Mar 25, 2015
You’re Fired! A brief primer on Terminations Without Cause
By: Barbara Green
A termination of an employee without cause occurs when an employer terminates
an employee for no reason to do with the employee or his/her performance. It could
be for a variety of reasons, including budget cuts or company reorganizations.
When terminated without cause, an employee is almost always entitled to notice
pursuant to the Employment Standards Act, the governing statute in employment law,
and sometimes severance pay. These notice periods are extended by common law.
The Employment Standards Act requires most employers to give an employee who
has been continuously employed for three months or more notice of termination.
Notice is a warning of the impending termination, after which an employer may wish
to have the employee continue working or cease his/her employment effective
immediately and offer payment in lieu of notice. Compensation known as termination
pay must be paid to the employee during the notice period. During that period, an
employee’s wages and benefits, including pension and RRSP contributions, cannot
be reduced. The sum of notice pursuant to the Employment Standards Act is approximately
one week of pay for every year of employment to a maximum of eight weeks (however, a
mass termination has its own rules). An employer can provide a longer notice period,
but that period can’t be shorter than the Act minimums, even if a contract states otherwise.
Notice at common law
Unless the obligation to provide common law notice is contracted out of (see below), that notice period must typically be awarded to employees who are terminated without cause. These notice periods are far more generous than the statutory minimums under the Employment Standards Act. Under the common law, appropriate notice periods are determined by a number of factors, including: length of service (the longer the service, the longer the notice period); the employee’s age (employees older than 40 are usually given longer notice periods); the availability of similar employment; the nature of the employment (managerial functions may warrant a longer notice period); and the circumstances surrounding hiring. While a two-year notice period is usually the most that would be awarded by a court, there is no set rule for determining notice at common law. Under the common law, employees who have been employed for only two years could be entitled to many months of notice, depending on the circumstances.
Severance pay under the Act is an entirely different category of payment to an employee terminated without cause. In most circumstances, an employee qualifies for severance pay (in addition to termination pay) when his or her employment is severed, he/she has worked for the employer for five or more years and the employer has an Ontario payroll of at least $2.5 million, or the employer has severed 50 or more employees in a six-month period. Severance pay is calculated as approximately one week of pay for every year of employment, to a maximum of 26 weeks.
Limiting common law liability
An employer can’t contract out of the Employment Standards Act, but can contract out of its obligation to pay common law damages via a properly drafted employment contract. Employers should seek legal advice in respect of the preparation of employment contracts to ensure that the terms are enforceable. OHB
BARBARA GREEN is a lawyer with Robins Appleby LLP