Employers May Be Held Liable for Improperly Terminating an Employee for Poor Performance

16 juin 2017 | M. Ashley Mitchell

( Disponible en anglais seulement )

The recent British Columbia decision of Cottrill v. Utopia Day Spas and Salons Ltd. is a careful reminder to employers to proceed with caution before terminating employees for cause for poor performance or risk liability if the termination is later found to be wrongful.

In Cottrill, the employee was employed as a skincare therapist who provided facials, pedicures and other treatments for clients of the employer. On her first day of employment, she attended an orientation where she was given a written employment contract to sign. Although she was in training that day, she signed the contract before performing any actual work as a skincare therapist.

While working for the employer, the employee received occasional warnings about some aspects of her performance but she was never disciplined or told that that her employment was in jeopardy. After 11 years of employment, the employer took a closer look at the employee’s personnel file and noticed that the employee had been falling well below established performance levels. As a result, the employee was given notice that she had 3 months to improve her performance and meet specific standards or her employment would be terminated.  Over the following 3 months, the employee significantly increased her sales revenue, retail sales and new client base. Despite this improvement, the employee was terminated for cause at the end of the 3-month period because the employer felt she had a poor attitude and had not allegedly met all of the required performance criteria. The employee sued for wrongful dismissal.

After assessing the evidence, the Court found that the employer did not have cause to terminate the employee for the following reasons:

  • the employer unreasonably attempted to hold the employee to performance standards which were ambiguous and did not previously apply to her;
  • the employer failed to provide the employee with a reasonable assessment of her performance;
  • the employer did not fairly consider the employee’s improvement in her performance over the 3-month period;
  • the employee’s alleged poor attitude was based on one manager’s impression; and
  • the employer failed to provide the employee with an opportunity to respond to its conclusions about her performance before dismissing her.

In addition, although the employment contract was signed on the first day of employment, the Court found that it was enforceable because there had been no prior discussions between the parties about the essential terms of her employment and the employee had not provided any skincare services before signing the contract. Accordingly, given that no cause existed for her termination, the employee was entitled to 8 weeks’ severance pursuant to the terms of the contract. The Court also held that the unfair manner in which the employee was terminated resulted in emotional distress to the employee that was well beyond the distress from the fact of the dismissal. The employee was thus awarded $15,000 in aggravated damages.

Takeaways for Employers

Employers may be exposed to liability for wrongful dismissal and aggravated damages if they improperly terminate employees for cause on the basis of performance issues. An employee’s failure to meet minimum performance standards will not necessarily justify a termination for cause. Rather, a termination for cause will only be warranted where an employee’s poor performance can be shown to amount  to serious or gross incompetence and the employer has:

  • established reasonable, objective standards of performance;
  • monitored an employee’s performance and has evidence the employee has failed to meet the employer’s standards;
  • given warnings to the employee that his or her employment is in jeopardy if the employee fails to meet those standards;
  • given the employee reasonable time to improve his or her performance; and
  • acted fairly and in good faith in the manner of dismissal.

Cattrill also suggests that an employment contract signed by an employee on the first day of employment may be enforceable in circumstances where the employee has not previously discussed key terms of employment (ie. salary and benefits) with the employer or performed any work duties prior to signing the contract.  Notwithstanding this decision, to ensure there is no question about the enforceability of employment contracts, we recommend that employers ensure that employees review and sign employment agreements before they begin their first day of employment.

We encourage employers nationally to speak with one of our Labour and Employment lawyers about the risk of liability for improperly terminating an employee for poor performance in their respective provinces.

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