The Long and Difficult Road to Establish Just Cause for a Performance-Based Termination

June 2014

Previously printed in the CCH’s Focus on Canadian Employment and Equality Rights Newsletter.

An employer that wants to dismiss an underperforming employee has two options: (1) terminate without cause and provide the applicable notice or pay in lieu; or 2) terminate with just cause and provide no notice or pay in lieu. While the latter option appears to be more attractive, the case law reveals it is a long and difficult road to establish just cause for a performance-based termination. Even where the employer has a “performance improvement plan” to give the employee an opportunity to improve, the courts will scrutinize the plan before accepting that there was cause for dismissal.

The B.C. Supreme Court decision in Chawrun v. Bell Mobility Inc., 2013 BCSC 102 demonstrates common missteps which employers may make when trying to rely on performance issues to establish just cause.

The employee was 41 years of age and worked for the employer for almost six years. He had been promoted to the position of Account Executive and had worked in the position for over a year at the time of his dismissal.

At the time of his promotion, he was advised that the Account Executive position was very demanding. There was a performance review after six months which noted that he missed deals, but went on to state that the employer felt he could succeed in the future. However, within a month, the employer was concerned he was not improving fast enough.

Much of the Court’s decision focuses on the quota targets on which the employee’s performance was primarily evaluated. The Court found that the quota setting process was not clear and, therefore, it was hard to know if the quotas were reasonable. The majority of the employee’s peers were not meeting their quotas either. As well, the employer’s performance improvement process, the so-called Pathing Process, was engaged after missing quota for two consecutive months, and most of the company’s Account Executives were also on the Pathing Process. Almost all of the employees on the Pathing Process in the relevant year resigned or were fired. Lastly, the employer ultimately reduced the quotas for all the Account Executives in light of the low attainment levels.

The Pathing Process had the following three steps: expectation setting; coaching and mentoring; and a time period before the next step could be taken. However, the employee was not given the one month’s worth of coaching and mentoring which was required, and he was not warned that his employment was in jeopardy until the final step. Even then, the employer did not wait the stipulated 30 days before it made the decision to terminate. At the termination meeting, the employee was given the option to resign and get three weeks of pay.

The Court stated the following “just cause” principles regarding performance-based terminations:

In Boulet v. Federated Co-operatives Ltd. (2001), 157 Man. R. (2d) 256 (Q.B.), Justice McCawley summarized the principles to be applied when cause for dismissal is alleged. Justice Goepel of this Court approved and applied these principles in Hennessy v. Excell Railing Systems Ltd., 2005 BCSC 734, 2004 CarswellBC 1164. Both authorities establish that the employer bears the onus of proving just cause on a balance of probabilities; that the performance of an employee must be gauged against an objective standard; that there must be serious misconduct or substantial incompetence on the part of the dismissed employee; that suitable instruction or supervision was given to enable the employee to meet the objective standard; that the employee was given warning that failure to meet the standard would result in dismissal; and that after the warning was given, the employee was given a reasonable time to correct the situation.

Applying all of these principles to the facts of the case, the Court found there was not just cause on the basis of the following: there was no evidence the quota was reasonable or attainable; the employee’s peers also consistently missed quotas; a failure to meet quotas was not enough, and the employer needed to demonstrate the employee was incompetent; and the employee was not given a reasonable amount of time to improve.

Lessons for Employers

The factual foundation necessary to properly dismiss an employee for performance issues is a long and difficult road which requires: reasonable performance goals; clear expectation setting; and sufficient resources and time for the employee to improve. Employers who cut corners, and terminate for cause prematurely or under inappropriate circumstances, do so at their own peril.

A practical alternative is to ensure the employment contract has a termination provision which caps the employer’s liability exposure, provides certainty and makes the “without cause” termination option easier to swallow.