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.
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?
- 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.
- 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.
- 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.
- 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!