BY SIMRAN BAKSHI, ASSOCIATE LAWYER
At first glance, Ontario’s employment law framework is deceivingly simple.
If an employer seeks to terminate an employee without having any just cause to do so, it must simply provide that employee with reasonable notice of its intentions to terminate the employment, or alternatively pay the employee in lieu of providing this notice.
Simple enough, right? Well, as your lawyer will be the first to tell you, its not quite that straightforward…
Determining reasonable notice?
As you may have guessed, one of the underlying question in any wrongful dismissal claim is just how much notice is reasonable in the circumstances.
As a general principle, an employee’s entitlement to reasonable notice is based upon, among other things, an assessment of how long it will likely take to find comparable alternate employment. After all, the purpose of providing reasonable notice of a termination is to compensate the employee until he or she is reasonably able to end the financial losses arising from the dismissal, by transitioning into new employment.
In practice, Ontario has a two-tier framework when it comes to determining notice and severance entitlements. An employee's entitlements are determined by both the statutory minimum amounts and the common law requirement of reasonable notice, which can extend far beyond the statutory entitlements.
The Ontario
Employment Standards Act sets the floor for the minimum notice (or pay in lieu of notice) of termination that an employer must provide an employee with (also known as statutory notice).
(In the case of federally regulated businesses, the
Canada Labour Code governs and sets the statutory minimums )
Here's the catch: Where there is no employment agreement that clearly and precisely limits the employer's obligations upon termination to the statutory minimums, the employee will in all likelihood have further entitlements, under common law.
A determination of an employee's common law entitlements requires a far more in-depth and contextual analysis of the nature of the employment relationship, the position occupied and duration of service, the employee circumstances and qualifications, and the employee's prospects of finding comparable new employment.
As an example, a senior executive for a specialized technology firm who is nearing sixty, is likely to need considerably more time to find a comparable position of employment, than a youthful, entry-level salesperson.
While each case will turn on its own facts, the benchmark for common law entitlements is often regarded as being three to four weeks of notice per year of service with an employer. This is by no means a hard and fast rule, and will vary (higher or lower) depending on circumstances.
To add another layer of complexity, employment standards legislation, define entitlements upon termination in two separate categories: (i) Notice of Termination or Termination Pay and (ii) Severance Pay.
We have thus far been discussing notice of termination (or termination pay in lieu of notice).
The ESA further provides that long-term employees, who have worked for an employer for five (5) years or more, should receive additional compensation upon termination in recognition for their years of service, also known as severance pay:
Entitlement to severance pay64. (1) An employer who severs an employment relationship with an employee shall pay severance pay to the employee if the employee was employed by the employer for five years or more and,(a) the severance occurred because of a permanent discontinuance of all or part of the employer’s business at an establishment and the employee is one of 50 or more employees who have their employment relationship severed within a six-month period as a result; or(b) the employer has a payroll of $2.5 million or more. 2000, c. 41, s. 64 (1).
The Various Meanings of Severance:
It is quite common to hear people refer to "severance packages" when discussing how much notice (or pay in lieu) they have been offered by an employer. This term of course refers to the compensation package offered by an employer for having severed the employment relationship.
It is important to bear in mind however that "severance package" and "severance pay" are two separate concepts, with the latter often being a small part of the former.
Statutory notice entitlements vs. Common law entitlements - Which one applies?
One of the most contentious issues in a wrongful dismissal action will often be whether an employee is limited to receive the minimum statutory requirements of notice, benefits and severance pay, or enjoys common law notice entitlements.
The answer to this question, like many other legal questions is of course, it depends...
Employment law is subject to the principles of bargaining and the rules of contract.
Accordingly, where the parties to the employment contract, agree in writing prior to the commencement of the employment relationship, that the employer will only be obliged to provide the employee with the minimum statutory entitlements upon termination, this understanding may prevail going forward.
Typically, an employee can expect to find a such termination clause in a well drafted employment contract, that will attempt to define the employer's obligations upon termination of the employment relationship.
Forum Shopping and The Perils of Picking the Incorrect Forum:
With a two-tiered framework in place, there are also two separate forums in which a claim for employment entitlements may be made.
The Employment Standards Office established by the Ministry of Labour can assist with claims relating to the enforcement of the ESA. Remember, an employee can only seek minimum entitlements that are provided for by the ESA in an employment standards claim.
Where an employee is seeking common law entitlements that go beyond the minimums set out in the ESA, he or she should strongly consider proceeding with a civil action before the Courts.
It is important to weigh the various options carefully when it comes to choosing a forum for an employment law claim. Once an Employment Standards complaint has been filed, the employee may effectively be barred from commencing further claims in a Court relating to the termination.
As Section 97(2) of the ESA expressly states:
(2) An
employee who files a complaint under this Act alleging an entitlement to
termination pay or severance pay may not commence a civil proceeding for
wrongful dismissal if the complaint and the proceeding would relate to the same
termination or severance of employment.
ESA claims may be withdrawn if the employee intends to pursue a court action, but this may only be done within two (2) weeks of the date the complaint was filed with the Ministry.
Though our discussion thus far has focused only upon notice entitlements upon termination, it bears noting that wrongful dismissal actions can often involve intricate issues of discrimination that should be factored in when assessing which forum to proceed in. If you are interested in learning more about the Court's rather new jurisdiction to award human rights damages, take a look at our earlier blog post which discusses this in detail.
Top Three Tips for Employees:
1. It is best practice to have a lawyer review your employment contract with you before you sign it so you have a good understanding of the terms you are agreeing to, and its potential implications in the future. This is also your window of opportunity to try to negotiate the terms of your employment if you are in a position to do so;
2. In the unfortunate event that your employment is terminated, don't sign any documents provided by the employer. Contact a lawyer as soon as possible to discuss what your potential entitlements may be, before you proceed to accept any severance package or sign a release of any kind.
3. While you may have a number of different legal options available to you upon your dismissal, make sure you consult with a lawyer before making a final decision as to which forum you will proceed in. Remember, your claim for entitlements may be significantly curtailed if you proceed in the wrong forum.
Top Three Tips for Employers:
1. It is always a good idea to have template employment documentation prepared and reviewed by a lawyer to ensure that it is compliant with the applicable employment standards legislation.
2. Make sure that you consult with a lawyer before taking any serious disciplinary action against an employee, including of course a dismissal from employment.
3. Your lawyer can also be an excellent resource when it comes to planning ahead for your business needs. Speak with your counsel early on to prepare for and troubleshoot any potential legal issues that may arise from changes that you intend to implement for your business.
- Simran Bakshi, Toronto
BY PAUL ADAM, ASSOCIATE LAWYER
BY RACHEL SPENCE, LAW CLERK
