25 April 2013

Why Finance should know much more than just keeping score

While financial managers must always come into contact with all areas that affect the organization's operations, it's amazing how few become familiar with the laws that may apply. I've even had other professional accountants declare that such knowledge is unnecessary, as the lawyers can be consulted if an issue arises. As you can appreciate, that can be too late.

Take the matter of having a probationary period at the beginning of a person's employment. Many managers have maintained that that means a person can be dismissed without cause before the period is up. They're wrong, as Howard Levitt said in the Financial Post this week:
  • an employer has to:
    • provide an employee a fair opportunity to demonstrate that they can do the job,
    • provide feedback, and
    • measure them against reasonable standards
  • if an employee is fired without cause or reasonable opportunity to demonstrate their ability to do the job, they will be entitled to damages for wrongful dismissal
  • only an express provision in an employment contract — in writing — can declare otherwise
  • a probationary period will generally never be longer than three months — and that has to be in writing as well
An excellent summary on an actual case is available from Cassels Brock in their bulletin on Cao v. SBLR LLP. Read it to see how an employment relationship can be so poorly managed:
  • The firm's employee manual stated that employees who were experiencing performance issues would be asked to attend meetings to discuss their performance and would be given suggestions for improvement. The employer stated that she was not performing at the level required, but the termination meeting was the only time at which any negative feedback was given.
  • She was told verbally that she was expected to attain her CGA designation within a specified time, but such a requirement was not spelt out in the employment contract, and she advised her employer that the course schedule made such a request impossible to achieve.
  • The termination letter did not indicate just cause for dismissal, and her Record of Employment indicated that she had been "terminated involuntarily without cause." She was not provided with pay in lieu of notice of termination.
The judge concluded that Cao was terminated without just cause,  and the termination was done in bad faith. Four months' pay was considered to be appropriate under the common law.

How could this have been handled better? As Cassels Brock recommends:
  1. Where an employer wants to have the ability to dismiss an employee without just cause during the probationary period, the employment agreement must state specifically that the employee would not be entitled to termination pay, but such a statement must still comply with the requirements of the Employment Standards Act in Ontario (or the equivalent legislation in other jurisdictions).
  2. If procedures are specified in the organization's employee manual, they must be followed.
  3. If a qualification, skill or professional designation is essential to a particular position, they must be explicitly mentioned in the job posting, and definitely in the offer letter.
It saddens me to note that the employer in this case was an accounting firm. I am passing this on as a warning to others.

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