paying workers or paying lawyers: employee termination practices in the united states and canada

Paying Workers or Paying Lawyers:Employee Termination Practices inthe United States and Canada*

LAURA BETH NIELSEN

This article explores one multinational corporation's employee terminationpractices in the United States and Canada. There are fairly insignificantdifferences in employees' legal protections in the two countries and the companyclaims a uniform corporate employee termination process cross-nationally.However, there are major structural and procedural differences in the employeetermination process. The differences, including the way attorneys are utilized, theuse of quasi-legal personnel to comply with regulatory requirements, and thesubstance of the severance package are explored. In the United States money isdirected toward legal professionals ± `̀ paying lawyers'' while in Canada expensesassociated with employee termination go to severance packages ± `̀ payingworkers.''

I. INTRODUCTION AND OVERVIEW

In all economically developed democracies, the trend this century has beento temper the traditional liberal theory of employment-at-will. Theemployment-at-will doctrine holds that, absent a written contract orcollective bargaining agreement, an employer may terminate an employeeat any time for any legal reason or for no reason, just as an employee maychoose to quit (Adair v United States 1908). Employment-at-will eroded ascountries began to provide legal protections against arbitrary dismissal and

* Please direct all correspondence to Laura Beth Nielsen, Research Fellow, American BarFoundation, 750 N. Lake Shore Drive, Chicago, IL 60611. Telephone: (312)988-6574; fax: (312)988-6579; e-mail: [email protected] article appears, in a different form, in the collection, Regulatory Encounters: Multi-

national Corporations and American Adversarial Legalism, edited by Robert A. Kagan and LeeAxelrad (UC Press, in press, 2000).Lee Axelrad provided invaluable assistance in the data collection phase of this research.

Additionally, I gratefully acknowledge the helpful comments of the following people on earlierdrafts of this manuscript: Lee Axelrad, Catherine Albiston, Lori Johnson, Robert Nelson, JudyNielsen, the researchers on the Comparative Legal Systems Project, and the anonymousreviewers from Law & Policy. I also owe a debt of gratitude to Robert Kagan, who provided methe opportunity to work on the project and guidance at every phase of the research process.Special thanks to the corporate officials and lawyers at PCO who remain anonymous. Withouttheir generosity and honesty this project would have been impossible.

LAW & POLICY, Vol. 21, No. 3, July 1999 ISSN 0265±8240# Blackwell Publishers Ltd. 1999, 108 Cowley Road, Oxford OX4 1JF, UK,and 350 Main Street, Malden, MA 02148, USA.

discriminatory firing, and, in some cases, imposed requirements of dueprocess, notice, and severance pay. There are significant legal differencesacross nations, however. Most European states and Canada emphasizeguarantees of continued employment. The United States, in contrast, givespriority to the employer's interest in efficiency and the fluidity of marketswhile at the same time providing strong legal protection against terminationbased on race, gender, age, or disability. Moreover, national legal systemsvary in whether employee rights are protected by courts or administrativebodies.

Some large domestic corporations offer stronger guarantees againstarbitrary dismissal than are required by law, and some multinationalcompanies pride themselves on implementing similar personnel practicesregardless of the law of the host countries. That is the corporate practice of`̀ PCO,''1 a major multinational pharmaceutical company with operationsin more than twenty countries. This case study examines whether and howdifferences in national legal regimes affect actual corporate personnelpractices, using PCO's United States and Canadian operations as an objectof inquiry.

The purpose of this inquiry is to test the `̀ adversarial legalism''hypothesis. Adversarial legalism is the idea that the American legal andregulatory style is uniquely legalistic, adversarial, and expensive (Kagan1991, 1997; Kagan & Axelrad 1997). This case study focuses on onemultinational corporation that conducts parallel business operations in theUnited States and Canada, another economically advanced democracy. By`̀ holding constant'' the business activity, this study seeks to discern theextent and importance of differences in national legal rules and processes.There exists a large body of cross-national studies of particular legalprocesses that indicate that U.S. legal and regulatory processes, whencompared to other economically advanced democracies, more often involveadversarial legal conflict, strong legal sanctions, and higher levels of legaluncertainty, but none focuses specifically on the United States and Canadain the employment law context (Church, Nakamura & McMahon 1993;Noah 1993). Additionally, there is speculation in the popular press that therising cost of doing business in the United States has or will force companiesto move operations outside the United States to avoid these costs. Anempirical examination of these costs is important for this debate.

PCO Canada employs 525 people, and PCO U.S. employs about 9,500people. In both countries, the work force of PCO consists mainly of whitecollar workers whose major tasks include sales, marketing, manufacturing,research, and development. PCO has no unionized employees in eithercountry due to the `̀ informal'' policy about labor unions: jobs performedby people in occupations traditionally dominated by strong labor unionsare contracted out in both countries. In both countries, women slightlyoutnumber their male counterparts and are well represented even in topmanagement positions. There is some difference in the racial composition of

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the work force in the two countries although it is not as great as one mightexpect. In Canada, 12.3 percent of PCO employees are `̀ visible minorities''as opposed to about 18 percent racial minorities in PCO U.S.

In the course of the research, we conducted thirty-two interviews withPCO's human resources staff in both the United States and Canada as wellas the corporate officials involved with termination, including the affirma-tive action officers, the legal departments, and human resources managers inmost of the regional offices.2 In Canada, we were able to read the personnelfiles of all the employees who left PCO over a two-year period. In the UnitedStates, we did not have access to these files, but we were provided summaryfigures and quantitative estimates that correspond to the results generatedby the analysis of the Canadian employment files.

Some scholars have argued that the liberal theory of employment-at-willhas been slowly eroded by common law and statutory developments, but theUnited States retains the employment-at-will presumption for private sector,nonunionized employees working without an employment contract.Canada, in the European tradition that emphasizes continuity of employ-ment, provides greater common law protection to employees in thatcountry, requiring that an employee receive reasonable notice prior totermination unless `̀ just cause'' for immediate dismissal is shown (Mole1990; Arthurs, et al. 1993). There are various exceptions to the common lawstandards in both countries. For example, in the United States, employeesare protected by the employee manual which creates an obligation on thepart of the employer. In Toussaint v Blue Cross & Blue Shield (1980), theSupreme Court declared that employee manuals and oral statements madeby employers can create exceptions to the common law presumption ofemployment-at-will because they are considered contracts that the employeris obliged to follow.

Additionally, in both countries, statutes protect employees against dis-crimination on the basis of race, gender, age, and disability, although PCO'sexperience suggests that claims based on these causes of action are much lessfrequent in Canada. A further example of greater protections affordedCanadian workers includes statutory protection from discrimination ongrounds of sexual orientation in a number of provinces including Ontario.3

Finally, the much higher rate of unionization in Canada provides increasedprotection for workers not shared by their American counterparts.

An employee has three options when forced to separate, or is terminated,from PCO. She can: (1) leave PCO without contesting the termination;(2) contest the termination in some way that does not include filing alawsuit; or (3) contest the termination by filing a lawsuit. Given the differentcommon law presumptions in the two countries, one might construct twoopposing hypotheses. First, considering the greater breadth of protections inCanada, an observer might expect a very low level of termination disputing.Or, considering the somewhat broader legal protections for Canadianemployees, one might expect that PCO Canada would experience more legal

Nielsen TERMINATION IN THE U.S. AND CANADA 249


disputes and lawsuits when it fires employees. PCO corporate data showthat there is much less post-termination disputing, including lawsuits, inCanada. As Table 1 shows, of employees who were terminated in Canada inthe 1995 fiscal year, 71 percent raised no dispute with PCO after thetermination. In the United States, only 39 percent of those terminated leftwithout disputing the firing. On the other end of the spectrum, there areterminated employees who contest their termination by filing a lawsuit. Ofterminated employees, 7 percent of Canadians eventually filed a lawsuit,while 23 percent in the United States filed a lawsuit.4 In the middle ofthe dispute spectrum, there are those employees who contest their termi-nation in some way without a lawsuit. This `̀ mid-level'' disputing rangesfrom simply writing a letter contesting a severance package or contestingthe termination itself to hiring an attorney to do the same. In Canada,22 percent of those who were fired engaged in some level of postterminationdisputing that fell short of actually filing a lawsuit. In the United States,on the other hand, 38 percent of those terminated engaged in some sort ofposttermination disputing that did not culminate in a lawsuit (personalinterviews).

In the years studied, not a single terminated employee won a lawsuitagainst PCO in either country. Even more striking, PCO has not lost apost-termination lawsuit in either country ± ever. Despite this point ofsimilarity, the cross-national differences in disputing rates are worth noting,not just because they are so great but also because they are inversely relatedto the strength with which the two countries protect employees' right tocontinuity of employment.

PCO U.S. and PCO Canada termination procedures varied in notice-able ways, at both the structural level in the organization of the humanresources department and at the procedural level in terms of the day-to-daydecision making regarding termination. We found that PCO has moredeeply entrenched bureaucratic structures within PCO U.S. to process legalclaims. These differences between PCO U.S. and PCO Canada are due toa number of factors. First, PCO U.S. employees have access to a greatervariety of legal claims. Thus, PCO U.S. officials face greater legal un-certainty than their Canadian counterparts regarding the source of atermination claim. Moreover, the employee in the United States whomakes a wrongful termination claim has more potent legal remediesavailable to her.

Although it is difficult to estimate precisely how much PCO spends on thetermination process in each country, it seems clear that U.S. prelitigationand litigation processes are generally more expensive for PCO. Not onlydoes PCO U.S. spend more money on the termination process, but themoney spent is channeled largely to legal and quasi-legal professionals whilethe expenditures made by PCO Canada go toward providing severancepackages and services to the terminated Canadian employee. PCO Canadapays workers while PCO U.S. pays lawyers.



II. PERSONNEL TERMINATION AT PCO: THE ROLE OF CORPORATE

CULTURE AND `̀ HUMAN RESOURCES'' POLICY

Notwithstanding differences in law, PCO has sought to create personnelpolicies and termination procedures that are the same in the United Statesand Canada. PCO's strategy is to provide guarantees against arbitrary ordiscriminatory treatment that go beyond those required by the law in eithercountry. PCO's human resources policy exemplifies the decline of employ-ment-at-will as an operative corporate policy in the United States andCanada.

A. NATIONAL DIFFERENCES IN LAW

Cross-national legal differences relating to employee termination law maybe roughly divided into three categories. First, there are differences insubstantive law of all sorts ± common law, statutory law, and regulatoryrequirements. Another category of legal differences relates to the institu-tional and procedural features of the different national legal systems. Third,there are economic differences associated with lawsuits, including attorneys'fees and typical awards for successful wrongful termination cases.

1. Substantive Law

The most striking difference in substantive law between the two countries isthat unqualified employment-at-will has never been the law in Canada foremployees with contracts of indefinite duration as is the case for most of

Table 1. Results of Forced Separations

100% ______ ____________ ______

90% ______ ____________ ______

80% ______ ____________ ______

70% ______ ____________ ______

60% ______ ____________ ______

50% ______ ____________ ______

40% ______ ____________ ______

30% ______ ____________ ______

20% ______ ____________ ______

10% ______ ____________ ______

0% ______ ____________ ______

Canada United States

723

22

71

38

39

lawsuit

disputing, no lawsuit

no disputing



PCO's employees (Arthurs et al. 1993:146). At the most general level,Canada follows the European model of providing a higher threshold ofprotection from termination for all workers. In Canada, the employment-at-will doctrine does not prevail; the common law presumption in that countryis reasonable notice prior to termination, unless the employer has `̀ justcause'' to terminate an employee. This suggests that Canadian employersmight be more vulnerable to unjust dismissal lawsuits than their Americancounterparts ± at least in theory. Although the common law rule differencebetween the two countries hardly reflects the entire law, due to the rise ofstatutory and regulatory rules surrounding termination, this basic differencereflects the variant traditions regarding employment in the two countries.

In Canada, employees terminated without just cause are entitled toreceive `̀ reasonable notice'' which can take the form of either actual noticeor monetary compensation in lieu thereof. The reasonable notice standard isa common law protection that is not terribly precise because it requiresjudicial interpretation and can be overridden for a number of reasons suchas a valid contractual term of employment, or if the employee's performanceor conduct constitute `̀ just cause'' for dismissal. Statutory entitlement to`̀ termination'' or `̀ severance'' payments, on the other hand, are less vaguebut the guidelines embodied in statue are not terribly helpful due to theevolving common law doctrine that typically provides well above theproscribed minimum especially for senior level employees (ibid.:147). As apractical matter, there exist publications that provide guidelines for noticebased on factors such as type of job, years of service, future employabilityof the terminated worker (see, e.g., Mole 1990). Despite the complexities ofthe interrelationship between common law protections and statutory mini-mums, which introduce a certain indeterminacy in the Canadian context, inthe American private sector, there is no equivalent general protection foremployees.

In contrast, in the United States, the trend has been to allow companies todefine workers out of employee status by labeling them `̀ independentcontractors,'' thus circumventing what is legally required in an employmentrelationship. Thus, U.S. law is less comprehensive and less protective ofworkers, and more protective of employer autonomy. To be sure, piecemealstatutory, common law, and regulatory protections have arisen which,departing from the common law presumption of employment-at-will,provide increased protection for many employees in the United Statesunder antidiscrimination statutes. For example, in the area of regulatoryprotections, over 70 percent of the total U.S. work force ± includingminorities, women, older, and disabled workers ± is `̀ protected'' as definedby the Equal Employment Opportunity Commission (EEOC) (Donohue &Siegelman 1991).

Some legal scholars even argue that the employment-at-will standard nolonger exists in the United States (Glendon & Lev 1979), since it has beeneroded both by common law developments and statutory employee pro-



tections. Three major common law protections arose during the twentiethcentury in the United States. First, the employment-at-will presumption isweakened by the public policy exception, which limits the employer's rightto discharge an employee for reasons that violate public policy. This excep-tion was established in Petermann v International Brotherhood of Teamsters(1959) which held that an employer cannot terminate an employee for failingto commit perjury at his employer's direction. Second, in Monge v BeebeRubber Co. (1974), the Supreme Court created an exception for violation ofthe implied covenant of good faith and fair dealing. In that case, the courtheld that an employer may not discharge an employee for failing to go on adate with her employer. The final common law exception to the employ-ment-at-will presumption was established in Toussaint (1980).

Moreover, statutory protections have eroded the employment-at-willpresumption in the United States, including the Civil Rights Act of 1964, theAmericans with Disabilities Act, and the Pregnancy Discrimination Act.Additionally, government workers protected by civil service legislation areentitled to continued employment absent just cause for dismissal. Collectivebargaining agreements provide the same for many unionized employees inthe private sector.

Despite many similarities in legal regimes, it seems clear that Canadianemployees enjoy somewhat greater legal protections from arbitrary treat-ment than do their American counterparts. The somewhat more favorablecommon law tradition as well as the greater statutory protections demon-strate this. In addition to the formal laws that protect employees in the twocountries, many large corporations, like PCO, include guarantees of dueprocess in their employee manuals, bringing employees certain protectionsvia the contract exception to employment-at-will.

Although PCO has no unionized employees in either country, it is worthnoting that there is a much higher rate of union organization and unionstrength in Canada. PCO Canada officials are no doubt aware of theenvironment in which they operate that may result in greater employeeprotection, but it would be difficult to measure how the generalized threat ofunionization affects the actual day-to-day practices of PCO officials.

2. Legal Institutions and Mobilization of Law

Numerous factors go into the decision of a disgruntled employee aboutwhether or not to pursue any legal claim arising from a dispute regardinga termination. The employee's age, education, and prior encounters withlegal disputes are probably factors that influence her decision to invoke or`̀ mobilize the law'' (Bumiller 1988). Another factor that may explain therelative lack of legal mobilization in Canada is the availability of socialservices (Thomas 1991). Thomas argues that widely available healthinsurance and disability compensation in Canada makes litigation optionalin products liability cases. The same may be true for employee termination



cases ± in Canada the presence of a secure social safety net provides stabilityfor terminated employees, thus making litigation more an option than aneconomic necessity.

In addition to these factors, there are a number of cross-national legal andinstitutional differences between the United States and Canada that affectan employee's decision to mobilize the legal system for redress. Institutionalarrangements make it easier for U.S. employees to take legal action tovindicate their claims under the law, and encourage them to take legal actioneven if it is unclear whether or not their rights have been violated.

There are four legal institutions or rules that provide disincentives forCanadian employees to pursue their wrongful termination actions that arenot faced by their U.S. counterparts. In other words, these four legalinstitutions make it more difficult for PCO Canada employees to mobilizethe law. First, rules about lawyer compensation arrangements or `̀ counselfees'' allow greater flexibility and therefore greater access to legal assistancefor U.S. employees. Second, in the United States, government agenciesmake certain causes of action easier for U.S. employees to pursue, thoughthose agencies suffer certain problems that will be examined as well. Third,the nature of damage awards in the two countries provides greater incentivesfor U.S. employees to pursue legal action. Finally, the method of recoveryfor employees in Canada is burdensome.

(a) Counsel's Fees

Lawyer compensation arrangements affect employees' ability to mobilizethe law to redress their termination grievances. In the United States, lawyerscan and do take cases on a contingency fee basis, whereby an attorneycharges a client nothing at the beginning of a lawsuit but agrees to takea percentage of an award if and only if one is granted. A typical U.S.attorney's contingency fee is about 40 percent, making the attorney's fee, ifthe suit is successful, large enough for many U.S. attorneys to take chanceson weak cases. Although most Canadian provinces allow some form of thecontingency fee system, Ontario prohibits these lawyer compensationarrangements (Solicitors Act 1980). Because the majority of PCO Canadaemployees work and live in Ontario and because PCO Canada's corporateheadquarters are located there, Ontario is the province with which PCOCanada is most concerned. Thus, many terminated PCO U.S. employeeshave a low-cost or no-cost way to pursue legal action that is not available tothe majority of PCO Canada employees.

The `̀ loser pays'' system of awarding trial costs is another institutionaldifference that makes it less likely that Canadians will pursue legal claims totrial and, if they do get to trial, encourage Canadians to make earlier, morerealistic assessments of their likelihood of success. The loser pays system canaffect litigants in a number of ways. Cost sanctions (costs awarded at theend of the trial, requiring the loser to pay some of the winner's legal costs)are generally more severe in Canada than in the United States and costs



awarded to the successful litigant are about 60 percent of her actual legalexpenses (Thomas 1991). In the United States, the costs of successfullydefending a wrongful termination lawsuit are usually lost to the companyinvolved. Thus, when a PCO Canada employee is terminated and wants tofile a lawsuit, in addition to paying her lawyer some money up front, shemust at least consider the fact that she may later have to pay all her costsplus PCO's legal costs. This is a big barrier to mobilization for PCO Canadaemployees that is not faced by similarly situated PCO U.S. employees.

Both the contingency fee system and the `̀ loser pays'' method ofallocating trial costs make it easier for the U.S. employee to pursue a legalclaim than her Canadian counterpart.

(b) Administrative Agencies

In both countries, there exists a regulatory mechanism for dealing withemployees' claims of discrimination on the grounds of race, gender, age, anddisability. In both countries, the regulatory agencies are slow and somewhatineffective. The major difference is that there is a routine mechanism thatallows U.S. employees to opt out of the regulatory process and file suit infederal court, whereas their Canadian counterparts have no such availableremedy. Here again, the process in the United States makes it somewhateasier for employees to pursue a claim against their employer.

Anti-discrimination lawsuits claiming discrimination based on race, sex,age, disability, national origin, and religion are channeled through the EEOCin the United States, which was created with the `̀ enactment of Title VII ofthe historic Civil Rights Act of 1964 as a five-member, bi-partisan, inde-pendent executive branch agency charged with enforcing the [then] newemployment anti-discrimination law'' (U.S. Congress 1995: 449±70. Thisstatement was made by Gilbert F. Casellas, Chairman, U.S. Equal Employ-ment Opportunity Commission.). Since its creation, the agency has alsobeen directed to enforce other workplace antidiscrimination laws as theyhave been enacted.

An employee with an antidiscrimination claim, in this case a claim thatshe was terminated for a discriminatory reason, can file a complaint with theEEOC or the equivalent state agency. If the former, the EEOC then has astatutorily prescribed time of 180 days to investigate the claim. The outcomeof the investigation can take one of three forms. First, the agency mayinvestigate the claim and determine it to be without merit; under thesecircumstances, the agency will dismiss the claim. Second, the agency mayinvestigate and determine that the claim is meritorious. In this case, theemployee is either issued a `̀ right-to-sue'' letter which allows her to file alawsuit in federal court, or the EEOC itself may sue the employer. Finally, ifthe agency is unable to investigate and dismiss a complaint within 180 days,the EEOC is required to issue a `̀ default'' right to sue letter which gives theemployee/claimant the right to file a lawsuit in federal court but makes noclaim as to the merits of the action.



Unfortunately for all parties involved, the EEOC constantly faces abacklog of over 100,000 charges (ibid.). One study of 782,000 discriminationcomplaints filed with the EEOC and various state equivalents found that theaverage complaint languishes more than one year before any action is taken(Eisler 1995). Additionally, the average time for a meritless complaint to bedismissed is thirteen months (ibid.). Of complaints filed, about 66 percentare ultimately dismissed as meritless (ibid.). Although terminated employeeswhose complaints are not being acted on have the option of pulling out ofthe agency and pursuing the action in court, only employees who can affordthe attorneys fees and court costs truly enjoy this option.

PCO officials report that very few cases are resolved through the time-consuming agency process. The wait alone provides some incentive fordisgruntled employees to attempt a compromise with PCO. Typically,however, the employee has moved on to another job and can afford theluxury, indeed the no-risk gamble, of simply waiting it out and hoping thather complaint is eventually deemed meritorious.

In principle, availability of agencies makes it easier and cheaper foremployees to take legal action in the United States on antidiscriminationclaims ± it's free. The costs to the employer are, however great and occurwhether the EEOC investigates or not. Simply filing the complaint triggersexpensive responsive action on the part of PCO,5 so that even claims laterdropped or deemed meritless are expensive for PCO.

Additionally, all of the EEOC investigation and PCO's documentsregarding that investigation are `̀ discoverable,'' meaning that the terminatedemployee has the right to gain access to these documents as her caseprogresses. Thus, filing an EEOC claim is a way for an employee who onlyhas suspicions of discrimination regarding her termination to have sig-nificant investigation conducted for her at no cost. PCO Canada employeesenjoy no such option. Although the EEOC seems to be largely ineffective inresolving disputes for terminated employees, the way that the agencyoperates allows the employee valuable information at a very low cost.

When a violation of the Human Rights Code (1990) is lodged in Canada,the commission established by the statute typically provides an investigatingofficer. As is the case in the United States, an investigation is conducted,a report is filed, and a tribunal may be established if evidence of a violationis shown. The difference is that the employee is locked into this processand cannot take her case outside the commission.6 Thus, despite similarremedies and similar difficulties obtaining a remedy, the PCO U.S. employeehas greater ease pursuing a complaint on these grounds because she can usethe EEOC to gather evidence, but can usually opt out of the process andpursue the claim in federal court.

(c) The Lure and Risk of Higher Damages

The prospect of receiving a large award and vindicating herself are thelargest incentives for an employee to pursue a wrongful termination lawsuit.



The calculus about whether or not to enter the complicated, often-costlylegal system in either country is based on a prediction about the likelihoodof prevailing coupled with the damage award that might be granted. Thus,the higher the potential damage awards, the more likely an employee willpursue legal action ± especially if the direct costs of pursuing the actionare, as explained above, not very costly to the employee. In Canada, civillitigants are not constitutionally guaranteed the right to a jury trial (Crupiv Royal Ottawa 1986), but a provincial statute in Ontario gives a partythe prima facie right to request a jury (Courts of Justice Act of 1984). Noother province provides this protection for parties to civil litigation. Thus,more cases in the United States will be tried before a jury which leads tohigher awards, providing yet another incentive for the U.S. employee tolitigate.

In addition to fewer jury trials in Canada, there is also more alternativedispute resolution (ADR). While ADR is often attempted in the UnitedStates, it is enforced in Canada by court and government initiatives. Forexample, in Ontario, the provincial government has instituted a policywhereby eight out of ten cases filed are diverted to a mediator (FinancialPost Daily 1995b). ADR is more expensive than litigation on an hourly basisbecause the parties have to pay the costs of facilities and the mediator's time,but the overall savings are great because of the reduced amount of timeit takes to reach a conclusion. According to one business periodical, `̀ thecosts of mediation are typically less than 50 percent of litigation costs, withfull resolution being achieved in less than a quarter of the time'' (Hendler1995:7).

In contrast, in the United States, plaintiffs enjoy the option of a jury trial.Although ADR is becoming more common in the United States when boththe employee and the employer prefer that system, the government does notcompel those with disputes to attempt some alternative form of disputeresolution first as is the case in Canada.

(d) Method of Recovery

A further disincentive for the Canadian employee to sue their employer isthe method of recovery under the Employment Standards Act. Under thisstatute, alleged offenses of the Employment Standards Act are referred tothe director of employment standards, who appoints referees to adjudicatethe cases and provide for remedies. Although there are provisions foradministrative review, the decision is binding on the parties and not subjectto judicial review (Employment Standards Act 1990:§§ 60-70). Moreover,this system is notoriously lengthy and ineffective.

Unlike the system in the United States in which the employee mayproceed directly to court, the Canadian employee faces this regulatorymechanism. Again, the barriers to the judicial system are higher for theCanadian employees. This undoubtedly affects the number of employeerelated lawsuits in the Canadian judicial system.



3. Perceived Legal Risk to the Employer

In both countries, PCO's desire to avoid a lawsuit is shaped by the expensesincurred from a lawsuit. Although some scholars argue that the costs oflitigating and paying claims for some sorts of wrongful dismissal lawsuitsare not as great as commonly perceived (Edelman, Abraham & Erlanger1992), even these conservative estimates of litigation costs dwarf the cost ofwrongful dismissal suits in Canada. For example, one Canadian studyconducted by the Civil Justice Review found that the typical cost to aplaintiff to pursue a civil claim is $38,000 Canadian (Dertouzos, Holland &Ebener 1988). In a study of 120 wrongful dismissal jury trials in California,the average cost to a company defending a dismissal case that goes to trialwas over U.S.$80,000 (ibid.). Additionally, the cost of defending such a suitwas found to be rising at 15 to 24 percent annually (ibid.). These figures donot even include the costs of the award, if any.

The damages claimed in civil litigation are also much lower in Canadathan in the United States. For example, the average claim (in Ontariocourts) is C$197,000 Canadian (Financial Post Daily 1995a), while theaverage wrongful termination award is U.S.$650,000 in the United States(Dertouzos, Holland & Ebener 1988). Although the average U.S. award isinflated due to the statistical dominance of a few, very large awards, theselarge awards tend to push PCO toward minimizing their risk of incurring themaximum liability. Thus, despite the fact that Dertouzos, Holland, andEbener, the authors of the U.S. study, conclude that, `̀ the annual cost ofjury trials [in cases with a wrongful dismissal cause of action], including legalfees, amounts to only $2.56 per worker'' (ibid.: ix), it is not the low-end or`̀ mean'' estimates that concern PCO. It is the threat, however real, of thelarge jury award (the highest score in the distribution of known previousoutcomes) that drives the termination process at PCO.

Although Dertouzos, Holland, and Ebener conclude that the aggregatecosts of wrongful termination litigation in the United States are not as highas human resources professionals may think (ibid.: 47), they are definitelyhigher than they are in Canada. Moreover, PCO U.S. typically does not facecauses of action based on common law claims. Over 65 percent of PCOU.S.'s termination litigation stems not from wrongful dismissal causes ofaction, but, rather, from the more costly antidiscrimination causes of actionmediated through the EEOC (personal interviews). PCO is not unusual inthis respect; litigation of these costly actions is increasing. In fact, the growthof employment discrimination litigation in the United States has beenestimated at 2,166 percent between 1970 and 1989 (Donohue & Siegelman1991). This growth is dramatic when compared to the average growth in thegeneral federal civil caseload for the same period, about 125 percent (ibid.).

Because the implied contract theory of wrongful discharge is a commonlaw creation ± developed by the courts rather than by legislatures ± the lawnot only varies from state to state, but the substance of the law can also be



fairly ambiguous. The ambiguity is multiplied because crucial decisionsoften are made by a diverse array of juries, whose decisions are notexplained and are largely unreviewable. This leaves employers unclear aboutthe best way to protect themselves from liability. Certainly, many employersmay guess wrong. One study of 120 California jury verdicts between 1980and 1986 found that 68 percent of plaintiffs won their wrongful dischargelawsuits; awards averaged $650,000 (although the median award was$177,000) (Dertouzos, Holland & Ebener 1988). The largest award was$8 million (ibid.).

Subsequent research about jury awards for wrongful discharge found,however, that awards vary according to jurisdiction (Edelman, Abraham& Erlanger 1992). More interesting, perhaps was the finding that theconstruction of the threat of wrongful discharge in professional personneljournals is extremely inflated (ibid.). In a study of nine professionalpersonnel journals, Edelman, Abraham, and Erlanger (1992) found inflatedreporting of both the rate at which employees win their wrongful dischargecases and the commensurate jury awards. Consistent with these findings,PCO U.S. officials focus myopically on the large award, the one receivinglots of media attention and attention from professional publications (personalinterviews). More close to home, it is the damages claimed in lawsuits filedagainst PCO itself on which PCO U.S. officials focus. Thus, although somescholars argue that business need only invest $2.56 per employee to preventwrongful termination suits, any individual company ± PCO included ± mustemploy a strategy not based on the aggregate data, but on the actual coststhat may be incurred. Because all companies do not collectively pool moneyto pay these awards, PCO tailors its termination policy to prevent any (evena small) chance of losing a lawsuit with a large award.

The majority of the cases that PCO faces, however, originate in EEOCclaims (personal interviews). In a study of Title VII race-based lawsuits,Shea & Gardner, a large Washington, D.C., law firm, found that plaintiffswere awarded compensatory and punitive damages in sixty-eight of 576reported cases between 1980 and 1989 (U.S. Congress 1990). Of those sixty-eight cases, in only three did compensatory and punitive damages combinedamount to more than $200,000 (ibid.).

As with the common law claims, PCO U.S. officials focus only on thelarge antidiscrimination awards and calibrate their prevention strategy onthe basis of the large awards. Thus, it makes economic sense in the minds ofPCO officials for the company to allocate greater resources to prevent theworst possible outcome ± no matter how remote the chances of thatoutcome are in fact.

B. CORPORATE CULTURE

One might seek to attribute the cross-national differences in PCO'stermination practices, policies, and outcomes to cross-national differences



in corporate culture. After all, the operations in the United States andCanada are separate divisions with different executives, operating indifferent countries. This might lead one to think that there are alsodifferences in corporate policies, ideologies, and personnel practices. Thisis not, however, the practice of PCO. PCO has a strong commitment touniform practices and policies. The 1989 PCO Guidelines of Company Policydeclare that, `̀ [a]dherence to a uniform worldwide standard of conduct toguide our behavior is essential and must be maintained in each countrywhere we do business.'' This commitment extends to personnel practices.Regardless of the substantive law in the countries in which PCO operates,the same PCO policy is supposed to be followed whenever a termination isunderway. Every PCO executive we spoke to claimed that there are noofficial differences in the termination process between the United States andCanada. One PCO U.S. executive explicitly said, `̀ [i]n theory, there is nodifference in the termination process between the two countries'' (personalinterview). PCO sponsors annual training in the United States that allhuman resources representatives from both the United States and Canadaare required to attend. Because the corporate philosophy is claimed toderive from principles of equity for employees rather than from legalrequirements, PCO asserts that the company does not tailor the terminationprocess to the legal requirements of the particular countries in which itoperates.

The advantages to PCO of implementing a uniform cross-national humanresources policy are many. Uniform cross-national policies, regardless ofdifferences in law, allow PCO to train U.S. and Canadian human resourcespersonnel in a single training (personal interviews). After the training, PCOcan transfer human resources personnel from country to country withoutretraining those employees about the law and policy in all the differentcountries of operation. Additionally, PCO officials claim that the practice ofimplementing generous and consistent cross-national human resourcespolicy makes recruiting and retaining quality employees easier because a fairand consistent human resources policy is something that will attract andretain quality employees (personal interviews).

Except in unusual circumstances, PCO is confident that its standardpractices in termination go above and beyond the legal requirements of theUnited States and Canada. Hence, PCO policies emphasize high quality andconsistent implementation of its IDP rather than meeting legal require-ments. PCO executives do believe, however, that following the PCO policyinsulates termination decisions from serious legal challenge (personal inter-views). This emphasis on consistency and the very real attempt made byPCO officials to meet the corporate goal of uniformity allows us to rule outcross-national differences in corporate culture as a more likely explanationfor the cross-national differences in termination practices.7

If PCO policy provides a level of protection for the employee that farexceeds what the law requires in both the United States and Canada, why do



we see cross-national differences in outcomes? A more detailed understandingof PCO's termination process is important in order to answer the question.

1. PCO's Rapid Termination Procedure

In both the United States and Canada, PCO has a two-tiered terminationpolicy. A `̀ rapid termination'' occurs when an employee commits one ofPCO's `̀ five deadly sins'' ± absence of three days without notice, dishonesty,insubordination, possession of firearms or violation of the substance abusepolicy, and misconduct.8 In those cases, the termination process is notdrawn out over many months, but occurs virtually `̀ on the spot.'' Thehuman resources department is consulted only briefly and providedverification that the incident was sufficient to merit termination and toensure that PCO has the evidence to prove the violation. Not only doesrapid termination eliminate the presence of the problem employee, but italso provides an example to other employees that certain behavior willsimply not be tolerated by PCO. In a typical year, PCO Canada and PCOU.S. terminate about the same percentage of employees using rapidtermination ± about 1 percent. There is little cross-national difference inrapid termination and the law in both countries allows it in these sorts ofcircumstances.

2. PCO's Incremental Discipline Process

More common, however, is termination for waning performance. When anemployee's performance declines, PCO policy calls for implementation ofthe `̀ incremental discipline process'' or `̀ IDP.'' This process is designed toprovide the problem employee with notice about the inadequacy of herperformance, sufficient time and resources to ensure that the expectationsplaced on her by the company are clear and realizable, and a fair chance forthe employee to rehabilitate her performance.

IDP imposes requirements that are justified by PCO officials on otherthan legal grounds. Yet, the requirements coincide nicely with legalrequirements. IDP is not designed only or even primarily to terminate theemployee; rather the stated goal of the process is to bring the employee'sperformance problem to the attention of everyone involved so that theemployee or her supervisor can rectify the problem (see PCO Guidelines1989). PCO officials, both in law and in human resources, insist that therationale for the documentation is not a legal defense, but fair treatment asan aid to rehabilitation of the employee. Yet, the process does generate athorough paper trail about the employee's poor performance, whichprovides both legal justification for any eventual termination and betterevidence supporting PCO's decision.

In addition, IDP is designed to prevent the two outcomes that could bemost costly to PCO. First, it is designed to prevent termination of an



employee who, all things considered, should not be terminated. Thus, IDP isdesigned to deter or expose a capricious manager with an unjustified desireto terminate an acceptable employee. Terminating an employee for noreason or for a bad reason could expose PCO to legal liability,9 but PCOwould also bear the costs of replacing the employee, training the employee'sreplacement, and retaining the unjustly fired employee's arbitrary or biasedsupervisor. Second, PCO policy is designed to reduce the risk of retaining anemployee who should be terminated. IDP provides the vehicle by which amanager who feels bad about terminating a `̀ friend'' can employ aprocedure that offers an impartial, protected assessment of the employee'sperformance.10

IDP, nevertheless, is costly in itself. It consists of three phases ± docu-mentation, probation, and termination. Prior to the documenting phase, asan employee's performance begins to wane, the `̀ line manager'' ± theemployee's direct supervisor ± is expected to step up consultations with theproblem employee to make clear the expectations that are not being met.

(a) Documentation

When the line manager determines it is appropriate, she begins to documentthese meetings, sending copies to the employee and to the employee's file.This documentation provides the basis for later termination if necessary, butalso is intended to help the problem employee rehabilitate her performance.The length of the documentation phase varies according to factors suchas the sensitivity of the position, the general attitude of the line manager,and the line manager's perception of how long the employee has beenperforming inadequately.

(b) Probation

If the employee's performance continues to wane, the next step is probation.All employees who have been with PCO for one year or longer are entitledto a six-month probation as laid down in the company Guidelines (1989).Prior to placing the problem employee on probation, the line manager mustconsult the human resources department. The line manager contacts thehuman resources manager (called the human resources representative inCanada) to discuss the nature of the problem, the amount of discussion anddocumentation that has already occurred, and other pertinent factors suchas how long the employee has been with PCO and the reaction that the linemanager expects from the employee. If it is determined that the employeeshould be placed on probation, a probation letter is drafted by the linemanager and the human resources manager. An attorney typically reviewsboth the contents of the letter and the case history, including documentationabout the performance problems. The intensity of this review varies betweenthe two countries, with lawyers in the United States engaging in a morethorough review than their Canadian counterparts. The purpose of thisoften cursory review is to provide a further check on the process up to the



point of probation. The attorney makes sure that the problems in questionprovide the basis for a legally justifiable termination and that there isadequate `̀ proof'' in the form of documentation to back up PCO's side ofthe story.

The employee is notified that she is on probation by a letter, typicallydelivered in person by her line manager and followed by a meeting. At theprobation meeting the employee, the line manager, and the human resourcesmanager are present.11 The substance of both the probation meeting andletter are the expectations that are not being met by the employee. At theprobation meeting, the problem employee is asked whether or not theexpectations for her work are unrealistic. This meeting can be very lengthyor very short. In the United States, most of the human resources executivesclaim that they know, prior to the probation meeting, what the response ofthe employee will be to the directed criticism.

Sometimes, the probation period or even the probation meeting is used asan opportunity to help the employee realize that there is simply a `̀ bad fit''between PCO and the employee and hint that there is simply no otheroption for the employee but to leave PCO. One executive told us, `̀ I askmyself, `Is this a will problem or a skill problem?''' (personal interview). Ifit is a `̀ skill problem'' the probation meeting is used as an opportunity toassess what PCO can do to bring the employee's skills up to what is requiredfor the tasks she is expected to perform. Typically, however, a `̀ skillproblem'' will not reach the probation phase. Skill deficiencies are identifiedand rectified before the problem gets this far. Because PCO executivesbelieve it is the company's responsibility to teach an employee the skills sheneeds to be successful, when a skill problem reaches this phase of IDP it iseveryone's responsibility. Sometimes, the skill problem is simply too large.Then, `̀ we try to convince the employee that the opportunities at PCO arenot going to meet their expectations. We try to help them get on with otherlife opportunities'' (personal interview).

Most probation meetings are conducted to address `̀ will problems.'' Inthese cases, it is up to the employee to recognize that she is not putting allshe can into the job and she has to make her own turnaround. Accordingto human resources personnel, there is nothing PCO can really do to fix awill problem, so probation is an extended period in which the employeecan assess her options and make this personality change if she can. `̀ Willproblems'' are expected to be rectified quickly because an employee eithershapes up when confronted or does not. PCO officials are willing to givemore time to a genuine `̀ skill problem'' if the official believes that it can berectified.

Throughout the probation, typically a period of six months, the linemanager is expected to continue meeting regularly with the problememployee to ensure performance is improving satisfactorily. Althoughprobation is a `̀ right'' enjoyed by all employees who have been with PCO formore than one year, the probation process is costly for PCO. The costs of



probation include (1) productivity losses that stem from retaining a pooremployee, (2) lost manager time, as he has to spend increased timesupervising problem employees, and (3) consultation with attorneys andother specialists (such as affirmative action officers).12

(c) Termination

At the end of the six-month probation period, assuming the employee hasnot left on her own, a decision to retain or terminate the employee is made.This process is the same cross-nationally and seems to be regarded by PCOhuman resources officials as `̀ the easy part.'' PCO officials in both theUnited States and Canada indicate that by the time a problem gets to thisstage in the process, it is clear if it is going to be feasible to retain theemployee. The actual decision is made by the line manager, the humanresources manager, and, in some cases, the attorney and/or the affirmativeaction officer in consultation with one another.

The `̀ hard part'' of termination concerns setting the terms, especially theamount of the severance pay. In both countries, the officials say that PCOtries to make the first severance offer a fair one because they claim thatfairness prevents both time-consuming negotiations and inconsistent resultsamong similarly situated employees. Another incentive for providing a fairfirst offer is that PCO does not want to anger an employee at this sensitivetime. Offering a severance package regarded as insufficient or unfair couldtrigger escalating post-termination disputes. In neither country, however,does PCO budge much from the initial offering.

In both the United States and Canada, human resources executivesdescribed particular terminations that deviated from the traditional IDP forvarious reasons. In certain circumstances, PCO would eliminate steps ofIDP or speed up certain phases of the model if the employee in questionwere particularly harmful to PCO. The fact that PCO is willing, underparticular circumstances, to deviate from the stated policy demonstrates twothings. First, PCO executives are aware that IDP goes above and beyond thelegal requirements in both countries. Otherwise, PCO would not be willingto cut corners for fear of opening itself up to legal liability. Second, PCOis consciously legally risk-averse in its standard termination process. Wherebusiness risks are obvious and severe, PCO is willing to move closer to legalliability in order to prevent other costs to PCO that would result fromretaining the employee.

In Canada, for example, PCO faced a particular marketing challenge. Thetermination of Steve Smith (a pseudonym) provided great difficulty for PCObecause he was brought in at a fairly high level as the product managerof one of PCO's largest selling drugs in Canada. At the time Smith'sperformance began to wane, the drug was only months away from beingmade available under a generic label. Obviously, PCO had a large businessinterest in ensuring brand loyalty and market share just prior to the timewhen competition would begin. The product manager's role in ensuring



sales is crucial at all times, but, at this time, the quality of the productmanger's work was perceived as especially vital for the company. WhenSmith missed deadlines, failed to create and implement development plans,and failed to manage the budget properly, his direct supervisor implementeda `̀ development plan'' to help Smith rehabilitate his performance. Smith wasquickly terminated when it became obvious that he had no intention ofimplementing the development plan. In Smith's case, none of the formalsteps of the IDP had been taken. The development plan was not a formalprobation, and yet Smith was terminated without fear of legal ramifications.

The decision whether to terminate an employee in a crucial position at acrucial time poses a difficult dilemma for PCO. On the one hand, termin-ating the employee leaves a vacancy that is difficult and expensive to fill. Onthe other hand, retaining the employee may lead to lost profits that cannotbe recouped. Of course, this is always the tension that PCO and everycompany faces surrounding termination. In the case of Smith, however, thecosts to PCO were too great and too obvious, so PCO executives wereconfident in their decision to forgo IDP.

Similarly, in the United States, when executives are confident that theprobation will probably not lead to a rehabilitated employee, they will usethe probation meeting as an opportunity to help the employee realize thatshe should probably leave the company. PCO officials recognized the factthat this termination occurred more rapidly due to Smith's importantposition, but they did not cite this example as terminating an employee`̀ early,'' and they did not seem concerned about the legal ramifications ofhandling Smith's termination in this manner. Despite the formal adherenceto IDP when the costs to PCO are obvious and great, it is willing to deviatefrom the model to pursue PCO's ultimate goals. Interestingly, a number ofPCO officials who related instance of deviations from the stated policyindicated that the deviation made it no more likely that the terminationwould lead to legal wrangling.

Given the same cross-national policy and PCO's belief that it hasimplemented a termination policy that is more than is legally required toprotect the employee, how can we account for significant differences in theoutcomes we found between the two countries?

III. LEGAL, ORGANIZATIONAL, AND PROCEDURAL OUTCOMES

Despite PCO's emphasis on uniform corporate policy, there are severalsignificant differences in the termination process in the United States andCanada. Basically, the differences fall into three categories ± disputepatterns, organizational responses, and procedural patterns.

First, there are significant dispute pattern differences: in the UnitedStates, PCO's terminated employees challenge their termination decisionsmore than their Canadian counterparts. Moreover, in the United States



there are many causes of action with which PCO must be concerned, whilein Canada there is only one cause of action that poses an actual litigationthreat to PCO. Second, there are organizational responses: PCO U.S.'shuman resources department has established two offices that do not exist inPCO Canada. Finally, there are procedural differences, including a greaterrate of utilization of probation in PCO Canada, and a greater use ofattorney services in PCO U.S.

A. DISPUTE PATTERN DIFFERENCES

Disputes can arise prior to the termination itself and continue after thetermination. Disputes may take the form of lawsuits threatened, lawsuitsfiled, and lawsuits litigated. At each phase of the termination process, PCOCanada and PCO U.S. incur different levels of disputing. According toPCO's detailed records, as a percentage of all employees, there was a higherpercentage of `̀ separations'' (when an employee leaves PCO for any reason ±termination, resignation, or retirement) in Canada than in the United Statesin the years studied, but the rates of `̀ forced separations'' (meaning theemployee was fired) to all separations was similar in the two countries. AsTable 2 shows, in the fiscal year studied, 24.1 percent of total separations inCanada were forced; in United States, 23.4 percent of total separations wereforced. In Canada, 35.7 percent of those who were fired were first placed onformal probation. In the United States, on the other hand, only 9.1 percentof those who were fired were first placed on probation.

Table 2. PCO Termination and Disputing Rates

United States Canada

Total employees 9,603 525

Total separations 282

2.9% of total employees

58

11% of total employees

Forced separations 66

23.4% of total separations

14

24.1% of total separations

Formal probations 6

9.1% of forced separations

5


Forced separations without

post-separation disputing

26


10


Forced separations with

post-separation disputing

but no lawsuit

25


4


Lawsuits filed 15


1




B. ORGANIZATIONAL DIFFERENCES

Although the termination philosophy of PCO does not vary cross-nationally,the organization of the human resources department varies greatly. In PCOU.S., there are in-house attorneys who are utilized in a different way thantheir Canadian counterparts; and there is an affirmative action office that isactive in the termination process. PCO Canada has no such counterpart.

These structural differences represent costs expended by PCO U.S. thatare not incurred by PCO Canada. They indicate that there is a need to havemore in-house offices and officials to handle legal and quasi-legal questions.These additional offices and officers are required, at least in part due to thehigher rates of serious disputing in the United States.

1. Lawyers

In Canada, when either the human resources representative or managerbelieves that legal advice is required, termination issues are brought toan outside attorney. That occurs routinely at the probation phase of theIDP, and sometimes at other stages. For example, a PCO Canada humanresources representative was approached by a PCO Canada line managerwho claimed to be having trouble with a female employee; that was because,the human resources representative later learned, she was not responsive tothe manager's sexual advances. The human resources representative, whohad been working with the line manager, had to change gears dramaticallyand immediately sought legal advice. More typically, however, attorneycontact in Canada arises at the probation or termination stage, is brief,13

and is conducted by telephone. In fact, one of the most senior officials in theCanadian human resources office told us that she had never been to theirattorney's office.

In the United States, in contrast, attorney contact is more frequent, moresubstantive, and occurs earlier in the termination process. In the UnitedStates, PCO has in-house corporate counsel present every day in thecorporate headquarters. This is further evidence that suggests PCO U.S. ismore concerned than PCO Canada about legal problems arising fromterminations, and, hence, has a greater willingness to expend resources onlegal counsel.

2. The Affirmative Action Office

Unlike PCO Canada, PCO U.S. has a specialized affirmative action office(AAO). It employs one half-time and two full-time executives who performthe tasks required by the EEOC and the Office of Federal Contract Com-pliance Program (OFCCP). The affirmative action office personnel splittheir time between termination issues and EEOC regulatory requirements(which include quarterly reports about the demographics of the work force,



training on special topics such as sexual harassment, and complying withOFCCP requirements, especially producing and updating PCO's annualaffirmative action plan). When termination is being considered, the linemanager or the human resources manager contacts the AAO whenever a`̀ protected'' employee (such as a racial minority, a woman, or an employeeover forty years of age) begins down the incremental discipline road. TheAAO can also become involved when a terminated or disciplined employeethreatens to or actually files a complaint with the EEOC.

PCO is adamant in saying that employees who fall into protectedcategories receive no different treatment in the termination process thanemployees who are not members of protected classes. On the other hand, anemployee who enjoys increased statutory protection is always routedthrough the AAO prior to termination while only some of the `̀ unprotectedemployees'' are. The director of the AAO says that his office is broughtinto the termination process to ensure that similar employee malfeasanceis treated similarly. A second goal is to ensure that all legal requirementsare met. Despite assurances that all employees are treated the same, theaffirmative action officer and corporate human resources personnel allexpressed concern about the relatively new Americans With Disabilities Act(ADA) which protects employees with disabilities. Because some disabilitiesmay be hidden, there is a concern that an employee may be misidentifiedas not belonging to a protected class when he does, in fact, merit specialprotection. The ADA is troubling to PCO U.S. officials both becauseemployees who may merit increased protection are not easily identified andbecause of the ambiguity associated with the legal requirements actuallyimposed on PCO. It is interesting, however, that PCO Canada does not feelcompelled to create a special effort to deal with this risk.

In addition to providing a consulting-type service during incrementaldiscipline proceedings, the AAO is responsible for PCO U.S.'s interface withthe EEOC and the various state government equivalents. If an EEOCcomplaint is filed by an employee who believes that she has been terminateddue to her race, gender, or age, then PCO has thirty days to file a response.(At the time of our interview, the EEOC had been recently giving PCO sixtydays to file the response. PCO's AAO did not know why this change inpolicy had taken place and, grateful for the extra time, had not sought outan explanation from the regulatory agency.)

At this point PCO must be very careful, say the AAO officials, becausethe complaint signals that the termination might result in a lawsuit and hasthe chance of going to trial. Also, PCO wants to end the dispute quickly.Any complaint to the EEOC, therefore, is investigated by the AAO. Thedirector of the office claims that responding to each complaint requiresabout two full work weeks for one person ± about eighty hours. After PCO'sresponse is filed, the EEOC has 180 days to resolve the case or to authorizethe employee to sue PCO, or 300 days if a claim has been filed with a stateagency. If the EEOC has not been able to investigate the complaint in



eighteen months, then the employee is automatically granted the right to sueletter.

This use of the AAO in PCO U.S. presumably reflects significant cross-national differences in the methods and likelihood of legal mobilization.Although there are similar legal claims available to PCO U.S. and PCOCanada employees, there is no separate corporate bureaucracy in PCOCanada to field these legal claims. The affirmative action office is costly andthe EEOC response function is one of the most costly tasks that the AAOhas to perform.

C. PROCEDURAL DIFFERENCES

PCO's termination process also varies between the two countries. In theUnited States, PCO's process involves more work, more time, and highercosts. The reason, it appears, is that in the United States there is a morecomplex and detailed body of legal rules surrounding termination, morelegal uncertainty, and a more threatening and more frequently activatedlitigation system.

PCO Canada seeks waivers from dismissed employees without concernfor increasing the risk of future litigation by the employee; this is not thecase in PCO U.S. In termination cases, formal consultations with legal orquasi-legal professionals are more frequent in PCO U.S., and they involvemore people. In PCO U.S., these conferrals are more open-ended anddeliberative than the rather directed consultations that occur in PCOCanada.

1. Use of Waivers and Severance Packages

There are cross-national differences in the frequency with which PCO asks aterminated employee to sign a `̀ waiver'' document, stating that the employeeaccepts the terms of the severance and will not pursue legal action.14 In PCOU.S., the terminated employee only rarely is asked to sign a `̀ waiver,'' andthe process is more constrained by law. Waivers are intimately connectedwith severance packages because, in Canada, the severance package is thesource of all of PCO Canada's litigation. Thus, when a severance packageis agreed upon by both parties, PCO Canada officials seek to have theemployee sign the waiver which states that this is agreeable to her.

In PCO U.S., the terms of the severance package are determinedaccording to PCO U.S.'s `̀ plan.'' The Employee Retirement Income SecurityAct (ERISA) requires employers to adhere strictly to the terms of theirformal employee benefit plans. There is little room for negotiation; PCOdoes not have the discretion to `̀ sweeten the deal'' by supplementing oneperson's benefits. Thus, in PCO U.S. the termination meeting is simply anotification rather than a dialogue. The severance package in the UnitedStates, therefore, is more limited. It includes the payment of any pension or



investment plan to which the employee has contributed through his tenure.In contrast to the Canadian practice, lump sums equivalent to an employee'ssalary are not made at the time of termination.

Since liability for PCO U.S. does not center on the severance package, butrather centers on the termination itself, the use of waivers at the time oftermination is a bit different. In the United States, the waiver, though rarelyused (none of the U.S. regional human resources managers interviewed hadused the waiver more then five times, though all of them were thinkingabout using it more and wanted to use it more), seeks to indemnify PCOfrom various forms of legal liability. Human resources managers in theUnited States are reluctant to ask for a waiver because corporate officialsbelieve that, once the idea of legal liability is introduced, the employee ismore likely to retain an attorney or pursue legal action.

In contrast, in Canada, requests for waivers are standard practice. At thetermination meeting a waiver (which has been approved by PCO's attorney)is presented to the Canadian employee who signs the waiver either on thespot or after consulting with an attorney (often consulting at PCO'sencouragement) to make sure the offer is a fair one.

In Canada, when an employee is terminated without just cause, she isentitled to reasonable notice or compensation in lieu thereof. Just causeexists when the employee engages in serious misconduct, insubordination,theft, dishonesty, incompetence, competing with the employer, conflict ofinterest, absenteeism, or illness. For purposes of the notice requirement,adverse economic conditions, redundancy, and reorganization of thecompany do not constitute just cause for termination. Some commentatorssuggest ± and PCO Canada's expectation, reflected in practice, seems todemonstrate ± that employers have a high burden to overcome if theyattempt to prove a termination meets the just cause requirement. Thus, PCOCanada routinely offers reasonable notice compensation in lieu of actualnotice. The amount provided is not specifically dictated by the law; courtdecisions refer to a variety of factors including length of service, salary, jobstatus of the former employee, labor market conditions, and the year of thedecision (McShane 1983). General studies indicate that such severanceawards in court cases average almost nine months of pay (McShane &McPhillips 1987) and somewhat more for larger employers (ibid.). In return,the employee is asked to sign a waiver accepting the conditions of theseverance package and accepting this as an adequate substitute for justcause.

Given the legal ambiguity concerning what must be paid in lieu of actualnotice, PCO Canada tends to err on the side of safety and fairness, offeringthe dismissed employee outplacement assistance, severance pay, and a short-term (usually six months) extension of her medical benefits. Unlike the prac-tice in the United States, PCO Canada officials and employees have someroom to negotiate. This negotiation is often quite informal. It occurs in manyof the termination meetings or occurs semiformally after the termination



meeting in the form of a letter or phone call from an attorney-friend of theterminated employee. This negotiation rarely reaches a formal level.

Severance packages are much lower and there is rarely time spentnegotiating a waiver of legal liability in the United States. PCO Canadainvests heavily in pretermination resolution which, in turn, leads to fewerposttermination disputes and thus, lower costs. But, these are the only partsof the termination process that seem to be less expensive in the United Statesthan in Canada. The extremely low level of post-termination disputes andthe lack of expensive, pretermination consultations with legal and quasi-legal personnel in PCO Canada are evidence that the more complex anddetailed body of legal rules facing PCO U.S. officials result in higherexpenditures for PCO U.S. which has no option but to invest heavily in bothpretermination and posttermination disposition mechanisms.

2. Use of Attorneys

Not only do PCO U.S. officials consult attorneys more often, but they alsouse them somewhat differently. In the United States, according to humanresources officials, the question they typically present to the corporation'sattorney is more open-ended, along the lines of, `̀ What should we do in thissituation?'' According to both outside counsel for PCO Canada attorneyand PCO Canada human resources officials, the usual question asked of theattorney in Canada is more narrow, along the lines of, `̀ Is the step we areabout to take legally defensible?'' Moreover, the attorney in the UnitedStates not only troubleshoots, like the Canadian attorney, but also provideson going training to human resources department personnel. In the UnitedStates, the in-house PCO attorney tries to speak with every human resourcesworker and as many line managers as possible before they start their jobs.She encourages them to err on the side of consulting her too early and toooften rather than too late and too infrequently.

In Canada, there are more hard and fast rules about when the attorneyshould be consulted. Generally, the attorney is consulted later in the process.The attorney reviews the probation letter and analyzes or at least discussesthe file to determine if PCO Canada is in a solid position to take the seriousstep of placing an employee on probation. Attorney utilization is thus aroutine `̀ last check'' to ensure that human resources and line managementhas not made some egregious error.

In the United States, in contrast, a line manager or human resourcesrepresentative often consults an attorney not to seek approval for a decision,as is typically the case in Canada, but to participate in formulating a plan.The attorney consultation is not only to help ensure that PCO will havesound legal footing in the event that a termination eventually arises, but alsoto help apply PCO's policy of attempting to rehabilitate problem employees.The U.S. attorney is more a partner in the decision-making process, withoutdictating the outcome of the problem.



PCO's Canadian attorney had nothing but praise for PCO Canada'shuman resources department. He could not think of a time when he told aPCO representative not to take the probation or termination steps they hadproposed. In the United States, on the other hand, the attorney claims sheoften wishes that the human resources representative or the line managerhad consulted her earlier in the process.15 The American lawyers sometimeswant additional steps to be taken regarding a problem employee, even ifdoing so will lengthen the documentation phase and extend the tenure of anunwanted employee.

Finally, the PCO U.S. attorney seems to work much harder at ensuringconsistency ± ensuring that employees who have committed similar blundersare treated alike. This may partly reflect differences in scale and organ-izational structure. The Canadian human resources department is smallerand all the human resources representatives are in the same location, whichallows consultation with one another to ensure consistency. In the UnitedStates, both the attorney and the AAO take responsibility for ensuringconsistent treatment. Differences in law, however, also influence the U.S.attorney's extra efforts at achieving consistency. Since PCO Canada is onlyconcerned with one cause of action ± reasonable notice ± it is easier fornonlegal actors to perform many of the quasi-legal tasks reserved for theattorney in PCO U.S., where employees may resort to the more complexarray of statutory causes of action, in more legal forums, and subject to ahigher degree of legal uncertainty.16

3. Use of Probation

Probation is one of the most important and potentially costly elements ofthe IDP. Although PCO officials claim otherwise, the probation processserves as insulation from legal liability. Probation is a demonstration ofPCO's attempt to rectify a problem in a procedurally fair manner, thusmitigating future claims by terminated employees of unfair treatment. AsTable 2 shows, probation is used much more frequently by PCO Canada(35.7 percent of the time an employee is terminated) than by PCO U.S(9.1 percent of the time an employee is terminated).

The probation practice is drawn out, costly, and usually unsuccessful. Oneexecutive estimated that only one or two out of five employees who begindown the road of incremental discipline make it back in good standing withPCO (personal interview). The higher probation rate in Canada is evidencethat seems to contradict the theory that PCO U.S. is more risk averse andincurs more costs in the termination process. After all, wouldn't the divisionof the company that is more risk averse employ this defensive strategy morefrequently? Not necessarily. In fact, PCO U.S.'s less frequent use of pro-bation is misleading and actually reflects its greater sensitivity to legal risk.

The procedures followed in the United States for probations when they dooccur have historically been more complex and expensive. For example, a



common practice until very recently in the United States was to offer a stepprior to formal probation known as a `̀ performance review'' or a ``perfor-mance plan.'' The performance plan was, for all intents and purposes, aprobation period, except that a performance plan did not start the six-month probation clock and could be entered into informally, withoutconsulting the attorney or the AAO. Like probation, during a performanceplan period, a problem employee would have close supervision by hersupervisor and a clear statement about the exact duties that she wasexpected to perform.

Because the performance plan was required neither by the law nor PCOcorporate policy, what accounts for the inclusion of this step in the IDP?PCO U.S. officials attribute the rise of the performance plan as a way toguard against potential legal liability because it gave problem employeesadditional opportunities to reform and, hence, gave the line manager moreevidence that any further discipline was justifiable. Moreover, the perfor-mance plan allowed line managers to attempt the same rehabilitative processattempted by formal probation without all the requirements. Theperformance plan also reflects the reluctance on the part of PCO U.S.officials to use the formal step of probation.

There have been recent changes regarding the performance plan in theUnited States PCO U.S. officials are trying to move away from theperformance plan because it simply extends the termination process. In fact,all of the PCO U.S. human resources managers interviewed said that one oftheir main goals was to eliminate this informal practice due to the growingrecognition that preprobation procedures and probation itself are signifi-cant costs to PCO (personal interviews). PCO U.S. officials are attemptingcareful analysis of each of the complex termination procedures to evaluatetheir legal necessity. Because the IDP and specifically probation areexpensive and time-consuming, PCO U.S. executives are currently makingefforts to reduce the costs PCO incurs from problem employees including:limiting the time of poor performance that precedes probation; reducing thenumber of probations by helping employees understand that PCO is not theright place for them; and reducing the need for legal and affirmative actionconsultations by training the line managers and the human resourcesmanagers to handle these situations properly.

The higher use of probation in Canada may be due in part to the commonlaw standard. As stated earlier, one of the exceptions to the reasonablenotice standard is terminating someone with just cause which can beestablished by unsatisfactory performance. It is interesting to note that eventhose Canadian employees who are terminated after the entire IDP has runits course are offered both their severance package and a lump sum paymentreferred to as `̀ notice.'' So despite PCO's attempt to document just cause(relieving the company of the requirement to provide reasonable notice) thecompany pays those employees anyway. Although the increased use ofprobation might suggest that PCO Canada is more risk averse, this actually



demonstrates PCO Canada's willingness to move forward with thetermination process and PCO U.S.'s aversion to doing so.

IV. PERCEPTION OF LEGAL RISK

Despite PCO's attempt at uniform cross-national policy, a detailed inquiryinto the termination processes in both countries demonstrates that there aresignificant cross-national differences in structure, procedure, and disputepatterns. An examination of the law on the books would lead one to expectPCO Canada to be more risk averse, incurring greater costs in thetermination process due to the greater employee protections in that country.In fact, the reverse is true. PCO U.S. is more risk averse. This aversion torisk in PCO U.S. is evidenced by the establishment of different structuresand procedures in the termination process. These different and morecomplex structures and procedures are a substantial cost to PCO U.S. notincurred by PCO Canada.

The greater costs and the tendency to be risk averse is a by-product ofPCO's attempt to minimize the likelihood of incurring the maximumliability. For PCO U.S., it seems as though it is more efficient (whether ornot it is in fact) to expend greater resources early in the termination processto avoid the worst possible outcome. Thus, the empirical work thatemphasizes the low mean costs of employment termination lawsuits isirrelevant to PCO officials. PCO Canada employs a similar strategy, but thesame result is achieved for less money because Canadian companies enjoygreater legal certainty. PCO Canada officials know that the only cause ofaction they are likely to face is a reasonable notice claim and they have agood idea of what their maximum exposure will be if the case goes to trial.Moreover, PCO Canada officials know what to do to avoid litigation. Oneof the ways that the legal certainty manifests itself in PCO Canada is theirability to function with relatively little input from an attorney.

PCO U.S.'s aversion to legal risk is evident in its formal structuralattempts to limit legal risk through mechanisms already discussed suchas employing more legal and quasi-legal personnel and establishing thein-house bureaucracies to mitigate possible conflicts. Moreover, PCO'saversion to legal risk is evident in the implementation of variations on thestandard termination processes.

Although it is difficult to be certain, PCO officials and our ownobservations indicate that PCO U.S. incurs greater costs in the terminationprocess than PCO Canada does.17 Although PCO Canada incurs costs inseverance packages, PCO U.S. incurs greater costs due to the major in-house bureaucracies and more frequent utilization of legal and quasi-legalpersonnel.

The higher costs and aversion to legal risk evident on the part of PCOU.S. is due to two major factors according to PCO officials ± greater legal



uncertainty and more punitive legal sanctions in the United States. Greaterlegal uncertainty coupled with potentially vast legal exposure for PCO leadsPCO U.S. officials to employ a strategy in which they minimize exposure tomaximum liability. Minimizing their exposure is an adaptation to the U.S.legal environment, which embodies the problems of legal uncertainty andpunitive legal sanctions.

The cross-national differences exhibited by PCO in its operationsdemonstrate a response to different levels of legal uncertainty. Some ofthe sources of legal uncertainty in the United States have already beenalluded to in this chapter, but they merit mentioning here as well. First, inPCO U.S., executives must act defensively to prevent claims that can arisefrom a multitude of statutory and common law theories, while PCO Canadareally faces a legitimate threat from only one cause of action. Second, PCOU.S. officials say that there is the uncertainty inherent in jury awards.Because PCO U.S. cannot accurately guess the amount of potential juryawards and there is no way they can estimate the total costs of anemployment dispute, PCO U.S. operates on the assumption that it is best toavoid these situations.

PCO Canada officials operate in much the same way, attempting to avoidpotential legal liability. However, because there is a high level of certaintyabout the type of claim they may face, PCO Canada can accomplish thisgoal with less expense. While corporate policy in both countries seeks tominimize the legal risk to the maximum legal exposure, the practicalimplementation of this policy varies according to the demands of the legalsystem in which PCO is operating. In other words, the policy gives rise todifferent strategies due to differences in the nature of the legal risks, and it ismore expensive to employ these strategies in the United States.

According to the PCO U.S. attorney, there are five causes of action thatmost often lead to lawsuits: age, gender, race, ERISA, and ADA claims. It isinteresting to note that the common law causes of action available to PCOU.S. employees are not utilized. In fact, when specifically asked about PCOU.S.'s response to these sorts of claims, the PCO U.S. attorney stateddefinitively that her experience has not shown those causes of action to be aproblem for PCO and she does not worry about them (personal interview).She had no pending cases in those areas of law.

In PCO Canada, on the other hand, there is really only concern aboutone cause of action, the `̀ reasonable notice'' cause of action.18 In thetwo years of employment records that we examined for the Canadianhuman resources department of PCO there were only two lawsuits and bothwere reasonable notice lawsuits. Also, all of PCO Canada's postsepara-tion disputes that did not lead to a lawsuit concerned the reasonable noticeissue. If one is only looking at the variety of causes of action that PCOmust be prepared to face, it is clear that PCO U.S. officials face greater legaluncertainty. This is not, however, the only source of greater legal un-certainty faced by PCO U.S.



There is some legal ambiguity involved in the Canadian reasonable noticeprovisions, but it does not compare with the level of ambiguity faced byPCO U.S. reasonable notice requirements are blurred somewhat by the case-by-case, evolving nature of court decisions. Nevertheless, reasonable noticelaw is well-established in Canada, and its requirements are summarized inbooks providing Canadian employers detailed advice about how muchreasonable notice compensation is required (Mole 1990). In contrast, PCOU.S. faces a multitude of claims under many laws, some quite recent andmany whose interpretation remains in flux. For example, PCO U.S. hasto contend with the ADA, an ambitious new law often-criticized on thegrounds that it places unclear, but potentially very costly requirements onemployers. Moreover, the large number of antidiscrimination lawsuits in theUnited States constantly generate new law and ambiguous requirementsas the federal courts continue to redefine employers' expectations. In theface of legal ambiguity, both PCO Canada and PCO U.S. have attempted totailor their termination policies to limit legal risk. However, PCO U.S. facesthe more difficult task because it faces more lawsuits directly, and has tokeep abreast of a far larger number of legal precedents. PCO U.S. mustemploy a strategy that effectively defends against the threat of multiplecauses of action. To reduce legal ambiguity, PCO Canada employs thepractice of giving severance packages that tend to be more generous than thelaw requires. Compared to the costs of a lawsuit, PCO Canada saves moneythis way. PCO U.S. attempts to reduce the uncertainty by establishing largein-house bureaucracies (a costly endeavor), by employing more legal andquasi-legal personnel, and by employing more expensive procedures such asthe routine AAO consultation, in order to limit legal risk.

Some sociolegal scholars have suggested that American business's fear oflitigation is exaggerated, both in general (Galanter 1983) and in particular

other(ERISA)17%

Title VII(gender)17%

Title VII(race)25%

ADA(disability)8%

ADEA(age)33%

Table 3. PCO U.S. Lawsuits by Claim



with respect to the common law claim of wrongful discharge (Dertouzos,Holland, & Ebener 1988; Edelman, Abraham, & Erlanger 1992). For tworeasons, however, these arguments would provide no comfort to PCO U.S.officials. First, it is not common law claims that most frequently plaguePCO U.S. Anti-discrimination lawsuits are the biggest threat. Second, PCOU.S. officials are not concerned with data in the aggregate. They are con-cerned with costs to PCO. So, while it may be true that the aggregate coststo companies of wrongful termination suits are quite low per employee, ifPCO U.S. is the company against which a very large jury award is granted,then PCO U.S. is the one that has to pay the award, suffer the adversepublicity generated by such jury decisions, and/or pay for the appeal. Thus,although the possibility may be statistically small, PCO U.S. officials,following a rational `̀ mini-max'' strategy, operate as though they mustprotect PCO from costly lawsuits and the occasional very large jury award.PCO U.S. officials believe that this is the most efficient way to operatebecause there are so many costs, in addition to the potentially large juryawards, that surround termination lawsuits. PCO U.S. officials do notbelieve, quite plausibly, that the threat is sufficiently remote to ignore. Onecost of a publicized lawsuit, PCO executives repeatedly reported, would bereduced morale among current employees, as people take sides.

V. CONCLUSION

In Canada, substantive legal protections against arbitrary discharge arebroader than in the United States, as evidenced by statutory protections forgroups of workers not protected in the United States (sexual orientation),increased protections for labor organizing, and the different common lawtraditions in the two countries. Nevertheless, the discharge process in PCOCanada entails less legal disputing surrounding termination and lesscorporate bureaucracy, both formal and informal than in PCO U.S. Thisis due to the larger variety of legal causes of action available to theAmerican employees, the higher damages available to them, and the greaterease of legal mobilization in the United States. This generates moreperceived legal uncertainty and legal risk than does Canadian law, andhence more expenditures on lawyers and regulatory affairs personnel. It alsogenerates a higher incidence of posttermination lawsuits.

Moreover, confronted with a more adversarial legal environment, PCOU.S. employs a more adversarial model of employment relations whenconsidering termination. PCO U.S. is less likely to pursue probation, andless likely to move swiftly to termination. PCO U.S. officials' lower degreeof discretion to negotiate terms of the severance package, partly due toERISA law, stands in sharp contrast to the operations of PCO Canada.

PCO Canada incurs greater costs by investing in probation at a muchhigher rate than PCO U.S. (which can lead to longer retention of poor



employees ultimately dismissed), and by offering severance packages thatare more generous than those offered by PCO U.S. The costs incurred byPCO Canada prior to termination, however, seem to lead to a lessadversarial posttermination process, lower ex ante legal costs, and lowerlegal costs arising from post-termination legal claims. When disputes occurwith PCO Canada after a termination, they can often be resolved byenhancing the severance package, which does not require extensive aid fromlegal professionals. In PCO U.S., while payroll expenditures on questionableemployees are much lower in the pretermination phase, the threat ofpostdismissal disputing requires more investment in legal and quasi-legalprofessionals necessary to defend against these claims.

To best determine which of the models for termination is more efficient,we would have to better understand the costs incurred by PCO Canada inproviding the rather generous severance packages and the actual costsincurred by PCO U.S. in making the more expensive structural andprocedural alterations to incremental discipline. Given the nature of theorganizational and procedural `̀ extras'' observed at PCO U.S., it seems safeto say that PCO U.S. probably spends more money per terminatedemployee due to the termination infrastructure we see in PCO U.S.Although the exact costs remain unknown (and are probably unknowable),they are being directed differently. In PCO Canada, higher expenditures arechanneled to employees in the form of more generous granting of probationand more generous severance; they are `̀ paying workers.'' In PCO U.S., themoney is channeled to the work of the legal and quasi-legal professionalsemployed by PCO U.S; they are `̀ paying lawyers.''

LAURA BETH NIELSEN is a Research Fellow at the American Bar Foundation. Shereceived her Ph.D. from the Jurisprudence & Social Policy Program at the Universityof California, Berkeley where she also earned her J.D. (Boalt Hall, School of Law).Her dissertation research was a sociolegal analysis of offensive public speech. Herpublished work includes articles on reproduction and the politics of welfare reform anddate rape.

NOTES

1. In order to maintain the anonymity of the corporation that was the case studyfor this paper, the pseudonym `̀ PCO'' has been used throughout.

2. Interviews were conducted with a number of employees at PCO U.S. and PCOCanada. The interviews with PCO Canada employees took place betweenOctober and November 1995, and interviews with PCO U.S. employees inMarch 1996. The interviews were conducted on condition of anonymity. Theyare indicated in the text as `̀ personal interviews.''

3. In the United States, protection from race and gender discrimination is found inTitle VII of the Civil Rights Act of 1964 and enforcement is delegated to theEqual Employment Opportunity Commission (EEOC) and the federal courts. Ofcourse, each state in which PCO operates has state laws that prohibit employ-



ment discrimination, but a comprehensive list of state law in the area ofemployment discrimination is beyond the scope of this project. Moreover, thelaws at the state and federal level are similar. The purpose is to provide anoverview of protections afforded workers in the United States.In Canada, race and gender discrimination is prohibited at both the federal

and provincial levels. For federal employees (not most PCO employees) privatesector labor relations are governed by the Canada Labour Code (1990), but race,sex, national origin, and ethnic origin discrimination is prohibited by theCanadian Human Rights Act (1985).It is beyond the scope of the project to comprehensively summarize provincial

protection, but because almost all of PCO's Canadian employees work inOntario and because the provincial law governs PCO employees, it is worthwhileto examine the Ontario statute that governs private sector labor relations ± theOntario Employment Standards Act (1990). Like the federal law, protectionagainst discrimination in Ontario is embodied statutorily in a Human RightsCode: The Ontario Human Rights Code (1990). It should be noted, however,that each province in Canada has its own statute and they vary somewhat.In the United States, protection from age discrimination is prohibited by the

Age Discrimination Employment Act (1988). In Ontario, age discrimination isprohibited by the Ontario Human Rights Code (1990).In the United States, the law governing employment abuses on the basis of

disability is the Americans with Disabilities Act (ADA) (1988) and in Ontario,discrimination based on disability is prohibited by the Ontario Human RightsCode (1990).Finally, protection from discrimination on the grounds of sexual orientation is

also found in the Ontario Human Rights Code (1990).4. Although it is difficult to find data of this nature specific to certain corporations,

some empirical studies about the rate of disputing in the corporate United Statesindicate that PCO may have a higher level of disputing than other companies do.In fact, many authors of empirical studies about dispute patterns conclude that alarge percentage of aggrieved employees do not pursue their claims of employermistreatment. Moreover, when the source of the claim is discrimination, as isfrequently the case in PCO U.S. (see Table 3), scholars suggest that the numberof people who will pursue a claim falls even further (see, e.g., Bumiller 1988).There are any number of reasons why the experience of PCO may be different

than the ones mentioned here. First, PCO is a very large corporation, which maylead to higher disputing rates due to a lack of community. Second, the employeesat PCO are largely upper-middle class, well-educated employees. This popula-tion is more likely to know their legal rights, have access to the legal system, andeither have an attorney or know how to go about getting an attorney. Thus,many of the barriers to the legal system that may be present for the subjects ofthe other studies are not faced by PCO employees. Of course, since this casestudy focuses only on the experience of PCO, there is no way of knowing exactlywhy these numbers are higher; these are simply some hypotheses.

5. For more on PCO's organizational response, see section III(B).6. Although the employee formally has the option of attempting to launch a

criminal prosecution, this option is rarely employed because the minister mustconsent to the prosecution.

7. Of course, there is a difference between formal and informal differences incorporate culture. While the corporate standard emphasizes cross-nationalcontinuity, the corporate philosophy cannot eliminate all cultural differences.

8. Obviously, `̀ misconduct'' is a broad category designed to give PCO officialssome flexibility. Some of the executives with whom we spoke even laughed aboutthe ambiguity of the category (such as PCO Canada's senior human resources



representative interviewed on 18 and 19 October 1995). However, consistent withPCO's general philosophy to err on the side of caution, misconduct would haveto be pretty severe to circumvent the implementation of the IDP.

9. For more on the actual liability, see sections II(A)(2)(c) and II(A)(3).10. Once the IDP is in process, other managers are involved in reviewing the em-

ployee's performance, allowing the termination to be a `̀ PCO decision'' as opposedto a personal one. The costs of retaining a nonproductive employee could begreat and yet are probably the most difficult for PCO to estimate, but some ofthe costs mentioned by PCO officials include lost opportunities, lost produc-tivity, and the time of the senior management. In the areas of marketing andsales, the estimate is somewhat easier, because PCO can assess performance bysales numbers. In other areas of PCO, however, the exact costs of nonproductiveemployees are hidden. These costs, hidden or apparent, are ever-present in theminds of the PCO executives and the use of the IDP is designed to reduce them.

11. There is a strong commitment to conducting the probation meeting in personregardless of how far the human resources personnel and the line manager mayhave to travel in order to be present for the meeting. In fact, the vice-president ofhuman resources in Canada told us that one of her `̀ worst'' terminations ±meaning that the posttermination disputing was quite protracted ± was one inwhich she did not attend the probation meeting. She attributes at least some ofthe problems in that case to her absence from that meeting.

12. For more on the role of the affirmative action officer, see section III(B)(2).13. For more on the substance of the interaction, see section II(C)(2).14. Of course, there are many reasons why the process of terminating an employee

may vary. For example, one case we discussed with a U.S. human resourcesmanager involved a particularly hostile employee who also had quite a lot ofexpensive PCO property in his possession. In an effort to prevent PCO propertyfrom being destroyed, the termination meeting moved from the employee's officeto his home where the computer was retrieved on that day. Each terminationmeeting is different and can be very long or quite short. These sorts of differencesdo not concern us because they are attributable to the employee's temperamentmore than to cross-national procedural differences within PCO.

15. There is an interesting parallel between this suggestion by the PCO U.S. attorneyand the human resources personnel in PCO Canada. Although PCO Canada'sattorney had no complaints once a termination reaches his desk, the humanresources personnel expressed some dissatisfaction with the speed at whichproblems were brought to their attention by the line managers ± it was too late.This supports the argument that the human resources personnel in PCO Canadaare performing some of the quasi-legal tasks.

16. This is not to say that all Canadian employers or even PCO should only beconcerned by the reasonable notice cause of action. Obviously, employers ingeneral and PCO Canada in particular could be vulnerable to lawsuits based onany number of causes of action described in the paper. However, I report herethe experience of PCO Canada which has never been the subject of a lawsuit onany grounds other than reasonable notice. PCO Canada officials were, of course,aware of the various causes of action, but reported little concern about them dueto the high level of integrity in the organization and on their past history.

17. There are any number of costs that we discussed with PCO officials that wehad no way of quantifying and including in our analysis. For example, PCOofficials said they had no way of estimating, but were sure the following costs areassociated with the termination process: the `̀ gossip factor'' (lost productivity asother employees discuss the merits of a particular termination); replacementcosts (the costs associated with finding and training a new employee to fill theterminated employee's position); and opportunity costs (those costs to the



business associated with having an unproductive employee filling a particularposition ± particularly a sales position) to name just a few. These costs escalatethe longer a poor performance is tolerated. Of course, there are obvious benefitsto terminating an unproductive employee. Presumably, the company would bemore profitable if the job were being performed adequately. For a true account-ing of the `̀ costs'' associated with termination, all of these factors (which aredifficult, if not impossible to quantify) would have to be considered in theanalysis. Thus, it is difficult to empirically prove which of the terminationmodels ± the one followed in Canada or the one followed in the United States ±is more expensive. However, on the measure we were able to quantify, the U.S.model is more expensive.

18. Again, this is not to say that PCO Canada officials are representative of allCanadian employers or even to say that they are wise in their attitude that theyneed only be concerned with one cause of action. Here I report what PCOCanada officials think and what they do even if it is not the most legally soundmethod of operating in a legal environment in which employers are vulnerable toso many different causes of action.

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BUMILLER, KRISTEN (1988) The Civil Rights Society: The Social Construction ofVictims. Baltimore: Johns Hopkins Univ. Press.

CHURCH, THOMAS, ROBERT NAKAMURA, and CHRISTOPHER MCMAHON (1993)`̀ Cooperative and Adversary Regimes in Environmental Policy.'' Report preparedfor the 1993 conference of the Association of Public Policy Analysis andManagement. Albany: State University of New York.

HENDLER, CLIFF (1995) `̀ Communications and Relationships: Alternative DisputeResolution,'' CMA 69(3):7.

DERTOUZOS, JAMES, ELAINE HOLLAND, and PATRICIA EBENER (1988) The Legal andEconomic Consequences of Wrongful Termination. Santa Monica, Calif.: RAND.

DONOHUE, JOHN J., III, and PETER SIEGLMAN (1991) `̀ The Changing Nature ofEmployment Discrimination Litigation,'' Stanford Law Review 43: 983±1033.

EDELMAN, LAUREN B., STEVEN E. ABRAHAM, and HOWARD S. ERLANGER (1992)`̀ Professional Construction of Law: The Inflated Threat of Wrongful Discharge,''Law & Society Review 26:47±83.

EISLER, PETER (1995) `̀ Waiting for Justice: Complaints Now Sit for More Than aYear,'' USA Today 15 August:A1.

FINANCIAL POST DAILY (1995a) `̀ Lawsuits Pay But Not Much After Costs,'' 5December:13.

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GALANTER, MARC (1983) `̀ Reading the Landscape of Disputes: What We Know andDon't Know (and Think We Know) About Our Allegedly Contentious andLitigious Society,'' UCLA Law Review 31:4±71.

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ÐÐ (1991) `̀ Adversarial Legalism and American Government,'' Journal of PolicyAnalysis and Management 10:369±406.

KAGAN, ROBERT A., and LEE AXLERAD (1997) `̀ Adversarial Legalism: An Inter-national Perspective.'' In Comparative Disadvantages? Social Regulations and theGlobal Economy, edited by P. S. Nivola. Washington, D.C.: Brookings Institution.

MCSHANE, STEVEN L. (1983) `̀ Reasonable Notice Criteria in Common Law WrongfulDismissal Cases,'' Relations Industrielles 38:618±33.

MCSHANE, STEVEN L., and DAVID C. MCPHILLIPS (1987) `̀ Predicting Reasonable Noticein Canadian Wrongful Dismissal Cases,'' Industrial & Labor Relations Review41:108±17.

MOLE, ELLEN E. (1990) The Wrongful Dismissal Handbook. Toronto: Butterworths.NOAH, TIMOTHY (1993) `̀ Clinton, Facing Conflicting Advice on Superfund, MayAttempt to Ease the Burden of Business,'' Wall Street Journal 2 December:A16.

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ÐÐ. Committee on Economic and Educational Opportunities (1995) Hearings onDepartmental Reorganization, vol. 1. 104th Cong., 1st Sess., 449±70.

CASES CITED

CanadaCrupi v Royal Ottawa, 12 CPC 2d 207 (Ont Dist Ct 1986).

United States of AmericaAdair v United States, 208 US 161 (1908).Monge v Beebe Rubber Co., 114 NH 130, 316 A2d 549 (1974).Petermann v International Brotherhood of Teamsters, 174 Cal App 2d 184, 344 P2d25 (1959).

Toussaint v Blue Cross & Blue Shield, 408 Mich 579, 292 NW2d 880 (Mich 1980).

STATUTES CITED

CanadaCanada Labour Code, RSC, c L-2 (1985), as amended RSC 1985 (1st Supp.) c 9.Canadian Human Rights Act, RSC, c H-6 (1985).Courts of Justice Act, Ont Stat, c 11, § 121 (1984).Employment Standards Act, RSO, c E-14 (1990).Human Rights Code, RSO, c H-19 (1990).Solicitors Act, RSO, c 478 (1980).

United States of AmericaAge Discrimination in Employment Act (ADEA), 29 USC §§ 621-34 (1988).Americans With Disabilities Act (ADA), Pub L No 101-336, 104 Stat 328 (1990)(codified at 42 USC §§ 12101-13 (1994)).

Civil Rights Act of 1964 (Title VII), 42 USC §§2000e et seq.Employee Retirement Income Security Act of 1974 (ERISA), 29 USC §§1001-1461.Pregnancy Discrimination Act of 1978, 42 USC 2000e(k)(1988).



paying workers or paying lawyers: employee termination practices in the united states and canada

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