Are You Planning to Fire One of Your Employees? What to Know.
One of the most common misconceptions Ontario employers have is that when firing an employee, the only severance pay compensation they need to provide is “one week per year”. So, for example, many employers wrongly assume for a 10-year employee, they need to only provide them with a severance package consisting of 10 weeks’ pay. For reasons discussed below, this is legally incorrect – and a minefield of wrongful dismissal claims for employers who decide to fire employees!
Getting Back to the Basics: Minimum Termination Pay
As an employment lawyer, one issue that continually comes up is an employer’s attempt to minimize the amount of severance pay it may eventually have to an employee upon termination of employment. This is a legitimate goal for any business (in a non-unionized workplace). If done the right way, an employer can legally minimize its obligations once it decides to fire an employee. What are these “minimum” obligations?
Under the Ontario Employment Standards Act, 2000, an employer is legally required to provide an employee with at least 1 week of prior notice of termination, or alternatively, 1 week of termination pay for each year of service (assuming the employee has passed any 3-month probation period). This minimum statutory obligation applies in most cases of termination of employment, since they occur without cause.
The primary exceptions are where the employee voluntarily quits their job or commits wilful misconduct, wilful neglect of duty, or disobedience that was not condoned by the employer. For example, if an employee is not on an authorized leave of absence (e.g., a disability leave or maternity leave) and simply refuses to come in to work, the employee would be guilty of wilful neglect of duty and would not be entitled to notice of termination (or pay in lieu of notice), as long as the employer had not condoned (allowed) such behaviour in the past.
In addition to termination pay, an employer firing an employee without cause may also provide a minimum amount of severance pay, which is equal to 1 week of wages for each year of service (which must be paid in case). However, to apply, the employee would generally be required to have worked for the same employer for 5+ years, and the employer’s annual payroll exceeds $2.5 million.
That said, the critical point is this: in order for an employer to legally limit an employee’s severance package entitlements (termination pay and severance pay) to only the above-noted statutory minimums, the employee and employer must have signed a valid employment contract with a termination clause making this clear. Otherwise, an employer cannot simply rely on the Ontario Employment Standards Act, 2000. In fact, an employer’s refusal to provide the employee with their common law entitlements to adequate prior reasonable notice of termination (or pay in lieu of reasonable notice) would constitute a “wrongful dismissal,” entitling the employee to sue the employer for their full severance package entitlements.
Employers: Pitfalls to Avoid
Since the Ontario Employment Standards Act, 2000 represents the basic employment law rules, and is enforced by the Ministry of Labour itself, most employers (and employees) turn to it as their first source to understand their rights and obligations. Not surprisingly, most employers (and employees) are under a misapprehension that the notice period for a fired employee is what they are told by a Ministry of Labour representative, or what they find online on its website. However, as discussed above, without an employment contract making it clear the employee’s severance package entitlements are limited to the employment standards minimums, they will often be misguided in determining what recourse they have upon termination of employment. This means that while the Employment Standards Act, 2000 must always be followed, it still only represents the minimum obligations employers have (and minimum rights employees have to termination pay and severance pay).
Where do we find an employer’s full obligations to employees when it comes to termination of employment? Without a valid employment contract, an employee’s severance pay entitlements are determined by common law. Under these standards, the terminated employee is entitled to be paid everything they would have earned during their reasonable notice period (e.g., base salary, bonus pay, commission, health benefits coverage, pension benefits, and so on).
In determining an employee’s severance package entitlements under common law rules, we consider many factors that (objectively speaking) will impact an employee’s ability to re-employ in a comparable job, including their age, years of service, job, education and job qualifications (among others). This is why employees with entry-level jobs are typically given less severance pay, while employees in senior positions are typically given more severance pay in a wrongful termination case. Why is that?
Because the courts figure that it will generally take longer for a terminated employee to find a more senior position. For example, if you the Vice President of a company, a court deciding a wrongful dismissal case will take into account that it should take you longer to find a new Vice President (or comparable) type of position than it would take more junior employee to find a comparable job.
But the Story Does End with a Severance Package…
In many ways, when firing an employee, an employer is required to provide an appropriate severance package, it comes with strings attached. Basically, even if an employee is wrongfully terminated, they have a legal “duty to mitigate” their wrongful dismissal damages. This means that the former employee has to go out and actively search for new, comparable employment. If they fail (or put very little effort) to do so, it can lead to the court awarding a lower severance package (or, in rare cases, even no severance package compensation at all). This is why, as an employment lawyer, I always advise employees who are wrongfully terminated to immediately start looking for new employment and, just as importantly, to keep a detailed record of all efforts to secure new, comparable jobs. By the same token, after firing an employee, I always advise employers to scrutinize an employee’s job search efforts (which represents a key tool in their arsenal when defending a wrongful dismissal claim).
Contact Bune Law, Toronto Employment Lawyer
If you are an employer wondering how to properly go about in firing an employee from their job, or carry out a termination of employment to minimize the risk of an employee wrongful dismissal claim or attempt to negotiate a severance package, it is important to speak with an experienced employment lawyer for employers. Preparing (or negotiating) a severance package as part of the wrongful termination process can complicated and difficult for employers given the legal issues involved. In those cases, legal advice and representation from a leading employment will help you understand your rights and best options for moving forward.
At Bune Law, an experienced employment lawyer in Toronto will provide you with expert legal advice on a wide variety of employment matters, including what steps to take to properly manage workplace or HR issues, such as wrongful termination claims. The experienced employment lawyer at Bune Law takes pride in a reputation for excellence in client service. Call 647-822-5492 for an employment lawyer consultation.
If you are an employer, you should speak with an employment lawyer to discuss your options before firing an employee to obtain the proper severance package documentation for your employee to avoid a discrimination claim.
If you are a business preparing to terminate the job of one of your employees, Bune Law, employment lawyer in Toronto, can help you review the issues involved to properly proceed with employment termination and minimize the risk of wrongful dismissal claims. However, if a previous termination of an employee’s job results in a wrongful dismissal claim, our experienced employment lawyer can also assist in defending your business interests as an employer cost-effectively
No matter which side you happen to land on, Bune Law, a leading employment lawyer in Toronto, is ready to assist with your case. Don’t hesitate to reach out to Bune Law at 647-822-5492.
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