Short-Term Employee Severance Packages
While the general rule in Ontario employment law is that an employee is entitled to a greater severance package for having worked for the same employer for a long period of time, there are some exceptions. Contrary to some misconceptions, in many wrongful dismissal claims, the courts frequently award short-term employees with significant severance packages even if they work for a short amount of time.
In fact, there is now an emerging trend where the courts have increasingly been willing to side-step the general “one month per year of service” rule of thumb when it comes to short-term employees in wrongful dismissals, resulting in more favourable severance packages to employees. While the courts are more inclined to award short-term employees with better severance packages when they are older or in management positions, they will also do so in situations where an employee suffers from a disability, or is pregnant at the time of termination or if they are fired while on a maternity leave. A recent case called Ramcharan v. Wesdome Gold Mines Ltd., 2023 ONSC 4643 illustrates this scenario, where the court awarded a wrongfully terminated employee with a severance package worth six (6) months of pay in lieu of reasonable notice after determining that the termination clause in his employment contract was void and unenforceable.
Facts in this Wrongful Dismissal Case
The employee was hired as a Director of Sustainability on April 2, 2018 for the employer, under a written employment contract.
On November 1, 2019, after the employee had worked for 1.5 years, the employer terminated the plaintiff on a without cause basis and provided him two weeks of pay in lieu of notice in accordance with his minimum entitlements under the Employment Standards Act, 2000 (ESA).
At the time of his termination, the employee was 49 years old and earned compensation included a base salary of CA$164,800, eligibility to earn a discretionary bonus, eligibility to participate in stock option grants, entitlement to RRSP matching to 5% of wages, extended health and disability benefits and four weeks of vacation.
Was the Employer Protected by the Employment Contract Termination Clause?
In the employer’s defence for the wrongful dismissal claim by the employee, it argued the employee was not entitled to a severance package based on common law because he had signed an employment contract with a termination clause, which stated as follows:
“This Agreement and your employment with the Company may be terminated at any time for just cause, without prior notice or any payment in lieu of notice or payment of any kind whatsoever, either by way of anticipated earnings or damages of any kind, by advising you in writing.
The Company may at any time terminate this Agreement and your employment, in accordance with the Employment Standards Act, (Ontario) (the “ESA”). The provisions of this paragraph will not apply in circumstances where you resign from employment or are terminated for cause.”
Despite the employer’s defence to the employee’s wrongful dismissal claim, the Court held that the short-term employee was entitled to a severance package based on common law standards since the termination clause in his employment contract was unenforceable as it violated the requirements of the ESA. In this case, the court held that the “for cause” termination clause in the employment contract was unenforceable because it improperly attempted to remove the employer’s requirement to provide statutory notice or pay in lieu of notice without reference to the statutory exemption. In the court’s own words:
“purports to remove the requirement for termination pay under the ESA if the plaintiff was terminated “for cause”. The Employment Agreement also suggest the plaintiff may be terminated “for cause” without any payment “of any kind whatsoever” and makes no exception to cases where the conduct of the plaintiff would fall within the exemption under the Regulation.”
Relying on recent case law, including the Ontario Court of Appeal’s decision in Waksdale v. Swegon North America, the court noted that while the common law permits an employer to dismiss an employee without notice or pay in lieu of notice for “just cause,” the ESA requires employers to provide employees with at least the statutory termination pay and severance pay (if applicable) – unless the employee has engaged in the statutory exemption of “wilful misconduct, disobedience or wilful neglect of duty” as outlined in Ontario Regulation 288/01. Significantly, this ESA is a far higher standard than the common law test for “just cause”. In essence, unlike the common law just cause standard, it requires the employee to committed “intentional” misconduct. Specifically, there may be circumstances where an employee’s behaviour constitutes “just cause” under the common law but does not constitute “wilful misconduct, disobedience or wilful neglect of duty” and thus the employee remains entitled to their minimum termination entitlements under the ESA (e.g., poor employee performance). As the court noted:
“The termination provision for cause did not restrict its application to situations governed by s. 2(1)((3) and s. 9(1) of the Regulation, and in the result the provision purports to apply to all dismissals for “cause” regardless of whether there was “wilful misconduct, disobedience or wilful neglect”. Moreover, the termination provision expressly stated that the provision of the paragraph related to Wesdome terminating the agreement or the plaintiff’s employment in accordance with the ESA did not apply in circumstances where the employment is terminated ‘for cause’.”
In reaching its decision, the referred to subsequent cases after the Waksdale decision which held that both the with cause and without cause termination clauses in an employment contract must be read as a whole when determining their enforceability. Specifically, if a “with cause” termination clause is illegal for violating the ESA, it means all other clauses in the employment contract related to termination in the employment contract are also unenforceable.
As a result, the short-term employee was entitled to common law reasonable notice, resulting in a greater severance package than the minimum requirements under the ESA.
Call an Ontario Severance Package Lawyer
If you are a short-term employee presented with severance package by your employer following a wrongful dismissal, call Bune Law, Toronto Employment Lawyer, to arrange a confidential consultation to review and better understand your employee rights and options, including to negotiate your severance package. We are here to protect your employee rights and best interests. With our detailed employment contract review with an Ontario employment lawyer, you can invest in your future by protecting your rights if you are ever terminated from your employment, including to ensure you receive a fair severance package, deal with a wrongful dismissal claims or constructive dismissal claims.