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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.

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.

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.

 

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.

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.

Lowes Closing Stores – Employment Terminations in Ontario

A report has been recently published in the National Post that Lowes, a large home improvement retailer will be closing up to 31 stores in Ontario. Employment terminations are sure to result from these store closures.

Before signing a Release, ensure you consult with an employment lawyer to determine whether the employer has provided you with a fair severance package.

Employment Standards Act Obligations

Under the Employment Standards Act (ESA), employers are required to provide employees minimum entitlements upon the termination of employment, which includes but are not limited to the following:

-Up to a maximum of 8 weeks of termination pay, calculated as one-week of termination pay per year worked; and

-If the employer has a payroll over $2.5 million and the employee worked for the company for 5 or more years, they would be entitled to severance pay equivalent to one week per year worked plus the fraction of the year worked prior to termination.

When you are terminated from your employment, the employer is obligated to provide these minimum ESA payments by your next scheduled pay date.  Employees’ entitlements to severance pay are greater than the requirements of the ESA, which only sets out the minimum standards. In fact, the common law, or judge-made law in Ontario, which reflect a series of cases in the employment law realm is what governs employees entitlements on termination.  According to this judge-made law, employees can be entitled to one-month per year worked, or more, termination pay, depending on the circumstances.

The Court will take into consideration a variety of factors in determining the quantum of termination pay required in the circumstances.  The factors include (a) age of employee; (b) likelihood and ease of re-employability; (c) duration of employment; (d) circumstances around the dismissal; and (e) specialization of the position and level of seniority at the company.  All of these factors are relevant to the analysis into the appropriate termination pay in the circumstances.

It is important to note that, when an employee is terminated, they may be offered the minimum requirements under the ESA, and asked to sign off on a Full and Final Release, preventing you from bringing any future employment-related claim whatsoever in exchange for accepting the initial offer. Based on our discussion, the ESA entitlements are a minimum, and the employee should be discouraged from signing the Release absent a consultation with experienced employment counsel. If you do, in fact, retain an employment lawyer to negotiate an enhanced severance package, the employer will still be required to pay your minimum entitlements owing under the ESA, irrespective of a signed Release, while the negotiation is ongoing.

If you have any questions or concerns about your severance package, please do not signed the settlement documents at first instance before consulting with an experienced employment lawyer regarding your rights and obligations.