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If I Am Subject to Temporary Lay-Off Due To Coronavirus, Am I Entitled to Severance Pay?

The coronavirus (COVID-19) has resulted in business closures and downsizing, in some cases temporary and others on a permanent basis. The Employment Standards Act in Ontario expressly enumerates in s.56(2) the requirements for a temporary lay-off to occur. Specifically, the criteria include the following:

A temporary layoff is,

(a) a lay-off of not more than 13 weeks in any period of 20 consecutive weeks;

(b) a lay-off of more than 13 weeks in any period of 20 consecutive weeks, if the lay-off is less than 35 weeks in any period of 52 consecutive weeks and,

(i) the employee continues to receive substantial payments from the employer,

(ii) the employer continues to make payments for the benefit of the employee under a legitimate retirement or pension plan or a legitimate group or employee insurance plan,

(iii) the employee receives supplementary unemployment benefits,

(iv) the employee is employed elsewhere during the lay-off and would be entitled to receive supplementary unemployment benefits if that were not so,

(v) the employer recalls the employee within the time approved by the Director, or

(vi) in the case of an employee who is not represented by a trade union, the employer recalls the employee within the time set out in an agreement between the employer and the employee; or

(c) in the case of an employee represented by a trade union, a lay-off longer than a lay-off described in clause (b) where the employer recalls the employee within the time set out in an agreement between the employer and the trade union.  2000, c. 41, s. 56 (2); 2001, c. 9, Sched. I, s. 1 (12).

Generally, the common law in Ontario has held that a temporary lay-off is not permitted in Ontario unless it is expressly authorized in a employee’s employment contract and the employer follows the specific requirements outlined above. At this time, the Courts have not rendered a decision on whether a temporary lay-off constitutes a constructive dismissal (i.e., termination of employment) absent an express term of an employment contract permitting such a lay-off, which has been the law to-date.

Rather, it is probable that a Court may find that an economically required lay-off is not deemed to be a termination of employment because of the unique financial circumstances and constraints that have been posed by the virus. Nevertheless, each case is fact-dependent, and it is best to consult with an employment lawyer to discuss the potential outcomes should you pursue a claim for constructive dismissal.

Fixed Term Contracts – Termination Clauses

Employers may wish to enter into fixed-term employment contracts for various reasons, most commonly where the employee is hired to complete a specific project or task for the employer with a defined deadline or where the employee has been hired during another employees leave of absence (i.e., maternity leave, sick leave, disability-related absence, etc.). When the full-time employee returns from leave, the services of employee that is working on a fixed-term contract will no longer be required.

Substantial litigation in Ontario has surrounded the early termination of fixed-term employment contracts. In other words, how much is the fixed-term employee owed if the employer opts to terminate their employment prior to the end of the expiry of the fixed term? In some cases, a clear and unambiguous termination clause will obligate the employer to only pay the amounts indicated in the clause (i.e., typically, 2 weeks of advanced notice of early termination or payment in lieu thereof); however, where these restrictive early termination clauses are ambiguous, they will be interpreted and construed in favour of the employee, in accordance with the principle of contract law referred to as contra preferentem.

As noted in Howard v. Benson 2015 ONSC 2638, in the absence of an enforceable (i.e., unambiguous) contractual provision, a fixed term employment contract obligates an employer to pay an employee to the end of the term and the obligation will not be subject to mitigation.  Where the language of a termination clause is unclear or can be interpreted in more than one way, the court should adopt the interpretation most favourable to the employee (Wood v. Fred Deeley Imports Ltd. 2017 ONCA 158).

Ambiguity can relate to any number of factors. In one case, our clients fixed term employment contract stipulated a minimum notice requirement but not a maximum. In other words, there was no language that clearly indicated that the 2 weeks notice represented all obligations of the employer to the employee on termination.In addition, it is a complete contradiction in terms to suggest that a contract is for one-year and then say it may be for just two weeks, at the whim of the employer. 

It is arguable that all fixed term contracts that purport to allow early termination for unspecified reasons ought, in principle, to be considered ambiguous, and interpreted contra proferentem.   However, there does not yet appear to be any jurisprudence which goes quite so far.  The point wasn’t raised in Benson, which looked instead for technical ambiguities in the wording of the termination clause itself.  It seems to me to be a contradiction in terms to state that you have a contract for a year, and then say that it might be a contract for just two weeks, at the whim of the employer.  

In any event, if you are an employee that has been terminated prior to the end of a fixed term contract, it is in your interest to have the severance package reviewed by an employment lawyer to determine whether the employer has provided you with your full entitlements based on the wording of your employment contract.

Updating and Amending Employment Contracts

After you have worked for a company for a period of time, your employer may request to update or amend your employment contract for any number of reasons. These reasons typically include an update to reflect a promotion or change in job position, a demotion, a restructuring of the organization, change in the amount of compensation earned (i.e., from salary to commission or vice versa), a change in the location of where job duties are to be carried out (i.e., at home or remote, or a new company office) and any other changes.

In order for an updated or amended employment contract to be considered enforceable by the Courts in Ontario, it must be accompanied by fresh consideration. In other words, and as noted in the BC Court in the case of Krieser v. Active Chemicals Ltd, 2005 BCSC 1370, an updated employment contract will only be enforced if there is a further benefit to both parties.

One of the common and relevant terms that employers attempt to include in updated employment contracts are restrictive termination clauses. We have written about the impact that a restrictive termination clause can have on your severance entitlements in the event of a without cause termination from employment here. A restrictive termination clause, if properly drafted, and compliant with the Employment Standards Act (“ESA”) in Ontario, will limit a terminated employees severance entitlements to the minimum amounts prescribed by the employment standards legislation in the province.

The minimum termination entitlements of an employee terminated without cause in Ontario is equivalent to one-week of termination pay per year worked up to a maximum of 8 weeks pay; and one-week of severance pay per year worked up to a maximum of 26 weeks, in the event a certain eligibility test for severance is satisfied, as further described here. These represent an employees minimum entitlements, which are applicable in the event a restrictive termination clause is included in an employment contract.

Absent such a termination clause, terminated employees are entitled to “reasonable notice” of termination, further described here. Severance packages calculated on the basis of reasonable notice are substantially higher than those that are merely based on the ESA minimums. These packages can amount to awards of 1 month of more per year of service, rather than the one week per year enumerated in the ESA. Accordingly, it can amount to a huge financial gain for the employee to receive reasonable notice on termination rather than the statutory minimum. Accordingly, an updated employment contract with the inclusion of a restrictive termination clause can be of immense benefit to the employer and detrimental to the employee. As such, Courts will not enforce such updates absent fresh consideration (or benefit) flowing between both parties.

Reasonable notice is calculated based on a host of factors recognized by Ontario Courts over the years, including but not limited to the following:

-Age of the employee (more advanced age employees are entitled to larger severance packages, all else equal);
-Years of service (the longer duration of employment will justify a larger severance award);
-Specialization and availability of comparable employment (as severance packages are designed to bridge the gap during a period of unemployment, employees with highly specialized jobs may find it more challenging to find comparable employment after a termination);
-Income level;
-Other unique circumstances.

Clearly there is a large benefit to receiving reasonable notice on termination. As such, if an employer attempts to update your employment contract, it is best to contact a qualified employment lawyer for a review.

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.

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.

Is Your Non-Competition or Non-Solicitation Clause Enforceable?

At Goldstein Law, we are a Toronto-based law firm that focuses on employment law. In the course of our employment law practice in Ontario, we frequently consult employers and employees on the drafting of employment contracts and the interpretation of various terms contained in employment contracts.  One of the recurring issues that we are retained to address is the enforceability of non-competition and non-solicitation clauses (also referred to as “restrictive covenants”).  After you are terminated from your employment, the last thing you want to do is “sit on the bench” and wait for a non-compete period to expire or risk a lawsuit for breach of the contract.

Conversely, employers often require these terms in their employment contracts to (1) protect confidential information that employees accumulate through their tenure of employment from being distributed freely to competitors; and (2) prevent the terminated employee from seeking out previous clients of the former employer, or colleagues, to leave and join a new venture.

In this post, we will define the terms “non-compete” and “non-solicit” and discuss some of the relevant factors that will determine whether your clause would be enforceable based on the common law in Ontario. Further, we provide employees with some practical advice in the event they are terminated from their employment and their previous employment contract contains a non-compete or non-solicitation clause.

What Is A Non-Competition Clause?

A clause that restricts an employees ability to join a competitor company or form a new business in the same or similar line of business to their employers. An example of a non-competition covenant in an employment contract of an employee that was terminated without cause from a consumer electronics store was drafted as follows:

Should you leave X company for any reason you shall not for a period of 6 months after the termination of your employment, without written permission, directly or indirectly, engage in any undertaking or business as an employee, principal, agent, or consultant with a Competitor. A “Competitor” includes a retail business operation in Canada which has as its principal business the sale of X. 

What is a Non-Solicitation Clause?

A clause in an employment agreement that restricts the employee from approaching former clients or colleauges of the employer to encourage them to leave for a new opportunity. An example from the same employment contract referenced above is as follows:

During the Restriction Period, you will not, directly or indirectly, contact, solicit or hire any employee, consultant, supplier or customer of X company, or assist any other person or business to do so, for the purpose of enticing the individual or entity to enter their relationship with X. 

Is the Non-Competition and Non-Solicitation Clause Enforceable?

As a general rule, Courts in Ontario are loath to enforce these provisions in employment contracts as they act as a “restraint on trade.”  In other words, the clauses act as a barrier to the former employee to earn income. As a result, the enforcement of non-competition clauses is especially difficult.  A Court is more likely to enforce a non-solicitation clause, which is designed to prevent the employee from contacting former clients for a defined period of time – but does not act as wholesale prevention from carrying on business in their specialized area.

What Factors make Non-Competition and Non-Solicitation Clauses Enforceable

Geographic Scope
The more limited the geographic scope, the more likely the clause will be found enforceable.  With the advent of social media, geographic restrictions are generally no longer found as pertinent to non-solicitation clauses, as prospective clients can easily be contacted online no matter where they reside. 

Length of Restriction
There needs to be an end date for the provision. While each fact scenario is different, the shorter the restriction, the more likely it is to be enforceable.

Scope of Prohibited Activity
Some clauses may prohibit the employee from working for a defined list of competitors, or it may be worded so broadly to prevent the employee from working for any company in a large industry. The more narrowly drafted and defined the prohibited activity, the more likely the clause will be enforceable.

This post was drafted by Jeff Goldstein, principal lawyer at Goldstein Law. If you would like more information about employment contracts generally or non-competition or non-solicitation clauses specifically, feel free to reach out to jeff@goldsteinlawyers.ca.

Working Notice or Notice of Termination – What is preferable?

When an employer wishes to break an employment contract without cause (i.e., for instance, to restructure its business), the company must provide the terminated employee with advanced notice of termination or payment in lieu of notice of termination.

As many callers to our law firm are surprised to find out, an employer is permitted to terminate an employee at any time for any reason whatsoever, so long as it is not a discriminatory reason, as long as sufficient notice of termination or reasonable payment in lieu thereof is provided.

Working Notice

If an employer chooses to provide working notice of termination to the employer (which is often deemed to be more inexpensive from the employers’ perspective), the employee will be given advanced notice that their employment will end at a future date (i.e., the Termination Date) and they will be obligated to continue working until that date. A typical working notice of termination clause is drafted as follows:

“This is to confirm your cessation of employment effective X Date (the Termination Date). During the period up to your Termination Date, you are required to complete all your duties.  You will be paid your regular pay and any outstanding vacation pay owed up to and including the Termination Date, less dedutions.”

 By providing advanced working notice of termination, the employer can keep the employee on staff, contributing to the company during the severance period.  This is typically viewed as more inexpensive than paying the employee a one-time lump sum payment, which immediately ends the employment relationship.  However, in many situations, the employee may sabotage the employer or malinger, which could cause reputational damage to the employer – a scenario which is best to avoid by providing payment in lieu of notice of termination.

How Much Notice to Give? 

  1. An employment contract may contain a restrictive termination provision which limits the employees’ rights on termination to the minimum amounts as prescribed by the Employment Standards Act (ESA). If the termination provision would be deemed enforceable by a Court, the contract governs, and the employee’s entitlement is constrained by the amounts set out in the employment contract.
  2.  Employees are entitled to termination pay under the ESA equivalent to one-week per year worked up to a maximum of 8 weeks. This can be paid as working notice or payment in lieu thereof.  Read the Ontario Ministry of Labour bulletin on dismissals here.
  3. Severance pay is also payable to terminated employees in Ontario that have been employed for a period of 5.0 or more years with the same employer that has a payroll of $2.5 million or greater. The amount of severance payable is one week per year of service up to a maximum of 26 weeks of pay. Severance must be paid as a lump sum and cannot be included as part of the notice of termination.
  4. The common law or judge-made precedents in Ontario set out the terminated employees full entitlement to severance in Ontario unless a restrictive termination provision in the employment contract limits the employee’s entitlement to the minimum amounts prescribed by the ESA.  Common law severance or “reasonable notice,” as it is typically referred to, is calculated based on an employees age, length of service, seniority, specialization in employment, length of time it will likely take to obtain comparable replacement employment, and other relevant factors. The total amount of common law notice payable is highly dependent on the facts of each specific case.

It is important to ensure that the employer is complying with their legal obligations to when providing severance packages. At Goldstein Law Firm, we will review your employment contract, severance package, and other relevant documentation in order to advise you (whether employer or employee), if what has been offered is fair and reasonable in the circumstances and given the above-referenced factors. If you have any questions about severance packages or wrongful dismissal in Toronto, Mississauga or elsewhere in Ontario, feel free to contact our employment law firm today!