What, in your opinion, are the most common difficulties faced by employers when terminating employment and how do you consider employers can mitigate these?
Employment & Labour Law (2nd Edition)
From our view, the most common difficulty faced by employers in Thailand when terminating employment is considering whether or not the termination of employment would be considered as “unfair” under Section 49 of the Act Establishing the Labour Courts and Labour Procedure B.E. 2522 (1979). An unfair termination case is a common labour dispute in Thailand, if the Labour Court finds that the termination is unfair, the Court can order reinstatement of the employee on the same terms and conditions of employment (that is, same salary and position before termination). However, if the Court decides that the parties are no longer able to work together, then the Court can order payment of compensation for unfair termination.
Employers may minimise the risk of unfair termination claims by entering into a separation agreement, where the employee agrees to resign in exchange for an ex-gratia amount paid in addition to the amount entitled by the employee if he/she is terminated.
Terminating employment is most contentious when either before or during the termination process employees raise issues or act in a way which, if linked to the termination, can significantly increase the employer’s liability. For example, a worker who raises a grievance about their treatment by a colleague, discloses an incident of apparent wrongdoing in the organisation or is absent due to sickness once a process that may end in the termination of employment has been initiated or in anticipation of it being initiated. This commonly arises where the potential termination is on the grounds of the worker’s poor performance, but can happen whatever the circumstances of termination, including redundancy.
Assessment of an employee’s performance before the employee achieves the two years’ qualifying service that is required to bring most claims of unfair dismissal can be helpful. If necessary, steps can then be taken to terminate the employment before such a right is accrued.
Prolonged sickness absence can be difficult to manage, particularly where the underlying reason is a mental rather than physical condition. If the worker has a disability under the Equality Act 2010, the employer will need to avoid discrimination on the grounds of disability as well as complying with its positive duty to make reasonable adjustments for the disabled employee. For a dismissal to be fair, a fair process must be followed which will usually involve consultation with the employee and in the context of sickness absence, medical reports or evidence. If the employee is too unwell to engage in such consultation or will not cooperate, the employer is faced with the choice of continuing to attempt to engage the employee with the consultation process or taking a decision to dismiss which could be found to be unfair and/or discriminatory.
Employers can prepare for these situations by seeking medical information at an early stage, working with the employee to identify any reasonable adjustments that could be made to enable the employee to continue working, and limiting an employee’s contractual entitlement to sick pay, which could still be offered on a discretionary basis.
Changes Leading to Constructive Dismissal Claims
A common difficulty faced by employers is the risk that in making changes to work assignments, compensation structure, work location, or other terms of employment, the changes may amount to a constructive dismissal such that the employee can refuse and demand notice and/or severance pay. Courts have held that the tests for constructive dismissal may take one of two forms:
- A Breach of Contract: Under one test, there will be a constructive dismissal if (1) the employer breaches a (written or implied) term of the employment agreement and (2) a reasonable person in the same situation would have felt that the essential terms of the employment contract were being substantially changed.
- Employer’s Conduct, but no Specific Breach of Contract: An employer’s conduct may also constitute constructive dismissal if it more generally shows that the employer no longer intends to be bound by the contract. Courts have held that an employee can be found to have been constructively dismissed without identifying a specific term that was breached if the employer’s treatment of the employee made continued employment intolerable. This approach is necessarily retrospective, as it requires consideration of the cumulative effect of past acts by the employer and the determination of whether those acts would lead a reasonable person to conclude that the employer no longer intended to be bound by the terms of the contract. The employee is not required to point to an actual specific substantial change in compensation, work assignments, or so on, that on its own constitutes a substantial breach.
Employers can mitigate the risk of a constructive dismissal claim by including in the employment contract clearly drafted clauses that expressly permit specific changes – e.g. changes in job duties or job location – to be made. The risk of a constructive dismissal claim can also be reduced by providing the employee with reasonable notice of any changes. More generally, employers can limit their potential liability in respect of constructive dismissal claims by ensuring that the employment agreement contains a clearly drafted and statutorily compliant termination clause that specifies an employee’s termination entitlements.
Disputes Regarding the Reasonable Notice Period
A second common difficulty faced by employers when terminating employment is the risk of disputes between the employer and employee regarding the length of the common law reasonable notice period. Such disputes are frequent because, as noted elsewhere in this guide, there is no set formula for determining what reasonable notice of termination is in any given case.
The difficulties associated with determining reasonable notice may be mitigated by using a clearly drafted and statutorily compliant termination clause to contract out of the common law obligation to give reasonable notice of termination, such that only statutory notice must be provided. Alternatively (or in addition), employers can offer the employee ‘working notice’ rather than a payment in lieu of notice, which may, if sufficient notice is given, satisfy the employer’s common law and statutory notice obligations (but not its statutory severance obligations, if any).
Disputes Regarding the Compensation to be Included in a Separation Package
A third common difficulty faced by employers when terminating employment is the risk of disputes about whether an employee is entitled to items of compensation in addition to salary. In particular, employers and employees often disagree about whether the employee is entitled to a bonus that the employee would otherwise have received if his or her employment had continued during the notice period. There are also frequent disagreements about whether an employee’s stock options continue to vest post-termination.
These difficulties can, in some cases, be mitigated by express language in the employment contract or applicable plans/policies that specifies the treatment of bonuses and equity upon termination of employment. However, courts will closely scrutinise any terms and conditions that purport to limit an employee’s entitlements with respect to incentive compensation or equity during the applicable notice period.
In the Philippines, the following are the frequent areas of difficulty faced by employers in termination:
(a) Employers face a difficulty in proving that terminations are valid due to the presumption in favor of labor. When interests of labor and capital are conflicted, the law will generally sympathize with the underprivileged worker.
For mitigation, it is essential that employers who claim that any termination is valid are able to support their claims with sufficient documentation.
(b) Employers face a difficulty in proving that an employee has been terminated for just cause due to strict requirements imposed by jurisprudence which must be duly proven by the employer in cases of termination for (a) Serious Misconduct, (b) Gross and Habitual Neglect of Duties, (c) Fraud and (d) Willful Breach of Trust and Confidence.
For mitigation, the employer is advised to carefully craft their company rules and regulations as to clearly determine what acts may be cause for disciplinary action and ultimately, dismissal. An employee may be validly dismissed for violation of a reasonable company rule or regulation adopted for the conduct of the company business.
(c) Employers face a difficulty in imposing termination as a penalty as case law considers termination to be a penalty which should only be a last resort.
To mitigate this risk, the employer must ensure that it strictly complies with the requirements of due process and ensure that there is clear and convincing evidence to prove that there exists a just or authorized cause for termination.
In our view the most common difficulties are as follows: (a) termination of protected group of employees (mainly pregnant employees, employees on maternity leave and employees who undergone fertility treatments) on grounds of poor performance/redundancy; (b) termination of employees with disabilities/health problems; and (c) managing a correct termination process where an employee raises claims of wrongful dismissal, discrimination, retaliation, etc.
In order to mitigate the above difficulties we usually recommend employers who would like to terminate an employee's employment on grounds of poor performance, to properly document the performance of the employee during the employment period, such that upon the employer's decision to initiate a termination process it will be more difficult for the employee to establish claims of discrimination/retaliation. Likewise proper documentation of poor performance may increase the likelihood of obtaining a permit from the Ministry, in case of a protected employee.
With respect to the termination of employment of disabled employees/employees with health problems, this is a very sensitive issue as the law requires the employer to make necessary accommodations due to the special requirements of the disabled person, which would enable the disabled person to perform the employment (unless such accommodations impose an excessively heavy burden on the employer). We therefore recommend employers to properly document the attempts made in order to accommodate the employee's employment, and initiate a termination process only after all attempts have been exhausted.
Our clients often encounter difficulties in cases when an employee is not functioning at the workplace due to personal reasons, often due to poor performance. The requirement of objective grounds to terminate an employment is set high and thus, it is required that a number of aggravating circumstances are at hand to be able to terminate an employment based on objective grounds. In addition, the employers are obligated to take comprehensive measures to facilitate the performance for the employee. Termination by summary dismissal requires a gross negligence of the employee and such behaviour is rarely at hand when it comes to employees with deficient performance.
Thus, clients often finds it difficult to end these kinds of employments in a constructive way. In the situations described above, the best way forward is often to enter into discussions regarding a compromise agreement. Given the maximum damages described under question 8, which should been seen as worst case-scenario damages, it can be rather expensive to terminate a long-term employment relationship.
Employers who commence negotiations with an employee for a financial severance package undermine the possibility of pursuing a fair and proper dismissal procedure if such negotiations are not conducted on a 'without prejudice' basis. For this reason, employers should seek legal advice at the earliest opportunity to ensure that such discussions are indeed covered by the 'without prejudice' privilege and that a fair and proper procedure can be relied upon if severance negotiations breakdown.
Employers often expect to initiate and conclude a termination process within a short timeframe that is unrealistic having regard to the requirement to follow a fair and proper dismissal procedure. Where employers take the time to follow a well-considered dismissal procedure, they increase the possibility of finalising a termination efficiently by avoiding threats by employee counsel to apply for injunctive relief. Employers should always be wary that a dismissal may be challenged by way of injunction and so should proceed with caution to ensure that this risk is minimised, if not eliminated.
Before seeking to terminate employment by reason of poor performance, the employer must have followed a formal performance improvement plan (PIP) giving the employee the opportunity to improve with necessary support. Such a PIP may be required to take place over a number of months depending on the individual circumstances of the case. Too often employers seek to deal with poor performance issues informally or simply by commencing a disciplinary process; instead employers should act promptly when identifying performance related issues and instigate a formal PIP.
Difficulties result from the formal requirements that need to be fulfilled, from the fact that the burden of proof for the grounds of termination generally lies upon the employer and from the general high level of protection for employees. For example, the dismissal for operational reasons only stands up in court if the employer can prove that he has made an entrepreneurial decision resulting in a reduction of the volume of work or personnel needs. The dismissal itself cannot be the sole subject of the entrepreneurial decision. Furthermore, the dismissal is invalid if there is a vacant position in the company to which the dismissed employee could have been reassigned even if the working conditions are less favourable. Moreover, the employer must carry out a “social selection” which is subject of many disputes in court.
The main difficulty consists in assessing the existence of a proper cause for dismissal in a context where statistically, nearly one third of terminations end up in labour courts. Mitigating the judicial risk requires a thorough verification of the file. Here are the questions that one may ask in the event of an intended disciplinary dismissal:
- are we still within the applicable timeframe (no later than two months after discovery of the facts)?
- is there proper evidence of the misconduct (e.g., via a valid affidavit)?
- how can we convince a judge that it is serious enough to justify dismissal (because of the damage suffered, or the risk for the company, etc.)?
- were there any prior sanctions?
- is the employee likely to invoke credible justifications (mismanagement, unclear instructions, etc.)?
An additional step consists in assessing, in the event of an unfavourable court ruling, the level of the risk, leading to the following questions:
- what are the employee’s age and length of service?
- is this employee likely to remain unemployed for a long time?
- would the employee be likely to make, upon occasion of a court case, additional claims related to the contractual relationship (e.g., bonus or overtime back pay)?
Depending on the results of this analysis, the company may consider resorting to mutually agreed termination, or to a settlement negotiation following dismissal.
As explained above, Finnish employment legislation does not contain a list of adequate grounds for terminating an employment relationship. Therefore, the evaluation on the adequacy of the grounds for the termination is finally made on the basis of what the court finds reasonable taking all the facts of the case into account. Here the courts often tend to pay attention to the employee's explanations on his/her measures. Therefore, the existence of legal grounds to terminate an employment relationship should always be assessed very carefully and on a case-by-case basis. It should be noted that assessment of the validity of the grounds for dismissal is never certain and there is often a risk of the employee presenting a claim of wrongful dismissal.
In general, the most common difficulties faced by employers when terminating employment are the following:
A. In certain cases employers may not understand and apply the law properly due to the lack of clarity of some of the statutory conditions.
B. Under current legislation, employers are required to set up internal rules to provide further guidance for the employees, such as explaining what kinds of behaviours are deemed as a serious violation. However, many employers fail to do so, and accordingly, fail to meet the statutory conditions for unilateral termination.
C. The burden of proof required for the termination of employment is borne on the employer. In order to satisfy the burden, sufficient and firm evidence is required to satisfy all the rules (laws and regulations, work rules, democratic procedures, regular training, etc.), facts (statements, testimonies, records, etc.) and procedures (notifications, right to defend, etc.), to form a chain of evidence. It is the employers responsibility to effectively collect, manage and use evidence when confronted with employment disputes. However, many fail to do this to a satisfactory standard.
D. The LCL stringently regulates procedures in certain circumstances of termination. The many regions of China have disparate understandings of these procedures which presents employers with extra challenges when managing unilateral termination.
To mitigate these difficulties, employers need to pay attention to both prevention and handling capacity.
A. Prevention in daily management:
a. Manage the risks through the whole employment process in the period of recruitment, incumbency and dismissal, and particularly pay attention the work rules, contract formulation, and evidence management.
b. Enhance the awareness and ability of management and build high-level human resource management systems, especially in setting up internal rules as required by law.
c. Make and keep the company’s labour relationship harmonious, through the procedure of training, conferences and communication channels to prevent risks in the early stages.
B. Handling in emergencies:
a. Formulate an action plan, which needs to make the time schedule and task assignment clear enough to handle the termination step by step.
b. Implement the action plan effectively.
c. Obtain understanding and support from local governments and the local federation of trade unions, especially in the cases of mass layoffs.
C. In either case, outside specialists can play an important role to help employers to solve the difficulties to a certain extent.
It is difficult, in case of dismissal, to be able to prove the reasons of the dismissal. If these are related to the employee, it is necessary to have regular assessments and to send written warnings in case of misconduct. If the reasons are economical or technical, the employer must be able to document them.
Employers should carefully consider the legal basis on which they are terminating the employment contract and ensure that they satisfy the conditions which justify a termination. If there is no sufficient evidence in the hands of the employer to terminate the contract, it may lead to outcome of unjustified termination and the employee is granted the possibility to complain to the labour court. As the employer does not want to see an angry former employee down the road in court and in order to avoid any significant reputational or financial damage to the business, she/he will usually want to give careful consideration at the outset to the legal position and use the best strategy to adopt it. Once the employer brings the decision to terminate an employee, it alone sets in motion a number of duties of the employer to handle, such as consulting and informing the works council, and if the employer wishes to dismiss at least five employees also notifying within a 30-day period, the local Employment Market Service. Furthermore, the employer should preserve the dignity of the terminated employee and protect the employee’s interests.
To mitigate the risk of dismissals being challenged before the courts it is often advisable to achieve a mutual agreement with the employee and agree on the payment of a (voluntary) severance pay.
Even though U.S. employment is generally “at will” and theoretically the employer may terminate without cause, discrimination and whistleblowing suits frequently turn on the employer’s poorly supported rationale for termination, which may appear pretextual. Accordingly, documentation to support the basis for employee termination is crucial. If the decision to terminate is based on performance, an employer should maintain a documented file of the employee’s performance, and the employee should have been put on notice that his/her performance was below company standards. If termination is the result of issues other than performance, the employer should document each incident to demonstrate a history of problems. Documenting the employee’s performance and history of problems, as well as documenting the termination process itself, can help build a strong defense for a wrongful termination claim. This is increasingly important with the #MeToo sexual harassment movement that may spur, in addition to sexual harassment claims, a wave of retaliation and gender discrimination claims.
Further, the employer should ensure, and be able to demonstrate that employees are familiar with company procedures and made aware of any updates. Employees should sign an acknowledgement that they have read and are familiar with all policies and procedures.
In general, employers unfamiliar with the U.S. legal system and culture need to guard against complacency based on the comparatively light degree of regulation of the employment relationship and recognize the perils of terminating employees in protected classes without solidly supported evidence. It is also highly recommended to train expatriates (particularly managers) assigned to the US in how to prevent discrimination, harassment, and whistleblowing issues in the US workplace.
The most common difficulties are
- the potential voidness of a given notice respectively the potential standstill of the notice period in case of terminations of employees incapacitated for work due to illness (see art. 336c of the Swiss Code of Obligations);
- the special procedure the employer has to adhere to in case of a termination of older employees with many years of employment respectively the impending abusiveness of a termination in case of non-adherence to this procedure (see art. 336 of the Swiss Code of Obligations);
- the specific procedural requirements in case of terminations in the course of a mass redundancy respectively the impending abusiveness of a termination in case of non-compliance with these requirements (see art. 335d et seqq. and art. 336 of the Swiss Code of Obligations); and
- uncertainties regarding the impact of the termination of employment on an employee’s bonus entitlement.
The employer can mitigate these difficulties by
- terminating an employment by means of concluding a (carefully designed) termination agreement instead of giving notice;
- taking a cautious approach when intending to terminate the employments of older employees with many years of employment (ie the employer should timely inform and consult the employee regarding the planned termination and carefully evaluate the possibilities to continue the employment);
- complying with the specific procedural requirements in case of a mass redundancy; and
- agreeing on a clear bonus provision in the employment contract.
Employers often face difficulties in terminations where their termination clauses are absent or insufficiently specific. To mitigate these issues, employers should as a matter of priority review their employment agreements to confirm that these agreements contain termination clauses consistent with their commercial intentions. If amendments need to be made to the employment agreements of existing employees, these can be done via a supplemental agreement or the employment handbook. The risk of challenge by the employee is also higher where the employer chooses to terminate for cause.
The most common difficulties arises around the natural justice/fair process requirements. The requirements of good faith, and procedural fairness require the employer to:
- fully investigate the concerns;
- raise their concerns with the employee;
- give the employee a reasonable opportunity to respond; and
- genuinely consider the employee’s explanations (if provided).
Failing to satisfactorily meet these requirements is the most common reason terminations are found unjustified.
To mitigate and minimise procedural errors, the employer should:
- ensure a full, independent investigation, taking into account any additional information provided by the employee;
- ensure the decision maker is as impartial as possible;
- advise the employee to seek independent advice at the start of the process;
- advise the employee to have a representative or support person at any disciplinary meetings;
- not make the decision on what action to take until after considering the employee’s response to the proposed course of action;
- take into account any similar situations that have occurred previously;
- carefully consider all options before making a final decision.
Mexico is a country with laws and courts that are protective of employees’ rights, which means that terminating an employee is always a challenge. Terminating an employee without cause by paying statutory severance is less complicated than termination someone with cause. However, employees (especially high-ranking employees) may want to negotiate additional compensation with the employer or a more beneficial consolidated salary (as basis of severance).
Termination with cause is the most difficult employer action. Mexican courts are very strict in terms of the process to follow with the employees (i.e., notifying in writing and in person the grounds of termination), as well as the standard of proof in order to demonstrate the grounds of termination. Accordingly, employers need to carefully handle any termination with cause, ideally with the assistance of in-house or outside counsel.
Another difficult situation is an employee that abandons work. The FLL requires in almost every case of termination that the employee is present, either to sign a resignation letter, to receive a termination notice, or sign a severance agreement. The FLL is silent with respect to an employee that stopped showing up to work, and judicial precedents make it difficult to defend termination in cases of abandonment in litigation. It is not without risk, but companies normally will cancel the employee’s payroll and, subject to certain circumstances and conditions, cancel the employee’s registration before the Mexican Social Security Institute, hoping not be sued in the future.
In my opinion, the most common difficulties are:
serving a termination for poor performance, due to the burden of proof lying on the employer.
For example, the Supreme Court has held that the dismissal of an executive for poor performance is fair when: (a) the executive agrees (in his/her contract or during the employment relationship) to achieve specific targets or objectives, and the executive is required to achieve such targets or objectives; (b) the executive does not reach the targets in the agreed timeframe, thereby breaking his/her contractual obligations; (iii) the employer is able to prove that the targets have not been reached due to the negligence of the employee in the performance of his/her job.
The above difficulties can be mitigated at least by asking the executives to agree specific targets in writing.
- proving that in the framework of an individual redundancy the employer could not assign the employee to another position: in fact, this requirement has recently become more strict as according to section 2103 of the Italian Civil Code as amended by the Legislative Decree 81/2015 the employee can now also be assigned to duties belonging to a lower level in accordance with the applicable CBA (without affecting the ‘staff category’ to which he/she belongs) where organisational changes have an impact on the employee’s position.
The employer can mitigate this risk through a deeper assessment of any possible vacant position available in the company.
- proving that in the in the framework of a collective redundancy the employer correctly applied the selection criteria as the law does not clearly specify any hierarchy between them in order to choose the employees involved.
The employer can mitigate this risk specifying as much as possible how the selection criteria were applied.
The most common difficulty faced by employers is to comply with the dismissal procedure and collecting any information/proof on the employee’s misconducts that led to the dismissal. Indeed, in case of a dispute, the onus is on the employer to prove not only the factual circumstances but also their validity and seriousness.
If employees challenge the dismissals before Courts, most common difficulties refer to prove the grounds supporting such dismissals.
Hence, it is highly advisable to analyse all circumstances involving a potential dismissal case and to determine the risks and consequences the employer may face when terminating the employment relation.
The most common difficulties faced by employers in terminating employment are the extremely high standard that needs to be met for dismissing an employee, and the lack of clarity of the standard. It is often difficult for an employer to know for certain if the termination would be legal, as the determination is made based on comprehensive consideration of relevant factors. Furthermore, the consequence of having a dismissal challenged and losing is significant because the employer would be required to reinstate the employee; in order to avoid such a result, the employer would have no choice but to reach a settlement by paying an amount that is satisfactory to the employee.
In order to mitigate these difficulties, unless reasonable grounds for dismissal clearly exist, employers should aim to reach an agreement with the employee for voluntary resignation. This requires a concession on the part of the employer, as it usually entails an offer of severance payment to the employee, but enables the employer to avoid the risks discussed above if the employee agrees to resign.
Common issues faced by employers while terminating the employment of an employee are:
- Determining which employee will fall under the category of ‘workman’: Most labour legislations in India including the ID Act primarily apply to workmen who are mainly engaged in performing non-managerial or non-administrative roles. As discussed above, the ID Act lays down various benefits for workmen such as retrenchment compensation, retrenchment notice, etc. Therefore, in order to effectively terminate the employee’s services, it becomes imperative to identify the nature of such employee’s engagement with the establishment to determine whether such employee will fall under the category of ‘workmen’.
Most employers are of the assumption that the remuneration of an employee shall determine whether an employee is a ‘workman’ or not, which is not the case. Most of the times, the employers tend to wrongly identify the category of the employee (i.e. workman / non-workman) and categorise them in the ‘non-workmen’ category, due to which the employer fails to comply with the provisions of the ID Act.
- Multiplicity of labour laws: Due to a plethora of labour laws applicable to different sectors or industries, it is difficult for the employer to keep a constant track of the various labour laws, amendments to such labour laws and to comply with the same. For instance, the provisions for termination of an employment are set out in the ID Act as well as the S&E Act. The employer is required to ensure the compliance of the aforesaid Acts upon termination of the employment of the employee.
- Trade Unions: The trade unions in India are usually present in manufacturing sector and are often backed by political parties. They often negotiate more for their self-interest than workers’ rights. Due to the interference of such trade unions, the termination of employment of workers sometime becomes a difficult task.
To mitigate the aforesaid, the employer should ensure the following:
- be well aware of the labour laws that are applicable to the establishment and the amendments to such labour laws;
- test to determine whether the employee falls under the category of ‘workman’ to be done in a prudent manner;
- the termination of the employment is in accordance with law and the employee has been paid all the benefits / dues;
- the terms and conditions of the employment agreement / appointment letter are well defined and in accordance with applicable laws.