Terminating an employee is no simple feat. Rather, employee termination is a complex and sensitive process that must be handled with the utmost care. This is a complex and sensitive process requiring careful navigation by an employer at every step. Failure to handle terminations with such care exposes employers to risk of legal disputes and failure in complying with the Employment Standards Act (“ESA”) and other relevant regulations. It is imperative for both employers and employees alike to understand the intricacies of termination laws in Ontario to prevent costly mistakes and unnecessary litigation.
This blog provides key insights on how employers should handle employee terminations, with a specific focus on legal requirements, common pitfalls, and best practices.
Understanding Just Cause vs. Without Cause Termination
In Ontario, an employee can be terminated either for just cause or without cause. The differences in each approach are crucial and as such, employers should have a clear understanding on the distinctions between each type of termination, as each type of termination dictates the employer’s obligations and the employee’s entitlements.
Just cause termination can occur for many reasons. Specifically, an employee may be terminated for serious misconduct, incompetence, or any other reason that constitutes a fundamental breach of the employment contract by the employee. This could include actions such as theft, fraud, or even repeated insubordination.
To terminate an employee for cause, an employer is required to prove that the manner of the employee’s conduct was so severe that said conduct warrants immediate dismissal without the necessity to provide notice or severance. The ESA specifies instances where it is acceptable for an employee to be terminated without notice or severance. These instances include where the employee was guilty of wilful misconduct, disobedience, or wilful neglect of duty that is not trivial. An important caveat is that the employer must not have condoned said behaviour.
It is imperative to be mindful that in Ontario there is a very high bar for just cause termination, as it has been said to constitute capital punishment in the employment law realm. As such, courts require employers to use a contextual approach when firing employees for just cause, and require that principles of proportionality be applied.
Without cause termination, as the name suggests, occurs when an employee is terminated without cause. In Ontario, the majority of terminations occur on a without cause basis, meaning that the employee is dismissed for reasons unrelated to conduct, including company restructuring or financial constraints. In these situations, an employer is required to provide either reasonable notice or pay in lieu of notice. An employee’s entitlement when terminated without cause will either be governed by the ESA or common law. To learn more about without cause dismissals, check out our blog post on the topic here.
The Duty of Fairness and Good Faith
An employee must act fairly and in good faith when terminating any employee. While not explicitly outlined, this is an implied term which is present in all employment contracts. To adhere to the duty fairness and good faith, an employer must treat an employee with respect and dignity throughout the termination process. Where an employer fails to implement a fair approach, or implements an aggressive approach, said employer may expose itself to the risk of additional damages being awarded for bad faith conduct.
By way of example, an employer should always avoid terminating an employee in a humiliating manner or making misleading statements. Further, an employer should always ensure that an employee’s concerns are addressed throughout the termination process.
Upon terminating an employee, an employer should ensure that all contractual or statutory entitlements, including benefits, vacation pay, allowances and earned bonuses, are included in the employee’s termination package.
Statutory Minimums Under the Employment Standards Act
The statutory minimums that an employer is required to provide are outlined in the ESA. Specifically, the ESA sets out the minimum notice and severance pay, if applicable, that must be provided to an employee when their employment is termination. It is important to note that the ESA provides a minimum, not a maximum, meaning that in many cases, an employee may be entitled to increased compensation under common law than that which is being offered under the ESA.
When an employee is terminated, said employee is entitled to a minimum period of notice based on their length of service. By way of example, if an employee has amassed three years of service with their employer before being terminated, they are entitled to three weeks of working notice. Alternatively, an employer has the option to provide the employee with payment in lieu of notice, which means that the employee is simply paid out for the length of their notice period. Payment in lieu of notice is commonly referred to as termination pay.
In certain circumstances, severance pay is also required to be paid out in addition to notice. Severance pay is required where an employer has a payroll of more than $2,500,000.00 or has terminated more than fifty (50) employees within a six-month period. In these situations, employees who have amassed five or more years of service with their employer will be entitled to severance pay in addition to notice (or payment in lieu thereof). Severance pay is calculated based on the employee’s length of service. However, severance pay is subject to a maximum entitlement of twenty-six (26) weeks of regular pay.
If you are interested in reading further about the difference between termination and severance pay, check out our blog post on the topic here.
Termination Provisions in Employment Contracts
There is no stronger defence to avoiding a costly termination dispute than a well-drafted employment contract. If an employer wishes to avoid a termination dispute, its employment contracts should succinctly outline the employee’s entitlements if terminated, including the applicable notice periods and any post-employment obligations, such as a confidentiality clause.
Any termination clause included in an employment contract must comply with the ESA. An employment contract cannot offer less than the statutory minimums, and in instances where an employee’s entitlements fall below the ESA standards, the entire termination provision will be rendered void and unenforceable. In Ontario, courts have recently held that a termination clause which permitted an employer to terminate an employee’s employment in its “sole discretion” and “at any time” was unenforceable. For more information on the court’s decision, check out our recent blog post on this decision to understand the implications for both employees and employers.
Due to stringent requirements and evolving legal standards, employers are urged to regularly review and update employment contracts. If you are an employer who is concerned about the enforceability of its employment contracts, you should book a consultation with one of our experienced lawyers to have your employment contracts reviewed and ensure that the termination provisions contained within are enforceable.
If the termination provisions contained in an employee’s contract are ultimately deemed to be unenforceable, this can have significant ramifications for an employer, as the employee’s entitlements upon termination of their employment without cause will be determined in accordance with the common law.
Common Law Entitlements
Under the common law, an employee who is terminated without cause is entitled to reasonable notice of termination. The key difference is that reasonable notice of termination under the common law well exceeds the minimums afforded to an employee under the ESA.
When determining notice under the common law, courts will take into account a large range of factors, including the employee’s age, tenure, position, and the availability of similar employment opportunities in the market. Common law notice periods are typically measured in months (not weeks) and may be as high as 24 months or even high with exceptional circumstances.
Human Rights Considerations
An employer must also remain aware of the risk of potential human rights violations at play when terminating an employee. Under the Ontario Human Rights Code, an employee cannot be terminated based on grounds of discrimination related to race, sex, age, disability, or any other protected characteristic. Where an employee can demonstrate that their termination was linked to a discriminatory factor, an employer may be exposed to significant risk, as the employee may have grounds for a claim of wrongful dismissal and/or a human rights complaint.
Employees on medical leave or those with disabilities must also receive significant consideration, as said employees are protected from termination if the employer fails to fulfill its positive to duty to accommodate the employee’s needs.
Termination Without Drama: Best Practices
If an employer wishes to minimize the risk of disputes and ensure that all terminations occur in a smooth manner, employers should implement the following best practices:
- A termination should always be planned for ahead of time. Preparing for terminations in advance ensures compliance with all legal obligations, including notice, severance (if applicable), and benefits.
- An employer should always document performance issues. If an employee is being terminated as a result of poor performance, an employer should always maintain accurate and detailed records of feedback, warnings, and opportunities for improvement.
- An employer should always communicate respectfully. All termination meetings should be conducted in a private and respectful manner to avoid unnecessary conflict. Where an employee is being terminated, an employer should always have a witness present.
- An employer should always provide a comprehensive termination package which ensures that the employee receives all minimum entitlements under the ESA.
Conclusion
Employee terminations are a complex process that require significant consideration and the careful balance of legal compliance, fairness, and foresight. By following insights from experienced employment lawyers, an employer can reduce the risk of disputes arising and can ensure that terminations are handled smoothly and in a manner that does not expose itself to risk. Ensure to book a consultation with one of our experienced lawyers today if you are thinking of terminating an employee or if you have just been terminated.
