Termination for Cause – High Threshold

We are often contacted by employees that have been terminated from their employment for cause.  Employers give any number of reasons to form the basis for a just cause dismissal; however, a Court will only uphold a decision to terminate an employer for just cause in the most extreme situations.

In many cases, where an employees performance is below average, if they have been subjected to limited discipline in the past, or if an employer policy indicates that they will be terminated for cause if you engage in “X, Y, or Z” behavior, the employer attempts to rely on these factors to justify a dismissal for cause.  Courts will assess the facts of each particular case and are not overly concerned with the specific employer policy.  Court precedent and its application to the particular case at bar determine whether there is just cause for termination; not the employer’s arbitrary policy.

It is critical that you consult an employment lawyer following a termination for cause to ensure your right are protected. At Goldstein Law, we offer a free consultation to assess your severance package and termination letter to determine whether the employer has provided for your full legal rights on the termination of employment.  Please contact us today for an employment law consultation.

Employment Considerations in the Sale of a Business

The liabilities of vendor and purchaser for employee entitlements upon termination can become a major issue in negotiating the sale of a business.

Section 64 governs statutory severance pay, which is payable only to an employee severed without cause, as defined, who has five or more years’ service and is either employed by an employer which has a payroll of $2.5 million or more or where there is a permanent discontinuance of all or part of the employer’s business at an establishment which results in 50 or more employees having their employment terminated within a six month period. Statutory severance pay is equal to one-week per completed and partial year of service, up to a maximum of 26 weeks.

Share Purchase Agreement

There is no termination of employment upon the sale of shares of a company.

Asset Purchase Agreement

Where a purchaser expressly recognizes past service in its new employment contract with the employee, no issue arises. An employer may make the choice to recognize past service in consideration for the valuable skills and experience it is receiving with a long-service employee. In the case of such an explicit recognition by the purchaser, the vendor would normally have no further liability at common law.

A purchaser can avoid liability for the employees’ prior service by requiring the vendor to provide common law reasonable notice of termination or pay in lieu thereof before the purchaser hires the employees.  Therefore, a purchaser wishing to try to insulate itself from employee termination liabilities should include a provision in the purchase and sale agreement requiring the vendor to provide reasonable notice of termination at common law, as well as require the vendor to indemnify it for any future termination payments for those employees, or at least for that portion of future termination payments attributable to the employees’ pre-sale service. Of course, if the purchaser declines to offer employment to the employees of the vendor, the vendor remains liable to the employees for common law reasonable notice.

Negotiating Business Purchase and Sale

As legal counsel for a purchaser, it is important to ensure that the vendor is contractually obliged to disclose as much information as possible about the employment aspects of the business and the age, tenure, compensation terms and character of employment of the employees. Potential common law and statutory employment liabilities must be considered in full and financially accounted for, through payment and/or indemnities, in any purchase and sale negotiation by both parties.

Just Cause Terminations – An Update

The vast majority of terminations are on a without cause basis, in some circumstances employers are permitted to terminated employees for just cause without the requirement to provide advanced notice of termination or payment in lieu thereof.  The burden of proof rests with the employer to demonstrate the basis for the just cause termination.

The seminal case on just cause terminations is McKinley v. BC Tel, 2001 SCC where the court indicated, among other things, that “just cause for dismissal exists where dishonesty violates the essential condition of the employment contract, breaches the faith inherent to the work relationship, or is fundamentally or directly inconsistent with the employee’s obligations to his or her employer.”

The case of Dowling v. Ontario provides guidance on the examination that should be undertaken to ascertain whether such misconduct has occurred to demonstrate just cause:

  1. determine the nature and extent of the misconduct
  2. consider the surrounding circumstances
  3. decide whether the dismissal was warranted

Where Just Cause Has Been Found: 

Dunsmuir v. Royal Group, Inc., 2018 ONCA 773
Just cause termination of a senior executive upheld by the Court for breach of fiduciary duty.  In this case, a senior officer and shareholder of the company bought property from a third party and then sold it back to the company for a personal profit of $6.5 million.  The individual never disclosed this information to anyone in the company with authority. The executive engaged in other activities of this nature that was found as a breach of his duty of loyalty, fidelity and candour, requiring him to disclose to the corporation conflicts of interest and the misappropriation of corporate opportunities and assets.

McNabb v. Clouatre et al., 2018 ONSC 1058
The Plaintiff was an employee of a construction company and was involved with behavioral issues over a prolonged period of time, including insubordination, absenteeism, consuming alcohol on the job and using equipment under the influence of alcohol. He was verbally abusive to employees and constantly engaged in behavior detrimental to the company. The extensive list of misbehaviors was deemed to sufficient to constitute just cause.

If you are an employee in Ontario that has been terminated for just cause, it is imperative that you seek out counsel to determine whether the alleged misconduct sufficiently satisfies the test for just cause termination. If not, you could be entitled to a substantial severance package.

Reasonable Notice Periods on Termination

Age and tenure of services are typically positively correlated, and they are two of the key factors considered by a Court in determining a terminated employee’s reasonable notice entitlement.  It has been recognized in case law that the availability of similar employment opportunities diminishes as the prospective employee ages.  As a result, recent decisions have that the Courts are more willing to extend the reasonable notice period beyond the previous maximum of 24 months.

O’Reilly v. Imax Corporation – after 22 years of employment, the Plaintiff was dismissed without just cause at the age of 54.  The employee was a commissioned salesperson and lost a substantial book of business as a result of the termination. In this case, the Plaintiff did not establish that there were exceptional circumstances to justify a reasonable notice period beyond 24 months.

Beattie v. Women’s College Hospital – two Plaintiff doctors commenced an action against the Hospital for wrongful dismissal. The co-Plaintiffs were 64 and 65 years of age and had been employed for 21 and 30 years by the hospital, respectively. The Plaintiffs were awarded greater than 24 months of notice irrespective of the fact that alternate employment was available to them.

Dawe v. Equitable Life Insurance Company  – Employee was part of the senior management team, he was 62 years of age at the date of dismissal and had worked for the employer for 37 years. The Plaintiff was found entitled to 30 months of notice given that there was no comparable employment available and the termination was tantamount to forced retirement.

Recent case law is clear that courts in Ontario are willing to extend the reasonable notice period beyond 24 months. The demographic shift is changing the age composition of the workforce and expectations regarding retirement. As such, notices awards in excess of 24 months are likely to become more common.

 

 

 

Who Is Entitled to Severance Pay Under the Employment Standards Act

Under the Employment Standards Act (“ESA”) in Ontario, terminated employees are entitled to both Termination Pay (s.57) and Severance Pay (s.65) under certain circumstances.  While severance pay has a different meaning under the common law, and all employees are entitled to reasonable notice of termination or payment in lieu thereof in accordance with the common law, except those that have signed an employment contract with an enforceable termination clause, the meaning of severance pay has a specific definition under the ESA.

Entitlement to severance pay

64 (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.

Based on the above-noted definition, in order to be entitled to severance pay, in addition to termination pay, under the ESA, an employee must be employed for over 5.0 years with the same employer with a payroll over $2.5MM.  In the event of termination from employment, an employer is required to pay the minimum obligations under the ESA, which can include both termination pay, benefits continuation for the statutory notice period, and severance pay entitlements if the employees are eligible based on the definition referenced above.

It is imperative that, as an employer, you comply with your minimum obligations under the ESA or else you can be sanctioned by the Ministry of Labour and by a Court should your former employee wish to commence Court Action. If you are an employee, have your severance package reviewed by an employment lawyer to ensure that your rights are fully accounted for.

Notice Periods for Long Service Employees

In order to terminate an employee for cause, an employer must demonstrate that the employee engaged in serious misconduct (i.e., theft, physical harassment or sexual harassment) or that the company placed the employee on a progressive disciplinary plan that sets various performance targets that were not met. In a progressive disciplinary plan, the employee is provided with the opportunity to perform in a satisfactory manner that enables him or her to maintain employed. However, if the plan objectives are not met and the employee continues to engage in poor performance, this may constitute grounds for a just cause termination.

In a recent case called Saikaly v. Akman Construction Ltd.an Office Manager was found to have been wrongfully terminated for cause.  It was found that the employee did not commit any wrongdoing that would rise to the level required for a just cause termination; as such, the employee was entitled to notice of termination or payment in lieu thereof.  In awarding severance pay, the employee received over $150,000.00 plus almost $10,000.00 towards legal costs, representing 24 months of pay.

The employee denied that he ever engaged in any wrongdoing or that he was notified by the employer of the reason for the termination of employment.  The Plaintiff commenced a Court Action for wrongful dismissal and the Defendant did not respond. Later, the Defendant was noted in default, the consequences of which is that the defaulting party is deemed to admit all allegations in the Claim.

As a 60-year old employee with managerial duties, the Court found that it would be especially challenging for this individual to obtain new employment. If you are provided with a severance package or terminated from your employment for cause, it is important to obtain legal advice to ensure that you take the proper steps to obtain the compensation you deserve.

At Goldstein Law Firm, we have expertise in obtaining severance packages for wrongfully dismissed employees.

Severance Pay on the Purchase and Sale of a Business

Severance pay obligations to employees can be a substantial yet often overlooked obligation in the context of a purchase and sale of a business. Whether an asset sale or share sale, the vendor and purchaser must address severance pay issues before consummating a transaction. In this post, we will discuss some of the common structures that are employed in business transactions.

The manner of sale has an impact on where the obligations for severance pay reside. As such, we will start by assessing share sales vs. asset sales.

Share Transaction

When the shares of a company are sold, employees of the vendor are not terminated from their employment. The identity of the corporation does not change with the sale of shares; as such, the rights and obligations of the employer do not change unless the share purchase agreement specifically addresses these issues.

If the purchaser does not wish to take on the employees of the vendor, it must ensure in the share purchase agreement that the vendor is obligated to terminate the employment of those employees prior to sale and pay any required severance obligations. This will release the purchaser from any obligation to pay severance to employees of the company that they do not wish to keep on.

Asset Transaction

In the context of some or all of the assets of a corporation, other issues may arise. The contract of employment cannot be assigned from one employer to another. As such, upon the sale of a business, where the employment of the employee is not continued with the vendor, the contract of employment must be terminated and an employee can enter into a new contract with the purchaser. In this case, the employee relinquishes recognition of tenure or seniority with the previous employer.

If the employee declines an offer from the purchaser, they are deemed to have failed to mitigate their damages, negating a wrongful dismissal claim.

Recognizing Past Service

Where a purchaser in an asset transaction expressly recognizes the past service of the employee in its new employment contract, no issue arises. If the purchaser recognizes such service, the vendor would have no further liability.

Courts now generally presume that an employee will be credited for past service with the former employer for the purposes of calculating reasonable notice of termination unless an employment contract specifically indicates to the contrary.

How Do Purchasers Avoid Liability?

A purchaser can avoid liability for employees’ prior service and severance obligations by requiring the vendor to provide notice of termination before the purchaser hires the employees. In an agreement of purchase and sale, the purchaser should include an indemnification clause for any future termination payment for the employees, or the portion attributable to their pre-sale service.

In addition, the purchaser can advise the employee in a contract of employment that their years of service with the vendor will not be recognized.

A number of complex issues arise in the context of a purchase and sale of business specifically with respect to severance pay obligations to employees. If these matters are not sufficiently addressed, a business purchaser can be found liable for substantial obligations that were not accounted for at the time of purchase, thereby making the transaction uneconomical. Accordingly, it is important that severance pay issues are addressed prior to entering into a business purchase and sale.

Executive Severance Pay

As we have commented on various posts, employees that are terminated without cause from their employment are entitled to a severance package in accordance with the Employment Standards Act (ESA) in Ontario and the common law. Those employees that are terminated for cause from their employment may also be entitled to severance pay so long as the ‘misconduct’ that was used to justify the dismissal does not rise to the level of ‘just cause’ as determined by Court precedent.

The calculation of severance pay is dependent on each specific circumstance.  For certain, an employee in Ontario is entitled to the minimum amounts of notice of termination, or payment in lieu of notice of termination, in accordance with the ESA (provincial employment standards legislation) as described in more detail here and here.  To reiterate, the ESA sets out the minimum rights of an employee upon termination.  There is a presumption that an employee is also entitled to reasonable notice of termination or payment in lieu thereof, in accordance with the principals enunciated by the common law in Ontario.

The common law refers to judge-made law and is comprised of the body of precedent cases that have been heard and ruled on in this province. Judges are required to follow-up and/or be persuaded by similar precedent cases when rendering judgments. Accordingly, over-time, various principals have been established via Court precedent to determine the quantum of severance pay an employee is entitled to upon termination of employment.

The well-documents factors include, but are not limited to the following:

  1. The Terms of An Employment Contract or Offer of Employment

Many cases (precedents) have touched on termination clauses in employment agreements.  In order to reduce the severance pay owing to an employee upon termination in Ontario, an employer can draft a clear and unambiguous termination provision, which limits an employees’ rights to severance pay upon termination to the statutory minimum (thereby rebutting the presumption of entitlement to common law or reasonable notice).

If you have been terminated from your employment, it is of paramount importance that your employment contract is reviewed to determine whether the precise wording of the termination provision in your employment contract would be enforceable by a Court or not.  Specific language around statutory notice, benefits continuation, and otherwise, must be included in these clauses in order for them to be enforceable, otherwise, a Court will award the employee reasonable notice, which is often greatly enhanced over and above the statutory minimum.

2.  Age

Typically, the more advanced the age of an employee, the more difficult it will be to re-train for another career or find another job in a timely manner.  Accordingly, employees of advanced age are typically awarded more severance pay that younger employees that have brighter job prospects.

3. Seniority in the Company

Executives are typically entitled to enhanced severance pay periods as compared to minimum wage or lower income workers as fewer comparable jobs are available to executive. As such, the severance package should be designed to bridge the employee in between employment.  For an executive, the severance negotiation can come down to salary, benefits, equity compensation, pension payouts, and other forms of compensation.

Often, employers will seek to have an executive sign off on a severance offer without it being reviewed by an employment lawyer. It is important to ensure that your rights and entitlements are protected; as such, contact an employment lawyer in Ontario today for a free severance package review.