Employment relationships may come to an end for several reasons. The reasons for the separation, and the type of dismissal that occurs, will impact an employer’s obligations to the terminated employee.
Accordingly, the following is intended to review employer obligations upon an employee’s termination of employment.
Termination “without cause”
Employers are generally entitled to terminate an employee’s employment “without cause” at any time and for any legal reason. Where dismissals occur on a “without cause” basis, employers are required by law to provide the employee with reasonable notice of the termination, pay in lieu of notice, or some combination of both. The amount of notice or pay in lieu of notice an employer owes to an employee will depend on various factors, including whether there is an enforceable employment agreement that outlines the provisions of termination.
In Ontario, the Employment Standards Act, 2000 (“ESA”), sets out an employee’s minimum entitlements upon termination. In Ontario, employers who terminate an employee’s employment on a “without cause” basis are generally required to provide at least one (1) week of notice per year of service up to a maximum of eight (8) weeks. Employers can limit their liability by restricting an employee’s entitlements upon termination to the minimum standards set out in the ESA, for example, by entering into a valid employment agreement that contains an enforceable termination provision.
Where an employer does not limit an employee’s entitlement to statutory minimums only, an employer may be required to provide an employee with common law “reasonable notice”. Common law reasonable notice is calculated based on a range of factors, and the following four (4) factors tend to have a disproportionately large impact:
- The employee’s age;
- The character of the employee’s position and responsibilities;
- The employee’s length of service; and
- The availability of similar employment.
Further, in Ontario, there are some circumstances in which an employer may owe an employee additional payment under the ESA. This is known as severance pay and employers are entitled to provide severance pay to dismissed employees if the employer has an annual payroll over $2.5 million and the employee was employed for at least five (5) years. Employers must provide one (1) week of severance pay for each year the employee worked, up to a maximum of 26 weeks.
We encourage all employers to review their employment agreements with experienced employment counsel to determine the enforceability of the termination provisions in order to determine their risk and limit their liability.
Termination for “just cause”
Employers may dismiss an employee on a “just cause” basis when the employee engages in serious misconduct. In this case, the employer is not required and is justified in not providing reasonable notice, pay in lieu of notice, or some combination of both in connection with the separation, including in relation to ESA minimum standards.
An employer may rely on one of the following reasons to justify their decision to terminate an employee for “just cause”:
- Breach of trust;
- Insubordination; and/or
- Misrepresentation at the time of hiring.
The onus will be on the employer to prove the allegations they are relying on to justify a “just cause” dismissal. Where an employer cannot successfully demonstrate this, they will generally be required to provide the dismissed employee with payment, including in relation to wrongful dismissal damages, pay in lieu of notice, common law reasonable notice, and possibly other heads of damage.
Employers contemplating a termination for “just cause” are encouraged to reach out to experienced employment counsel to determine if they will be able to satisfy this high threshold to a court, and whether it may be more appropriate to dismiss the employee on a “without cause” basis based on the nature of the conduct.
When an employer terminates an employee without providing proper notice and/or compensation in lieu of notice, and/or the employer treats an employee in a manner that is inconsistent with good-faith and fair dealings, this is known as wrongful dismissal.
We encourage employers to work with experienced employment counsel when contemplating a termination to assess, on a case-by-case basis, the appropriate entitlements owed to employee. By working with experienced counsel, employers will not only limit their liability to claims of wrongful dismissal by providing the appropriate notice period, but will also be able to assess the enforceability of their employment contracts, and the termination clauses in particular, to determine whether providing statutory minimums are sufficient.
A constructive dismissal may occur when an employer violates an essential term of an employee’s employment contract. This includes, but is not limited to, the following unilateral actions:
- A significant demotion to an employee’s role;
- A significant change to an employee’s hours of work;
- Implementation of a wage reduction;
- An illegal layoff;
- Relocation of the employee’s workplace; and
- An unpaid suspension.
Alternatively, a constructive dismissal may also occur when the employer demonstrates, through a series of actions, that they no longer intend to be bound by the employment contract. This may include where an employer has failed to prevent workplace harassment and as a result the employee can no longer be expected to remain in the toxic work environment.
Employers who are found to have constructively dismissed an employee will be required to provide the employee with an appropriate termination package, and may be entitled to pursue further damages related to the constructive dismissal.
Before making any significant unilateral changes to an employee’s employment, including in relation to the terms of employment, we encourage employers to discuss these changes with experienced employment counsel to determine whether consideration should be given to the employee before imposing any fundamental changes.
When an employment relationship has been severed, we encourage both employers and employees to seek legal advice. For employers, this will allow them to assess their risks and reduce any liabilities by providing a fair termination package. Alternatively, for employees, this will allow them to determine whether their employer has satisfied the minimum entitlements owing to them, as well as to assess whether they are entitled to common law notice and/or any other damages associated with their dismissal.
Original blog post title: Separation of employment: Understanding the different types of termination
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