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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.

 

 

 

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.

 

Severance Packages as Salary Continuance Payments

When an employee is terminated without cause from their employment in Ontario from their employer, the employee is entitled to a severance package, which, as we have discussed here, is based on a host of factors, including but not limited to the terminated employees age, length of service with the company, seniority in the company, job specialization, annual compensation, and otherwise.

In structuring severance packages to terminated employees, employers have the option to either pay severance by way of a lump sum payment or on a salary continuance basis. When paid on a salary continuance basis, an employee will continue to receive regular bi-weekly (or semi-monthly) payments, dependent on the typical process employed by company payroll.   As when the employee is employed for the company, such salary continuance payments will be subject to regular statutory deductions (i.e., income tax deductions, Canada Pension Plan contributions and Employment Insurance premiums).

Severance packages structured on a salary continuance basis are most common in a few different scenarios, including but not limited to the following:

  • Where the employee has been terminated by a business with a rather small payroll, a lump sum severance payment may not be feasible on account of cash flow constraints; as such, the employer wishes to spread out the severance obligations to the terminated employee as a function of cash flow management;
  • Where the employee has a high salary or holds a senior position with the company and has contributed a long duration of service, the severance entitlement could be substantial (typically, up to 24 months of pay). In such a case, again, the employer wishes to spread out the severance obligations.
  • The primary benefit to employers for structuring a severance package by way of salary continuance payments is when “claw-backs”, which are typically included in such packages, may allow the employer to avoid some of the severance obligations altogether.

What is a Claw-Back in a Severance Package Payable by way of Salary Continuance?

A claw-back in a severance package will usually contain language a kin to the following:

“At the date of termination, the company will provide payments equivalent to regular base salary payments, in accordance with the company’s regular payroll practices, for a period of 12 months. These payments shall continue for a period of 12 months, or until you commence alternate employment, whichever occurs first.

According to the above-referenced salary continuance severance package provision, the employee is entitled to 12 months of severance in this example, except if comparable alternate employment is secured prior to the end of the 12-months period.

Do Payments End Completely If You Secure Employment Before the end of the Salary Continuance Period?

Typically, the employers’ severance payments to the employee will cease immediately upon being notified that the employee has obtained other employment. The typical wording of the remainder of the salary continuance clause is as follows:

“Should you commence alternate employment prior to the end of the salary continuance period, all salary continuance payments will immediately cease but you will be paid a lump sum equal to fifty percent (50%) of the salary continuance payments then remaining.”

Accordingly, if the employee secures a job after 6 months of a 12-month salary continuance period, the remaining 6-months of regular salary payments remaining will transfer into a lump sum payment of three (3) months regular pay. By way of mathematical example, we note the following:

Example:

Employee earning $100,000, terminated an provided with a 12-month salary continuance period, with a 50.0% claw-back should alternate employment be secured before the end of the salary continuance payments.

Salary: $100,000            Semi-Monthly Payroll

Estimated Net Pay (after per deductions) Per Payroll Period: $2,915

Salary Continuance Period: 12 Months         No. Months to Obtain New Job: 6 Months

Total Payout at 6-month period = $17,500 (3 months pay).

What about the Employee’s Employment Standards Act (ESA) Entitlements?

As we have discussed here, an employer has a minimum obligation to an employee upon a termination without cause, which is provided for by the Employment Standards Act in Ontario. Notwithstanding an employer’s right to structure an employees severance package as a series of salary continuance payments with a claw-back in the event the employee obtains alternate employment before the end of the period, at all times the employer must satisfy the employees’ Employment Standards Act entitlements.

Accordingly, if an employee has worked for an employer for fifteen (15) years, and the employee is entitled to both termination pay and severance pay under the ESA, then the employee would be entitled to approximately 23 weeks or almost 6 months of severance. Accordingly, the 23-week statutory entitlement cannot be subject to any form of claw-back by the employer and must be guaranteed. If, for example, the employer offered a 6-month salary continuance period, with a claw-back if the employee obtained another job during this period of time, the severance package would be illegal as non-compliant with the ESA. In no circumstances can an employee receive less than their entitlements under the ESA.

What to do if you have Received a Severance Package in Ontario?

Prior to signing back a severance package, it is imperative that you obtain legal advice to ensure that your employer is complying with its obligations under the ESA and the common law in Ontario. You cannot be pressured or forced into immediately signing back a severance package; the law provides you with a reasonable amount of time to consult with a lawyer to discuss your options. The worst decision you can make is an ill-informed decision.

Accordingly, there are a host of qualified employment lawyers in Toronto and the surrounding regions. At Goldstein Law, we dedicate ourselves to superior client service and providing honest and effective advice. We will always reply to you in a timely matter and work to resolve your case so you can have peace of mind. If you are seeking an employment lawyer in the Greater Toronto Area (GTA), please contact us today for a free consultation at 647-838-6740.

What Termination Notice Period Are You Entitled to in Ontario?

An employee that has been employed in Ontario for more than three months in an indefinite employment relationship (separate from a fixed-term contract), is entitled to a statutory minimum amount of advanced notice of termination or payment in lieu thereof in accordance with the Employment Standards Act in Ontario, should the employer opt to terminate the employment.

The exception to the general rule is when an employer terminates the employee for cause, in which case the employee is not entitled to any notice of termination. The notice is either provided (1) by way of advanced notice by the employer, during which time the employee continues to work for the company until the end of the notice period; (2) by a payment in lieu of notice equivalent to the value of salary and benefits the employee would have received has they continued working through the notice period; or (3) a combination of advanced notice of termination and payment in lieu thereof.

If payment in lieu of notice is provided to the employee, the payout must be made on the employee’s regular pay date or seven days after the termination, whichever is later.

Employment Standards Act – Notice Periods

The Employment Standards Act in Ontario outlines the minimum termination pay and severance pay obligations of employers. Keep in mind, these are minimum obligations and do not represent an employee’s full legal entitlements on termination of employment. The following is a table outlining the statutory minimums under Ontario’s ESA:

Length of Employment Minimum Notice Required
Under 3 months None
3 months to under 1 year 1 week
1 year to under 3 years 2 weeks
3 years to under 4 years 3 weeks
4 years to under 5 years 4 weeks
5 years to under 6 years 5 weeks
6 years to under 7 years 6 weeks
7 years to under 8 years 7 weeks
8 years or more 8 weeks

The statutorily mandated minimum notice period generally does not constitute a reasonable severance package in accordance with the common law in Ontario; accordingly, if you have only been offered the minimum ESA entitlements, you have a wrongful dismissal claim. Please contact an employment lawyer in Toronto at Goldstein Law Firm for a free consultation to discuss your rights.

Senior Executive Severance Packages

Severance packages for senior executives can often amount to several hundred thousand dollars in entitlements. Accordingly, it is imperative that executives are attuned to the employment law issues that are prevalent in severance packages in Ontario.

A wrongful dismissal occurs when an employee has been terminated without cause from their employment and has not been provided with a reasonable severance package in the circumstances. The basic principle in awarding damages from wrongful dismissal is that the terminated employee is entitled to compensation for all losses arising from the employer’s breach of contract in failing to give proper notice of termination. The damages should place the employee in the same position they would have been had they remained employed.

Accordingly, damages for wrongful dismissal (or severance packages) may include an amount for bonus or incentive compensation that the employee would have received had he/she continued employment during the notice period. This is more typically the case where the bonus is an integral part of compensation. As few as two consecutive discretionary bonus payments have been found to be enough to constitute an integral part of compensation. In Bain v. UBS Securities, the Court considered the following factors in determining whether a bonus payment was an integral component of compensation:

(a) Whether the bonus was received each year;
(b) Whether the bonus was required to stay competitive with other employers;
(c) Were bonuses historically awarded and did the company ever exercise its discretion;
(d) Did the bonus constitute a significant portion of the employees overall compensation.

If you are a senior executive that has been terminated from your employment in Ontario and have been offered a severance package, it is imperative to ensure that the severance accounts for all forms of compensation during the notice period, including bonus entitlements. For a free severance package review, contact the Goldstein Law Firm today!

Severance Pay for Long-Term Employees

With the aging of our population, a number of workers that have been employed by the same company for a long-period are either entering into retirement or oftentimes, are terminated due to a restructuring, as companies seek to bring on new, younger employees. In determining how much severance is owed to a long-term employee at an advanced age, reviewing precedents (i.e, other cases in Ontario employment law where judges have granted severance pay to employees in similar circumstances), is the best guide to determine how much you are entitled to.

In determining what is fair and reasonable in the circumstances, a Court will consider a number of factors, including but not limited to the employee’s age, the length of service with the company, and the level of job specialization. The main consideration underpinning this assessment is ‘how long is it expected to take for the terminated employee to obtain alternate comparable employment after the termination?’

Employees that have spent a long period of time with one company are not well-versed in the contemporary means available to apply for jobs; and accordingly, may have more difficulty in their job search. In addition, though employers cannot discriminate against employees on the basis of age, it is a common understanding that employees of a more advanced age typically find it more challenging to obtain a job as they approach 65 years of age. Accordingly, employees that have been terminated without cause with a long length of service and at an advanced age will be entitled to substantial severance packages.

The case of Lalani v. Canadian Standards Association is an example of a case whereby a 60-year old employee with 30+ years of service was awarded two-years of severance.

Please note that the vast majority of severance packages are inadequate. As a senior employee with a long length of service, you may be entitled to 100’s of thousands of dollars. It is imperative that you contact a qualified employment lawyer to discuss your termination prior to signing back any severance package.

Temporary Layoffs in Ontario

Temporary laying off an employee in Ontario often occurs in the context of seasonal businesses that required a reduced headcount during slow times of year or businesses that are in general decline. Rather than paying our full severance obligations to an employee, as required on the termination of employment, as discussed here and here, a temporary layoff affords the employer the opportunity to take an employee off of payroll for a defined period of time.

In employment law in Ontario, termination and a layoff have two very distinct meanings. A termination is a complete end to an employment agreement, which, if implemented on a without cause basis, gives rise to severance obligations. A layoff, on the other hand, is when an employer temporarily cuts off an employees employment, with the expectation that they will return back to work within a defined time period. Should the layoff exceed the maximum amount of time permitted to layoff an employee in accordance with the employment standards legislation in the province, the layoff will transform into a termination.

Under the Employment Standards Act in Ontario, employers are permitted to temporarily layoff an employee for a period of up to 13 weeks in a 20-week period. There are also rights to extend the layoffs under certain conditions. Under the Employment Standards Act, section 56 governs the layoff of employees working in Ontario.

A key issue with layoffs that an employer must be aware of is that despite the right to issue a temporary layoff as contained in Section 56 of the Employment Standards Act, an employer does not have the unilateral right to temporarily lay off an employee without a contractual right to do so. In other words, an employment agreement must be signed between the employer and employee that expressly authorizes a temporary layoff. Absent an agreement authorizing the layoff, the employer is not permitted to layoff the employee for any period of time. As such, the layoff will constitute a constructive dismissal at law, if the employer does not agree to bring the employee back to work immediately.

If you are an employee that has been temporarily laid off in Ontario, it is best to consult with an employment lawyer to determine whether the employer has complied with their obligations. It is imperative that you seek legal advice before agreeing to a layoff to ensure that you understand your legal rights.

Is the deadline in my severance package enforceable?

The short answer is NO. Clients frequently call our employment law firm following a job loss advising that they only have one or two days to return their severance package or they would lose the offer from the company. This is not accurate.

Your legal rights do not expire at some pre-defined and arbitrary date as imposed by the employer. In fact, you are entitled to the minimum Employment Standards Act payments (i.e., termination pay and severance pay) irrespective of whether you sign back the severance package on time, late, or at all. The employer is obligated by legislation (i.e., the Employment Standards Act) to provide an employee that has been terminated without cause in Ontario with the following entitlements:

-One week of termination pay per year worked, up to a maximum of 8 total weeks of termination pay; and
-One week of severance pay per year worked, with an adjustment for the number of weeks worked, if the following conditions are satisfied:
(a) The employee has been employed with the company for 5 or more years prior to the termination of employment; and
(b) The company’s annual payroll exceeds $2.5MM.

Both of the above-referenced conditions must be satisfied in order to be eligible for severance pay under the Employment Standards Act. Nevertheless, the employee is entitled to termination pay in any event. In addition to your statutory entitlements, if the employee has not signed an employment agreement with an enforceable termination clause, then they will be entitled to advanced notice or pay in lieu thereof in accordance with the common law in Ontario, which is a substantially enhanced severance entitlement over and above the Employment Standards Act.

With respect to the severance package deadline, your legal rights only expire after the basic limitation period in Ontario runs out, which is two years. Accordingly, if your employment contract does not nullify your right to common law severance pay, you have up to two years to seek recourse. This does not change if your employer includes a deadline in the severance package – as your years of service and dedication to the company will be recognized by a Court irrespective of any deadline (other than the two-year basic limitation period in Ontario).

If you have any questions about your severance package in Ontario, feel free to contact our employment law firm for a free consultation.