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07. Termination of Employment Contracts

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07. Termination of Employment Contracts

Grounds for Termination

Employment can be terminated at any time if the employee is provided with appropriate notice of termination as well as any applicable legislative entitlements. However, if an employee engages in conduct that is incompatible with the fundamental terms of the employment contract, he or she may be dismissed without notice. It is very difficult to establish just cause for dismissal. Examples of the types of activities that may be found to constitute cause for dismissal, depending on the circumstances, include theft; workplace harassment; criminal activity; and significant dishonesty or fraud. Although employees may, in theory, be dismissed for poor performance, employers are rarely found to have had just cause for dismissal on this basis.

Collective Dismissals

Federal and provincial employment standards legislation sets out specific rules applicable to mass terminations. Most pieces of provincial legislation provide that a mass termination will occur where 50 or more employees will be terminated at an employer’s “establishment” within a four-week period. An “establishment” may, in some circumstances, include more than one location. Employers must provide notice to the appropriate provincial or federal official that a mass termination will occur. For example, in Ontario, this notice must be provided to the Director of Employment Standards. Any notice provided to employees will not be valid until the appropriate government official has been notified regarding the terminations.

Unlike the standards applicable to individual terminations, where a mass termination will occur, the amount of notice employees will be entitled to, is based on the number of employees who have been or will be terminated. In Ontario, employers must provide at least eight weeks’ notice if 50 to 199 employees will be terminated, 12 weeks’ notice if the employment of 200 to 499 employees will be terminated, and 16 weeks’ notice if 500 or more employees will be terminated.

Individual Dismissals

The employment standards legislation applicable in each Canadian jurisdiction sets out minimum notice periods for termination, or pay in lieu of notice, and in some cases, statutory severance pay. Typically, these statutory notice periods range from one to eight weeks of notice (or pay in lieu of notice), depending on an employee’s length of service. The statutory minimums apply so long as an employee is not terminated for wilful misconduct.

 

Employees under a fixed term contract are not entitled to reasonable notice. However, Canadian courts and employment standards programs will closely examine the overall character of the employment relationship to determine whether it is in fact of a fixed nature.

In addition to the statutory notice period and severance pay (if any), non-union employees in Canada’s common law jurisdictions are also entitled to reasonable notice of termination at common law. Common law notice period awards are often much longer than those required by statute (but would incorporate any statutorily mandated payments). Depending on an employee’s position and length of service, up to 24 months may be awarded and greater notice periods have been awarded in some cases. However, unlike statutory entitlements to notice, employees and employers are entitled to contract out of the common law notice periods, provided that the contract provides for at least the statutory minimum entitlements and is otherwise valid and enforceable. Employers are also typically responsible for the payment of benefits and entrenched bonuses during the common law notice period.

Is Severance Pay Required?

Employees are entitled to statutory notice of termination or pay in lieu thereof in all Canadian jurisdictions, unless they have been terminated for “just cause” or “willful misconduct”. The statutory notice period is based on an employee’s length of service, but does not exceed eight weeks in any jurisdiction.

Ontario is the only Canadian jurisdiction that provides employees with severance pay, which is distinct from payment for notice of termination. Mid-size to large employers operating in Ontario will be required to dispense severance pay to persons who were employed for at least five years. The legislation requires a lump sum payment, which is calculated as one week per year of service to a cap of six months.

Separation Agreements

Separation agreements are not required by law, but are often entered into at the time of dismissal in order to reduce the risk of litigation over an employee’s legal entitlements. A separation agreement may also provide an opportunity for an employer to obtain the protection of restrictive covenants that were not contained in an employment contract, such as a non-competition or non-solicitation clause.

Is a Separation Agreement required or considered best practice?

A separation agreement is a contract, and must therefore meet the essential requirements for an enforceable contract. In particular, the employee must be provided with some form of consideration for executing the agreement. The agreement will not be enforceable if it provides the employee with only his or her minimum entitlements under the applicable legislation, as this will not constitute valid consideration. The employee must be provided with some benefit in excess of the statutory minimum in order to make the agreement and any release of claims signed by the employee enforceable. The agreement must also be compliant with all applicable legislation.

What are the standard provisions of a Separation Agreement?

A standard Separation Agreement will generally:

  • specify the period of time that an employee’s salary will be continued following termination;
  • specify the period of time that an employee’s benefits will be continued following termination; and
  • require the employee to release the employer from any claims relating to their employment or employment termination.

Does the age of the employee make a difference?

In general, an older employee is entitled to a longer common law notice period than a younger, but otherwise similarly situated employee. Consequently, an employer who wishes to enter into a Separation Agreement with an older employee will likely need to offer a more generous period of salary and benefit continuation in order to induce that employee to accept the offer rather than pursue an employment claim in the courts.

Are there additional provisions to consider?

A Separation Agreement may include restrictive covenants that constrain the employee from soliciting clients or employees of the employer for a fixed period of time, or from going to work for a competitor. In order to be enforceable, any such covenants must be reasonable in light of the character of employment. Additionally, the geographic and temporal scope of any such restrictions must be reasonable in the circumstances. Because such restrictions represent a restraint on trade, they must not exceed what is required in order to protect the employer’s interests.

Remedies for Employee Seeking to Challenge Wrongful Termination

When an employee has been dismissed and believes that he or she has not been provided with appropriate notice of termination, he or she is entitled to bring a complaint under employment standards legislation, or (in the case of a non-unionised employee) file an action in court. A court of law can apply both employment standards legislation and the common law, while the enforcement mechanisms established under employment standards legislation are limited to determining whether there has been a breach under the statute. Unless an employer has alleged just cause for termination and refused to pay the employee his or her minimum statutory entitlements, most dismissed employees will have been provided with those amounts on termination.

However, as noted above, an employee’s entitlement to notice at common law will generally be greater than the employee’s entitlement under employment standards legislation. Consequently, some employees will bring a court action to sue for the difference between the amount of notice provided or paid under the applicable statute and the amount of notice that would be found to be due at common law.

Most employees in Canada do not have a right to reinstatement if they have been wrongfully dismissed. The reasonable notice period is designed to compensate employees for their loss of employment and is based, in part, on the amount of time it will likely take for the employee to find similar employment.

Whistleblower Laws

Section 425.1(1) of the Criminal Code of Canada makes it a criminal offence for an employer to retaliate (or threaten to retaliate) against an employee in order to convince them “to abstain from providing information to a person whose duties include the enforcement of federal or provincial law, respecting an offence that the employee believes has been or is being committed”. The maximum penalty for this offence is five years imprisonment.

There are also specific protections offered to employees under almost every employment-related statute, should they come forward with a valid complaint about their employer, or if they assert their statutory rights.  It should also be noted that employees generally have a duty of loyalty to their employer. Depending on the facts of a situation, an employee may be in breach of that duty (which can be grounds for termination) if their “whistleblowing” is for political or other purposes, unrelated to asserting statutory rights.

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