What Should Go Into A Termination Letter

If you’ve never had to terminate someone’s employment before, there’s a strong chance that you’re not entirely sure where to start. You know that you can no longer employ this individual, whether because of changes to the business or issues with the employee, but you’re not entirely sure where to turn. What do you owe them? What do you tell them? What do they need to know?

There isn’t a universal answer to these questions. Much of it will depend on the circumstances, including the employee’s employment contract, the reason for the termination, and discussions the company and employee may have had regarding termination.

There are some key criteria that should go into a termination letter and exit package, and we’re happy to break a few of them down below.

The Basics

The letter should be written as any standard business letter, and should feature:

– The date of the letter

– The name and address of the sender

– The name and address of the recipient employee

– How the letter is being sent

While this may sound obvious, there are nuances to including this information. The date that the letter was issued is necessary for calculating notice periods, which is a key issue in wrongful dismissal litigation.

The method of sending the letter may be important. If an employee is no longer attending the workplace and you are looking to dismiss them on a specific date, it is crucial that they receive the termination letter, and that you can confirm that they have received it. A face-to-face or virtual meeting to discuss the letter is ideal, but that should always be followed up with sending the letter both by email and by regular mail, or even registered mail or courier to be safe.

Date of Termination

The date of termination may be different than the date of the letter, and this needs to be made expressly clear. If you are ordering the employee to leave immediately and paying them out any money owing, that will be stated in the letter. If you are instead providing them with working notice, where they’ll continue working instead of (or in addition to) receiving a payout, that needs to be made clear as well.

Reason for Termination

This is a controversial one, as many employers mistakenly believe that they need to state a reason for termination, when in fact doing so can potentially get an employer into trouble.

If an employee is let go with cause, then it is on the employer to build that case for just cause. The law has become more exacting through the years about what is required, and in almost all cases an employee terminated for cause is still entitled to receive their minimum payouts under the Employment Standards Act (the “ESA”).

Additionally, if the employee has a potential human rights claim, it is critical to convey the reason for termination to avoid any inference that the termination was discriminatory.

Otherwise, and strictly speaking, a reason isn’t required if the dismissal is without cause. However, employers do have an obligation to be honest, forthright and respectful in the manner of dismissal. Sometimes, particularly for sensitive or very long serviceemployees, it is wise to provide a reason for termination, and appreciated by employees. In these circumstances, I advise to keep the discussion as short as possible so as not to invite a heated exchange.

In my experience, employees treated with respect, dignity and honesty at the time of dismissal are less likely to sue.

Termination and Severance Pay

A person who is being let go should know exactly what they are receiving financially. How this amount is calculated can be complicated, and is frequently based on the person’s employment contract, the prevailing statute such as the Act of the Canada Labour Code, or an estimation of what the person might receive at common law (or a combination of the three). The calculations can be confusing, but need to be accurate, for reasons outlined below.

The amount is often expressed in various ways – whether as a lump sum dollar amount, or an amount equivalent to weeks’ or months’ worth of pay in lieu of notice. Remember that the dollar amount represents a time period, and vice versa. Employers should always have a strong understanding of both numbers so that they are prepared to negotiate an exit package if necessary.

Benefits and Allowances

Benefits and other perks can easily confuse employers upon termination. Under the Act, an employer is required to continue receiving their benefits at least through the statutory notice period outlined in the Act.

The law states though that if an employer is receiving pay in lieu of notice, that pay should cover them as though they still worked at the company. That means that for the number of weeks or months they are being paid out, they should receive full coverage for their wages and benefits.

Bonuses

Bonuses can be a thorny issue at the time of termination. The issue with bonuses usually centers around bonuses already earned but not paid out, and bonuses that the employee would have earned during any statutory or reasonable notice period. Whether or not bonuses are included in a severance package will depend on the nature of the bonus, the consistency with which it has been paid, the employee’s reasonable expectations and the express terms of any written bonus plan.

Property

If the employee has been working remotely, there’s a high likelihood that they have company property at home, and you may still have their personal property still at the office. Even if the employee is on-site and your policy is to walk them out, make arrangements in the letter and thereafter to return their property quickly, and to have them send yours back quickly and simply as well. A reminder about returning and protecting the employer’s confidential information after the employment relationship ends is also wise.

Release

An employer is almost always required to pay out a certain amount of termination or severance pay (or both depending on the scenario) by law. However, they will often offer more than the employee is entitled to in exchange for a signed release confirming that the employee will take no further legal action against the employer for any reason.

Employer should take care to ensure that none of the employee’s statutory entitlements are conditional upon the provision of a release. In 2021, an Ontario Judge awarded an employee $25,000.00 for “moral” or “mental distress” damages because the employer had asked for a release of all claims against it, but its severance offer was not fully compliant with the ESA. Russell v. The Brick Warehouse LP is the first decision of its kind and serves as an important warning about the importance of properly disclosing and complying with ESA entitlements, then separately detailing any enhancements.

The Upshot

Termination packages can be complex and depend on the facts and circumstances surrounding each termination decision. The ultimate lesson is “don’t try this at home.” We can help you draft a package that presents a fair offer, which both protects your bottom line while also minimizing your legal exposure. There are no guarantees that a dismissed employee won’t commence a legal claim, but presenting a fair offer can make it more likely for them to accept sooner and avoid future headaches.

Most importantly, get advice well in advance of a termination decision. Getting ahead of a potential problem will always keep the liability and damage to a minimum. Fixing missteps after the fact is always more challenging and costly.