An employer or an employee may terminate the employment relationship. If an employee resigns or abandons their position, then they have voluntarily severed the employment relationship and do not have further obligations. However, if an employer wishes to end the employment relationship it is not as simple.
Employment Standard Act (provincial) and Canada Labour Code (federal):
If an employer seeks to dismiss an employee, then they must ensure that the termination is done in good faith and in compliance with all applicable legislation. The first thing an employer must look to is whether their organization is provincially or federally regulated because this will determine which legislation is applicable in governing the employment relationship. If the employer is provincially regulated, then the Employment Standards Act (ESA) will apply in Ontario. If the employer is federally regulated, then the Canada Labour Code (CLC) will apply in all provinces in Canada. The ESA and the CLC have different “rules” governing the employment relationship as well as differing remedies for wrongful dismissals. The ESA and the CLC set out the minimum entitlements that an employee is owed upon termination, as well as what is required to terminate an employee. For more information on the ESA and the CLC, please check out our blog: ESA or CLC- What's the Big Difference?
Termination Under the Employment Standards Act:
If an employee is provincially regulated and therefore under the ESA, the employer can terminate the employment relationship at anytime with or without cause.
Just Cause:
A just cause termination means that an employer has terminated an employee on the basis of very serious misconduct, or a series of inappropriate behaviour that is not corrected by the employee. The reason for termination must be so egregious that it goes to the heart of the employment relationship and creates irreparable harm. Just cause is reserved for the worst workplace misconduct and is it very difficult to prove.
Many employers are not clear on what just cause actually is, which often leads to employers dismissing employees whenever misconduct arises because they think that it merits termination. But it is not a question of whether there was misconduct on the behalf of the employee, but rather, whether the misconduct is so serious that it constitutes just cause. The threshold to prove just cause is very high.
To prove just cause the behaviour must be so serious that:
- It goes to the root of the employment contract
- The trust between the employer and the employee is forever lost
- The employment relationship is too broken to allow another chance for the employee
Just cause is very difficult to prove and should only be alleged in very serious circumstances. If just cause is proved, the employer does not owe the employee termination pay.
Without Cause:
If an employer does not have just cause to terminate an employee, they may terminate without just cause if they provide the employee with their minimum entitlements under the ESA in terms of notice or pay in lieu of notice. The reason notice can be provided after a termination is to provide the employee with a reasonable time to seek alternative employment. Most employers do not avail themselves to the working notice as from the time of the notice the employee loses interest in the job and is often not very productive. If working notice is not given, then the employee must be provided with the pay they would have received if they had been given reasonable notice.
It is crucial that the employee's employment contract is also considered. If the termination entitlements in the contract are limited to the ESA, then the employer may follow the ESA and provide what is legislated based on the employee's length of service, assuming the termination clause is enforceable. If the employment contract's termination clause is not valid, or there is no written agreement, then this opens the employer up to what is called the common law notice. The common law is judge made law that provides guidance in situations like terminations (that do not have a valid agreement or termination clause) as to how much an employee will be given with regards to notice length or payment in lieu of notice. When an employer is faced with common law notice rather than the ESA minimums that have been agreed upon when the employment contract was entered into, it can be very costly for the employer.
The minimum standard termination pay under the ESA is around one (1) week of notice or pay in lieu of notice per year of service up to a maximum of eight (8) weeks. If the employee has worked more than 5 years and the employer's payroll is more than 2.5 million annually, the employee will also be eligible to receive severance pay which is equivalent to one week of pay per year of service up to a maximum of 26 weeks. This is a fairly simple calculation. In contrast, the common law looks to the “Bardal” factors of the employee to establish what is considered a reasonable notice period. Bardal factors include but are not limited to the following: the length of service, availability of other employment, the employee's age, and the character of the employment. Reasonable notice under the common law is less of a calculation and more of an art. For management positions where a comparable position may be more difficult to find, we typically see about one month (and sometime more depending on the circumstances) of notice per year of service. However, this is not a set rule of thumb and must be taken lightly. The courts have generally capped reasonable notice under the common law at up to 36 months, but exceptions may occur. This shows the considerable difference in payment to an employee who has signed a valid employment agreement that limits termination pay to the ESA versus an employee who is eligible for common law notice.
Example:
Let's use an example to better illustrate this point. Jayden works in upper management at a provincially regulated organization that manufactures, sells and builds pre-fabricated homes. She has been employed with the organization for 19 years and is now 59 years old. Jayden holds a lot of responsibility in her position and is crucial to the operation of the business. She makes $1,200.00 a week. There are no other pre-fab companies in the area.
The organization has been bought out by another company who retained Jayden. After about a year, the company decided to let Jayden go so that the role could be filled by another individual at a lesser salary. The organization terminated Jayden's employment on a without cause basis. If Jayden had signed an employment contract that included a valid termination clause limiting her entitlements to that under the Employment Standard's Act, Jayden would only be entitled to 8 weeks of notice or pay in lieu of notice which comes to $9,600 assuming the employer's payroll is less than 2.5 million per year. For the purposes of this example, Jayden does not wish to negotiate an additional severance package.
In the alternative, if Jayden did not have an employment contract with a valid termination clause, she would be entitled to common law notice or pay in lieu thereof. Cases with similar Bardal factors to that of Jayden have been awarded, on average, 22 months of notice in Ontario. With this in mind, a negotiation would likely be entered into to reach a settlement. However, if Jayden did bring her claim to court and were to be awarded 22 months of notice in a court of law, the employer would be ordered to pay $105,600.00. This is a considerable increase compared to the $9,600 she was entitled to under the ESA.
For employers, this shows how important it is to ensure employment contracts are drafted by an employment lawyer to mitigate risks associated with the common law. Our firm can help. Reach out to us today for advice on how to properly terminate employees and establish enforceable termination clauses in employment contracts.
For employees, if you have been terminated, it is wise to have your termination package reviewed before signing to ensure that you are receiving at least your minimum entitlements, and to assess whether common law damages may be available to you. Our lawyers would be glad to assist you in reviewing and negotiating a termination or severance package.
Termination Under the Canada Labour Code:
Termination under the Canada Labour Code is quite different than the Employment Standards Act because if an employee has worked for an organization for more than 12 continuous months, then the employer cannot terminate their employment without proving just cause. As we have learned above, provincially regulated employers can terminate an employment relationship without alleging just cause if they provide proper compensation under the Employment Standards Act, however, this does not apply to federally regulated employers.
Under the CLC, if an employee in a federally regulated organization has worked between 0-3 months, then no just cause or notice is required to terminate that employee's employment. If an employee has been employed with a federally regulated organization between 3-12 months, then no just cause is required for a termination, but the employer must provide the employee with 2 weeks notice or two weeks pay in lieu thereof.
For federally regulated employers, after 12 months of continuous employment, proof of just cause is needed to terminate an employee. Save for a very serious inappropriate behaviour such as being able to prove a theft, progressive discipline is the only way to prove just cause because it shows that the employer has made an effort correct the employee's inappropriate behaviour and has provided an opportunity for the employee to retain their employment. Progressive discipline is the process of applying discipline of increasing severity as it relates to an employee's inappropriate behaviour that is proportional to the misconduct at hand. Applying this process properly is critical for employers. Employers who fail to follow their own policies and process of applying progressive discipline or do not properly document the application of progressive discipline can face very costly consequences.
A termination may be considered an unjust dismissal and if the employee files a complaint under the Canada Labour Code, they will be entitled to damages to make them whole as if the termination did not occur. In addition, the Adjudicator may, upon request, force the employer to re-hire the employee in the same or similar position. To learn about wrongful dismissals in the context of both provincially regulated and federally regulated employers, check out or blog here: “Wrongful” or “Unjust” Dismissal?
For more information on progressive discipline, you may wish to register for our training through the SD Law e-Learning & Training Centre or check out our blog: Progressive Discipline
At SD Law, we are here to help both employees and employers navigate this complicated area of employment law. Reach out to one of our lawyers at 705-268-6492.