Difficult employees sometimes present a unique challenge for employers. This is particularly true when an employee’s conduct warrants intervention but the company is unsure whether it meets the threshold for “just cause” termination. If the employee has many years of service or is governed by an outdated or nonexistent written contract, a termination without cause can lead to substantial – and costly – common-law notice liabilities.

In these circumstances, some employers may consider implementing a Performance Improvement Plan (“PIP”) and introducing a new employment contract with enforceable termination provisions. The logic behind that is clear: if the employee improves, the employer will fix performance issues; if the employee fails, the employer can terminate them under the new, less costly terms. While this may be seen as a strong management strategy, there is a higher risk of bad faith claims.

Tips for PIP Implementation

If a PIP is implemented with the hidden primary goal of forcing an employee out or pressuring them to sign a more restrictive contract, the employer risks a claim for bad faith or aggravated damages. If an employer uses a PIP as a “cover-up” to build a case for a termination they’ve already decided on, the courts will see through it.

A PIP is only a shield if it is authentic. Courts look for “good faith” dealings in the employment relationship. The PIP must stand on its own as a genuine opportunity for the employee to keep their job. This means the PIP must provide clear, achievable goals, along with the actual support or resources needed to meet them.

Below are some implementation tips for employers:

• Objective Criteria: The plan should identify specific, measurable areas for improvement. Vague references to “attitude” are difficult to defend; instead, the employer should cite documented instances of missed deadlines, specific behavioural incidents, and/or objective output metrics.
• Provision of Support: A PIP is more likely to be viewed as a good-faith effort if it includes a commitment of resources, such as additional training, mentorship, or adjusted workloads, which are designed to help the employee meet the stated goals.
• Reasonable Timelines: The duration of the plan must be reasonable and sufficient to allow for meaningful change. A timeline that is too short may be interpreted by a court as a “countdown clock” for a predetermined termination.
• Clear Paper Trail: An employer should document every check-in and feedback session, following up with written summaries that record both the progress made and the employee’s own comments or explanations. This creates a contemporaneous record of the employer’s ongoing efforts to assist the employee.

Contract Renewal

The introduction of a new contract during a PIP adds another layer of complexity. If a renewal is presented only to the struggling employee, courts may view the timing with skepticism, potentially interpreting it as a “set-up” to limit severance liability right before a termination, thereby raising the risk of bad-faith damages.

This risk will be reduced when an employer renews the employment agreements throughout the entire organization as part of a broader compliance initiative. Additionally, the employee on the PIP should be treated consistently and equally with their peers. This can indicate that the renewal serves as an administrative requirement rather than a targeted action against a specific individual.

Furthermore, for any new employment contract to be legally binding, it must be accompanied by “fresh consideration.” An employer cannot simply demand a signature in exchange for continued employment under new terms. Instead, the implementation should involve a new benefit that the employee has not previously received, such as:

• A one-time signing bonus;
• An increase in base salary;
• An additional entitlement to vacation time or benefits.

Final Thoughts

Effectively managing difficult employees through PIP implementation can be a delicate process that requires careful consideration, especially when it coincides with employment contract renewals. By approaching these situations with transparency and an emphasis on good faith, employers can navigate potential legal pitfalls while fostering a supportive work environment.