One of the challenges that employers (both large and small) face when hiring a new employee for a senior position is crafting a termination provision that will be enforceable. This is particularly important for Canadian employers where court determined termination payments can be so significant as to be outrageous.
The basis upon which a termination can take place is either for cause or without cause. In some cases, employers have attempted to expand the definition of cause by adding certain kinds of conduct, such as nonperformance, poor performance, or failure to meet the obligations incorporated into the applicable job description. For the most part, these have been struck down by the courts, resulting in failure of the entire termination provision. In these instances, the courts have substituted their view of reasonable notice determined in accordance with common law principles. The take-away from these cases is that attempts to modify the common law definition of cause or to define cause in a broader scope than what is recognized under the applicable provincial employment standards statute will usually fail.
Assuming that an employer wants to be fair, the appearance of which becomes increasingly important when a dispute is taken to court, employers might wish to consider a compromise approach that may proceed as follows in a discussion with the prospective senior hire:
- I’m willing to hire you at a salary of $XXX, on the understanding that you’re going to be successful in performing your responsibilities as set forth in the job description for the position
- I recognize that there is no guarantee that our working relationship will be successful but the primary consideration is that you be able to meet the performance targets that are set forth in the job description (this actually requires careful outlining an agreement of performance targets)
- I will regularly review with you all of the performance targets set forth in the job description, and provide feedback if improvements or changes are required, such as quarterly
- however, if after several performance reviews have taken place without any improvement, I want to be able to end our working relationship at a reasonable cost
- that cost should be less than what would normally be considered reasonable notice at common law. After all, if you haven’t performed, I shouldn’t be expected to reward you.
Many contracts with senior employees may provide for six or nine months’ notice in the case of termination without cause where common-law notice might be significantly higher. Termination for nonperformance could provide for lesser notice (or pay in lieu of notice).
The challenge to ensure that such a provision is enforceable is to have clear performance standards, regular performance reviews that are documented, an opportunity for the employee to provide feedback, and ideally acknowledgement by the employee of the required performance improvements. It is in the implementation and documentation of this arrangement that this strategy will succeed or fail.
Having said all of that, the cynical little voice sitting on my left shoulder has just whispered into my ear “You’re expecting too much from employers, it’ll never happen.” Sadly, I can think of numerous instances where agreements that have contemplated ongoing dialogue between parties, whether employer and employee, manufacturer and distributor, or supplier and customer, have never been followed.
I am reminded of a comment offered by a speaker at a continuing education program when he referred to the slogan “Our people are our most important asset” hung on the walls in the corporate headquarters of a company that treated its employees as nothing more than economic units. He commented that this was not a reflection of the company’s values, it was nothing more than “Ethical Art.”