Underperformance can be a big issue for employers, especially in smaller organizations where every employee’s contribution matters. There can be serious costs to the business. Before you terminate someone, you need to understand the legal framework in Ontario. Skipping the proper steps can expose your business to claims for wrongful dismissal, which can be even more expensive.
Can You Terminate for Underperformance?
The short answer is yes. In Ontario, you can terminate an employee for underperformance, but how you terminate them determines your legal obligations. There are two main options: termination with cause and termination without cause.
Termination Without Cause (Most Common Scenario)
In Ontario, under the Employment Standards Act, 2000 (ESA), employers can terminate an employee without cause as long as they provide proper notice or pay in lieu of notice (and possibly severance pay). Most cases of underperformance fall into this category because the bar for termination for cause is very high.
What’s Required:
- Notice or Pay in Lieu: The ESA sets minimum notice periods based on an employee’s length of service. However, common law notice—often much longer—applies unless there’s an enforceable termination clause in the employment agreement.
- Review the Employment Agreement: If the agreement limits notice to the ESA minimums, you may avoid paying common law severance. Without a valid clause, notice obligations could extend to months of severance.
Termination for Cause
Termination for cause means you’re ending employment without notice or severance. This option applies only in serious cases and has different legal standards under the ESA and common law.
The ESA Standard for Cause:
Under the ESA, you can terminate without notice or severance if the employee’s behaviour amounts to “wilful misconduct, disobedience, or wilful neglect of duty” that is not trivial and has not been condoned. “Wilful” means intentional or deliberate misconduct. Courts have described this as “being bad on purpose”, where the misconduct involves subjective intent, almost akin to a special intent in criminal law.
Inadvertent conduct, no matter how serious will not suffice, and poor performance or negligence certainly won’t meet this standard.
The Common Law Standard for Cause:
The common law standard is lower than the ESA standard. At common law, you can establish cause if the employee’s conduct (including incompetence or underperformance) fundamentally breaks the employment relationship. Persistent underperformance may qualify, but only if it continues despite notice and warning about the performance issues, opportunities to improve, and warnings that termination might result if issues remain uncorrected.
Steps to Prove Cause:
- Progressive Discipline: Document the underperformance and communicate clear expectations. Use written performance improvement plans (PIPs) to outline concerns and set measurable goals.
- Final Warning: If no improvement follows, issue a final warning that termination is imminent.
- Evidence: For common law cause, you must show the performance issues were serious and ongoing. For ESA cause, you must prove the misconduct was deliberate or intentional.
Summary Termination for Serious Misconduct
In rare cases, serious misconduct like theft, fraud, violence, or harassment may justify summary termination. These cases often meet the ESA standard for “wilful misconduct, disobedience, or wilful neglect of duty” because the behaviour is intentional and fundamentally breaches the employment relationship.
Final Thoughts for Employers
Underperformance alone rarely constitutes termination for cause under the ESA, as it requires proof of significant “wilful misconduct.” Termination, under the ESA or at common law should always be a last resort. There must be serious, repeated, and unaddressed deficiencies that fundamentally undermine the employment relationship.
To reduce risk, you should:
- Clearly communicate performance expectations.
- Document all steps taken to address underperformance.
- Investigate and document serious misconduct promptly.
Finally, make sure your employment agreements include airtight termination clauses that limit severance obligations to the ESA minimums where possible. Without these clauses, you could owe significantly more at common law. For tailored advice, reach out before making a termination decision—taking the right steps now can save your business time, money, and stress.
