reasonable accommodation — that is causing the substandard performance.

The degree to which the employee’s performance is substandard will impact the rights and obligations of the employer. In most cases, a pattern of substandard performance alone is not sufficient to justify dismissal for cause. Usually, prior warnings and an opportunity for improvement are required. Immediate dismissal without prior warning is justified only in very rare cases of extreme or “gross” incompetence, such as in situations where the employee’s incompetence endangers the lives of others. But most often, where the degree of incompetence is less significant, the employer must (1) warn the employee that his or her job is at risk if performance does not improve within a specified period, (2) provide reasonable time and support for improvement, and (3) show that the employee’s poor performance nonetheless persisted.

EMPLOYER’S DUTY TO ACCOMMODATE

When assessing an employee’s performance, employers should consider whether any deficiencies are related to prohibited grounds of discrimination under applicable human rights legislation. If so, the employer has a duty to accommodate the employee up to the point of undue hardship. For example, age is a prohibited ground of discrimination which may be relevant to many employers, given rapid advances in technology and corresponding technical changes in the workplace. If performance issues are related to a prohibited ground of discrimination such as age or disability, the employer should first explore accommodation before considering termination.

BEST PRACTICES

The following best practices will assist employers in managing poorly performing employees and avoiding liability in wrongful dismissal claims:

  • Develop a clear policy and/or job description outlining performance standards. The employee should be demonstrably aware of the required performance standard, such that he or she has reasonable opportunity to attain it. These performance standards should be reasonably attainable, having regard to the industry and nature of work.
  • Consistently apply performance standards. Otherwise, courts may view the standard applied to any particular employee as arbitrary, rather than as necessary for performance of the employee’s duties.
  • Be consistent in feedback given to employees. If an employee’s performance is consistently poor, make this clear to the employee. “Mixed signals” do not provide sufficient notice that an employee’s performance is substandard. Similarly, failing to warn an employee of substandard performance may be interpreted by courts as condoning this level of performance, which can bar a later attempt to dismiss for cause.
  • Demonstrate that the employee cannot meet expectations. In defending a wrongful dismissal claim, the employer must prove cause in court. Take time to carefully document an employee’s poor performance to avoid unnecessary difficulties if litigation occurs.
  • Warn the employee of the risks associated with poor performance. Ideally, such warnings should be in writing, both for evidentiary reasons and to ensure that the employee understands the consequences of failing to improve within a specified time period.
  • Provide a reasonable amount of time to comply. The amount of time that is reasonable depends on the context. For example, a period of time that would ordinarily be reasonable may become unreasonable if the business is unusually busy or otherwise strained throughout.
  • Remember that patience helps reduce risk. Courts are generally reluctant to accept an employer’s claim of just cause for dismissal, particularly where the alleged cause is poor performance. Excluding exceptional circumstances, patience is the best approach to performance management. The longer period of time that the employer gives the employee to improve, the more likely that a court will find in the employer’s favour.

For further information or assistance with employee performance management or termination, please contact any member of our Employment & Labour group.

Click here for all issues in the Top 10 Issues for Employers series.

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