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Three essentials all small business owners should have in place are employment agreements, policies, and termination letters and releases.
One of the most common mistakes small business owners make is assuming a small number of employees means proper employment documents are less important. On the contrary, the best time to speak to an employment lawyer and get help with the necessary contracts and policies is when your business is first thinking of hiring an employee.
While employment lawyers can help small business owners in a variety of ways, below are three essentials that all small business owners should have in place.
Having properly written employment agreements signed by your employees when they are first hired can help your business reduce risk, liability, and legal costs down the road. While an employment agreement can have several important provisions, one of the most important to include is a termination clause.
The Employment Standards Code is legislation that governs minimum standards applicable to workplaces in Alberta. Among other things, the Code sets out minimum amounts of termination pay an employer must pay an employee if they let them go without cause. Employers cannot contract out of these amounts, but they can agree to pay employees more severance.
If an employee does not have a termination clause in their employment agreement, they will also have a right to “common law” reasonable notice if they are terminated without cause. How much common law reasonable notice an employee is entitled to receive depends on several factors such as length of service, age, and position. But in most cases, an employee will be entitled to much more common law reasonable notice than they would be if they only received their employment standards minimums. For example, a 60-year-old shop manager with 25 years of service with an employer could be entitled to anywhere from 16 to 24 months of compensation at common law. Under the Employment Standards Code, that employee is only entitled to 8 weeks of wages. As you can see, that is a tremendous difference.
Employers may, for entry level positions, want to limit that employee’s entitlements on termination to the Employment Standards Code. For more senior or managerial roles, an employer may want to reward those employees by agreeing on a set formula for termination, such as two weeks of wages for each year of service. The important point is that, without a written employment agreement and a termination clause, employers do not get to decide what their employees are entitled to on termination. They are stuck paying what can be a significant amount of funds to an employee based on that employees’ common law reasonable notice.
Policies are documents setting out the standards, rules, and expected behavior within a workplace. Employers can write policies affecting nearly every activity you can think of. But the most important policies to put in place are those setting up a progressive discipline regime, and those setting out what kinds of misconduct can lead to an employee being disciplined or terminated.
Progressive discipline is the idea that for most types of misconduct in the workplace, an employee is entitled to know:
- what they did wrong,
- that they need to fix it, and
- if they do it again, they will be disciplined.
If the employee continues to act out despite the employer’s warnings, the employer can terminate them for “just cause”. If an employee is terminated for “just cause”, the employee does not get any reasonable notice of termination, or compensation in lieu.
It is important to put the specific progressive discipline “steps” into a written policy that is then given to all employees to read and acknowledge. This ensures employers can discipline employees and, if need be, rely on that disciplinary history to terminate for just cause.
If an employer has a progressive discipline policy in place, they should also have policies listing the kinds of things that are viewed as “misconduct” in the workplace. The policy should be clear that an employee doing those things will lead to discipline and eventually termination. For example, a bullying and harassment policy prohibiting bullying or harassing conduct is one of the most basic policies that employers should have in place. Another example would be a policy setting out an employer’s drugs and alcohol in the workplace policy.
Termination Letters and Releases
Unfortunately, despite best intentions there will always be situations where an employer must let an employee go, or “terminate” their employment. It could be because the employer does not have enough work for the employee, or that the employee is not doing their job or doing it poorly, among many other reasons. Despite common belief, an employer has the right at any time to terminate an employee for any reason, or no reason at all. The one exception are reasons that are discriminatory under human rights legislation.
When an employer must terminate an employee, best practice is to provide that employee with a termination letter. That letter usually will tell the employee if they were terminated with or without cause. The termination letter can also include an offer to the employee for additional severance if the employee signs a release. A release is a legal agreement where the employee agrees to give up their rights to sue the employer for anything related to their employment in exchange for money. For example, if a long-service employee with a significant common law reasonable notice entitlement signed a release in exchange for more severance, they would not be able to later sue the employer for wrongful dismissal.
In those cases, it is well worth providing the employee with some added severance in exchange for a signed release. Having a signed release on hand means that you as the employer can rest easy. Even if that employee later decides they want to sue you for wrongful dismissal, any such claim would easily be dismissed, saving you significant legal fees. The alternative is having an employee out in the world with the risk of being served with a wrongful dismissal lawsuit when you least expect it, bringing unwanted stress and legal costs.
This article was originally prepared for and posted by LawNow.
This post is meant to provide information only and is not intended to provide legal advice. Although every effort has been made to provide current and accurate information, changes to the law may cause the information in this post to be outdated.