James Heeney

(James Heeney, jheeney@rt-law.ca, is a partner at Rubin Thomlinson LLP and provides counsel to employers and employees on all areas of employment law.)

A small business is difficult to manage even in the best of times. Operating in a difficult economy presents an even more daunting challenge, particularly when it comes to staffing.

Recessions bring with them shrinking budgets and profit margins, forcing many small-business owners to turn more and more of their attention to cutting costs and improving efficiency. With the primary focus on the business's bottom line, maintaining best practices related to the hiring and management of employees often garners less attention.

Probably the single most common mistake employers make in hiring and managing employees is failing to put key terms of employment in writing. This applies to all areas of the employment relationship, from hiring to termination and everything between.

Without written terms, so-called "he said she said" disputes arise that can be both time-consuming and costly to resolve. But employers are often uncertain as to what should be put in writing and the form that it should take.

A business cannot afford to be vague when it comes to staff-related issues. A number of things should be addressed in either an employment contract or workplace policy.

Terms of termination

Although employers tend to focus their attention on compensation and job responsibilities, most legal disputes arise out of issues surrounding termination. For this reason, employers should clearly address in writing the payment that is due upon termination of employment.

Employers may quite understandably be reluctant to negotiate terms of termination with people they are hoping to recruit, but they should still consider it given the potential cost of leaving the matter unresolved. While difficult to precisely measure, the payments that an employee is entitled to upon termination of their job can be significant. A study by Barry Fisher, a prominent employment law mediator, found that courts have awarded an average of 2.6 months' notice per year of service to employees who have been with a company for just two years. This means that on average, an employee with two years' service receives over five months of notice on termination.

While it can be argued that these cases generally involve employees with higher incomes and notice per year of service decreases significantly as tenure increases, leaving it to a judge to determine how much is owed on termination can lead to significant liability.

Negotiating a preset amount can help not only to reduce costs but also to increase predictability if and when employers have to make difficult staffing decisions. A written contract could limit the entitlement for a two-year employee to as little as two weeks, for example. Employers should ensure, however, that any clauses restricting severance be drafted in a manner that is both clear and unambiguous.

Employers should also consider including a term in their employment contracts regarding resignations. It can take a significant period of time to find an adequate replacement when someone leaves the company. It therefore makes sense to include a term in the contract that gives you adequate time to adjust to an employee's resignation.

Put it in ink

Small-business owners should also strongly consider putting key employment policies in writing. In our law practice, we often see employers struggle to either discipline or terminate an employee who is not performing, because the obligations on the employee are not clearly articulated in writing.

Although this step is often neglected, employers should also ensure that they advise employees of their rights under all applicable legislation including the relevant provincial human rights code. This is important because claims related to human rights are far more commonplace than many employers believe.

Thousands of workplace applications related to human rights are made every year, and the number is increasing. Between July 1, 2008, and last March 31, there were 1,829 new human-rights applications in Ontario alone - and the majority relate to employment law disputes.

The Ontario Human Rights Tribunal requires employers to produce a copy of their human rights policy when a complaint is made. Businesses that do not have such a written policy may have a more difficult time defending a claim or establishing that they take issues of harassment and discrimination in the workplace seriously.

Employers also often fail to put issues of poor performance in writing. This is generally because employers prefer to informally outline their concerns to employees rather than create friction in the workplace. The problem is that without evidence of poor performance, employers will have an extraordinarily difficult time proving they have just cause to terminate an employee.

Further, even where just cause is not at issue, an employer will have a very difficult time defending a claim of discrimination without documentation to support the decision to discipline or terminate the employee who made the allegations.

Reading all these words of warning about what can go wrong in an employer-employee relationship may lead someone who is just about to open a small business to believe that workplace issues are rampant. That is certainly not the case - many workplaces go long periods of time without any issues.

However, the problem is that when issues arise - and they do in almost every workplace - they often have a much greater impact on small businesses.

Employers who put things in writing and try to put best practices first often avoid these types of disputes. And at the very least, they have a better chance of defending themselves if contentious issues arise.