Windsor-Essex Employment Lawyers Assisting with Executive Terminations

Executive employees occupy prominent positions of power within an organization. Terminating an executive’s employment can be complex and involves overlapping legal, operational, and business considerations.

Willis Business Law provides sound, practical advice to employers and executives on their entitlements and potential liabilities upon termination. As part of its comprehensive employment law services, the firm offers top-tier, strategic solutions at any stage of the employment relationship to secure clients’ financial interests and mitigate future risks.

Executive Terminations Without Cause

As with regular employees, an executive’s employment may be terminated without cause at any time, so long as they are given proper notice or pay in lieu of notice. However, executives will almost always be entitled to more severance than the bare minimum notice provisions of the Employment Standards Act. To protect the employer from liability, executive employment agreements should include a clearly-defined severance package that considers the salary, stock options, pension, benefits, and perks payable in the event of termination without cause.

If there is no agreement governing the executive’s severance entitlements, Canadian common law dictates that an executive may be entitled to more pay in lieu of notice than provided by the Employment Standards Act. What constitutes a reasonable notice period varies depending on the particular circumstances and the nature of the executive’s employment, including:

  • The length of the executive’s employment;
  • The nature and character of their employment;
  • The executive’s age; and
  • The availability of similar employment opportunities based on the executive’s experience, qualifications, and training.

Executive Terminations for Cause (“Just Cause”)

An employee may be terminated without notice (or pay in lieu of notice) if their conduct is so egregious that it effectively breaks the employment contract and damages the employment relationship beyond repair. Canadian courts have held that a termination for cause (sometimes called “just cause”) must be based on clear and unequivocal evidence of misconduct.

Executives are considered fiduciary employees due to their position of power in an organization. Fiduciary employees owe various duties to their employer, including a duty of honesty, loyalty, and good faith. They must also act in the company’s best interests. A breach of these duties can be grounds for termination with cause.

Examples of “For Cause” Misconduct

The following are some examples of misconduct that may be considered just cause for termination, although this list is by no means exhaustive, and each case is highly dependent on its facts:

  • Theft, fraud, or other criminal behaviour;
  • Insubordination;
  • Severe incompetence;
  • Excessive absenteeism;
  • Intoxication at the workplace (note that addictions issues may be considered a disability and therefore in need of accommodation under human rights legislation);
  • Sexual harassment, discrimination, or other violations of a respectful workplace; and
  • Unauthorized disclosure of the employer’s confidential information.

Wrongful & Constructive Dismissal

Wrongful dismissal or termination occurs when an employer fails to provide adequate notice to the employee or improperly alleges grounds for just cause.

When terminating an executive for just cause, it is important to note that performance issues or even misconduct alone may not be sufficient. The executive’s behaviour must be so serious that it undermines the employer-employee relationship entirely. Courts may find a “for cause” dismissal to be wrongful if the employer condoned the behaviour or could be seen to have condoned it by failing to address the misconduct promptly. Employers must also demonstrate that they provided the employee with progressive discipline and remedial options as much as possible.

Employers who are found to have wrongfully dismissed an executive may be ordered to pay the executive a substantial amount of money in lieu of notice, plus additional damages.

Constructive Dismissal

Constructive dismissal occurs when an employer has effectively forced an employee to quit by unilaterally changing the terms of the employment contract. Constructive dismissal is a form of wrongful dismissal.

Because constructive dismissal involves an employee’s decision to resign, it is sometimes called a “disguised dismissal” or “quitting for cause”. Some examples of conduct that may constitute constructive dismissal include:

  • Demotion of position, seniority, powers, or duties;
  • Persistent, systemic harassment that goes unaddressed by the employer and renders the workplace too toxic for the executive’s continued employment;
  • Constant threats of dismissal or demotion; and
  • Unilateral reduction of work shifts, benefits, or pay.

Constructive dismissal can be difficult to establish and is highly fact-specific. Consulting with a skilled employment lawyer helps employers secure their legal options and mount an effective defence.

Restrictive Covenants

Many executive employment agreements or severance packages contain clauses that restrain the executive’s ability to compete with or jeopardize the company’s business once their employment ends. The most common restrictive covenants are non-competition, non-solicitation, and non-disclosure clauses or agreements.

Non-Competition Clauses

Non-competition clauses or non-compete agreements are defined under the Employment Standards Act as follows:

An agreement, or any part of an agreement, between an employer and employee that prohibits the employee from engaging in any business, work, occupation, profession, project, or other activity that is in competition with the employer’s business after the employment relationship between the employee and the employer ends.

In late 2021, Ontario amended the Employment Standards Act to prohibit the use of non-compete agreements for most employees. However, Ontario employers are not prevented from entering into non-competition contracts with executives. An “executive” under the Act is anyone who holds the office of:

Chief Executive OfficerChief Information Officer
PresidentChief Legal Officer
Chief Administrative OfficerChief Human Resources Officer
Chief Operating OfficerChief Corporate Development Officer
Chief Financial OfficerAny other chief executive position

While executives may still be subject to non-compete clauses, Canadian courts have been hesitant to enforce these types of restrictive covenants. Employers should consult with a qualified employment lawyer to ensure their non-compete clauses can withstand judicial scrutiny.

Non-Solicitation Clauses

Non-solicitation clauses (or non-solicit agreements) prevent executives from pursuing a business relationship with their employer’s customers, partners, staff, or vendors after the executive leaves their position. As with non-compete agreements, courts can be wary of enforcing unduly broad non-solicitation clauses. Having a skilled employment lawyer draft a non-solicitation clause reduces the risk of the clause being overturned by a court.

Non-Disclosure Clauses

Non-disclosure clauses or agreements prevent an employee from sharing the employer’s proprietary information and confidential processes. Given the damage that disclosing confidential business information can cause to the employer, non-disclosure clauses are not usually time-limited and do not expire.

Willis Business Law Provides Strategic, Pragmatic Advice on Executive Terminations

The employment law landscape for executives in Ontario is complex and ever-changing. As part of its comprehensive business law services, Willis Business Law provides proactive, trusted advice to employers on executive termination issues. The firm’s knowledgeable employment lawyers help employers mitigate risk and preserve their rights and financial interests at any stage of the employment relationship.

Willis Business Law is located overlooking the beautiful riverbank of the Detroit River. The firm provides innovative business law services to clients throughout Windsor-Essex and the surrounding communities, including Amherstburg, Essex, Kingsville, Lakeshore, LaSalle, Leamington, Pelee Island, Tecumseh, Chatham-Kent, and Sarnia. To schedule a confidential consultation, please contact us online or call 519-945-5470.

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