Termination of Employment of Federal Employees

In Ontario, most non-unionized employees are familiar with the Ontario Employment Standards Act, 2000 (ESA), which sets out the minimum rights of all employees in the workplace, including minimum wage, vacation pay, termination pay and severance pay.

However, the ESA statute only applies to employees who work for companies that must follow provincial employment law standards set by the province of Ontario. By contrast, employees who work for companies that must follow federal employment law standards set by the government of Canada are protected by the Canada Labour Code. In essence, the Canada Labour Code is equivalent to ESA in the workplace issues it covers (but does not provide the same exact protections).

Who is Covered by the Canada Labour Code?

The CLC only applies to employers (and employees) where the industry and workplace falls under federal jurisdiction, including:

federal government
federally-owned corporations (e.g., Canada Post Corporationn, Via Rail, Bank of Canada, etc.)
banks
transportation companies that cross provincial and international borders
radio and television broadcasters (CBC, CTV, etc.)
air transportation (airlines, airports)
railway companies that cross provincial and international borders
telecommunications companies (Rogers, Telus, Bell, etc.)

It is important to note that the Canada Labour Code only talks about the minimum rights/protections employees have – if they have signed a valid employment contract limiting their entitlements. If not, they are protected by much greater common law, including upon termination of employment, where their financial severance package will be determined based on their age, years of service, position and availability of similar employment.

For more information and an overview of when the Canada Labour Code applies, visit this site.

Minimum Federal Employment Rights to Termination Pay and Severance Pay

The Canada Labour Code establishes the minimum protections, labour standards and conditions of employment for workers regarding hours of work, wages, vacation and holidays. One of the most important protections under the Canada Labour Code is the requirement for federally-regulated employers to provide employees with:

Termination of Employment: minimum of 2 weeks written notice of termination, or 2 weeks pay in lieu of notice (except if employee is terminated for “just cause” or did not complete 3 months of probation); and

Severance Pay: 2 days of pay for each year of service (if complete 1 full year with the employer).

Exceptions under the Canada Labour Code

The Canada Labour Code excludes some employees from certain types of benefits/protections, including:

managers who are not covered by the unjust dismissal protections
managers, superintendents, architects, dentists, doctors, lawyers and engineers, who are not covered by the hours of work/overtime rules.

Termination of Employment Contract – Termination Clause for Federally Regulated Employees

The courts in Ontario regularly make important decisions on employers’ legal obligations the ESA when terminating employees from their jobs. Most of these case involve a dispute regarding a termination clause in an employment contract that an employer relies upon to minimize (or exclude) the amount of severance payment it must provide upon termination.

For instance, a recent decision decision of the Ontario Court of Appeal elaborated on what rights employees have when their employment is terminated. InWaksdale v. Swegon North America, the court ruled that a termination clause that deprives an employee of all forms of payment if the employee is terminated “for cause“, including their statutory minimum entitlement to termination pay, benefits and severance pay, is illegal. (Note: this case is currently under appeal to the Supreme Court of Canada, where it will either be upheld or overturned, which would create an legal principle in negotiating an employee’s severance package).

However, Ontario courts are rarely called upon to decide on a termination clause in the context of a federal employer-employee dispute involving the Canada Labour Code. This is not surprising given that the ESA (provincial law) governs the vast majority (90%) of all workplaces in Ontario.

A Rare Exception: The Case of Sager v. TFI International Inc. on Employment Termination

In one recent exception in Sager v TFI International Inc., an Ontario court was asked to determine the legality of a termination clause in an employment contract that limited a federally-regulated employer’s termination obligations to the minimum standards Canada Labour Code.

In Sager, the employee was employed as a Vice-President for a subsidiary corporation of the employer (TFI) for less than 3 years, at which point his employment was terminated without cause.

At the time of termination, the employee earned various forms of compensation, including a base salary, bonus, health benefits coverage, car allowance, a pension pension. Upon termination, TFI provided him with a severance package that minimized his termination pay in accordance with his employment contract. To justify its minimum severance payment to the employee, TFI argued that the termination clause in the employment contract limited his severance entitlements to: “the greater of three (3) months’ base salary or one (1) month base salary per year of completed service to a maximum of 12 months.” TFI also relied on a sentence in the termination clause that stated that this payment would be “inclusive of any and all requirements” that would be owing to the employee under the Canada Labour Code.

In order to obtain more severance pay, the employee brought a wrongful dismissal claim against TFI, alleging he was entitled to pay in lieu of notice under common law. The employee argued the employment contract’s termination clause was illegal because it attempted to limit his entitlements to a lump-sum payment based on his salary alone, without providing for his health benefits, pension plan, car allowance and bonus pay. The court agreed with the employee.

In its decision, the court held that, as an employer, TFI’s legal obligation is to provide reasonable notice of termination (or pay in lieu of notice) under common law, unless it has a valid employment contract that clearly and unambiguously limits the employee’s entitlements. In this context, since TFI is a federally-regulated employer by virtue of being a national transportation company, it was required to provide the employee with the the following minimum termination requirements under the Canada Labour Code:

2 weeks’ notice or 2 weeks’ pay in lieu of notice if the employee has completed 3 consecutive months of continuous employment (this is called the “statutory notice period”); and
severance pay in an amount that is the greater of:
- 2 days wages for each completed year of employment; or
- 5 days wages if the employee has completed twelve consecutive months of continuous service with the employer.

In reviewing the employment contract’s termination clause, the court held that TFI breached its minimum statutory obligation under s. 231(a) of the Canada Labour Code, which requires it to maintain the employee’s conditions of employment during the notice period. Specifically, this section states:

“Where notice is given by an employer pursuant to subsection 230(1), the employer

(a) shall not thereafter reduce the rate of wages or alter any other term or condition of employment of the employee to whom the notice was given except with the written consent of the employee; and

(b) shall, between the time when the notice is given and the date specified therein, pay to the employee his regular rate of wages for his regular hours of work.”

In this case, although TFI provided a severance package offering the employee an amount that was greater than his minimum entitlements under the Canada Labour Code, the court still found that the termination clause in the employment contract violated the Canada Labour Code by attempting to provide him with less than his minimum obligations during the statutory notice period after termination of employment.

In its decision, the court focused specifically on the fact that the employment contract’s termination clause expressly stated that the payments provided would be inclusive of “all requirements under the CLC“, which is a clear violation of the employer’s obligation to provide all forms of compensation:

“It says the lump sum payment is inclusive of all requirements under the CLC. If the lump sum payment is treated as inclusive of all requirements under the CLC, it excludes any payment on termination for Mr. Sager’s pension, car allowance or bonus, which were all the terms and conditions of Mr. Sager’s employment. It would also exclude the continuation of Mr. Sager’s benefits during the notice period. In my view, the meaning of the agreement it clear: Mr. Sager was entitled to a payment equal to three months of his base salary and nothing more during the notice period. This amounts to a change in Mr. Sager’s terms of employment during the notice period, which is inconsistent with s. 231(a) of the CLC.“

Accordingy, the court held that the employment contract’s termination clause was illegal and unenforceable. Therefore, the employee was entitled to severance payment of nine (9) months’ notice of termination under common law (including his base salary, bonus, health benefits and pension plan contributions).

Take-Home Points

The recent court decision in Sager v. TFI International is important for a number of reasons, both from the perspective of employees and employers.

First, it confirms what the courts have consistently ruled in many cases involving disputes regarding similar employment contract termination clauses governed by the ESA provincial law – all employers must provide no less than the minimum standards required under the basic employment law, regardless of whether they are provincially regulated under the ESA or federally regulated under the Canada Labour Code. Second, this decision confirms that any termination clause agreed upon in an employment contract must maintain all terms and conditions of employment throughout the notice period. If not, the employee will have a stronger case for succeeding in a wrongful dismissal case to obtain their full severance package upon termination of employment.

This decision also serves once again as another reminder for employers to ensure that your employment contracts comply with statutory requirements. For instance, it is important to ensure termination clauses do not create even a perception that the employer intends to exclude any form of compensation to which an employee is lawfully entitled under s. 231 of the Canada Labour Code after the employee’s job is terminated.

As the court concluded in this case (as well in the previous decision in Wood v. Fred Deeley Imports), employers will likely be unable to defend themselves in a wrongful dismissal claim by providing employees with more than their minimum entitlements under the Canada Labour Code upon termination, including benefits continuation and severance pay, in the face of an otherwise illegal employment contract. Put simply, employers will be unlikely to save face by trying to remedy unlawful employment contract “after the fact.” In such cases, the courts have shown a willingness to rule in favour of employees, forcing their employers to provide more hefty severance compensation.

Contact Employment Lawyer

If you are an employee or an employer seeking an experienced employment lawyer to help with a termination of employment and severance package, please contact Bune Law today.

If you believe that your employer is not compensating you fairly in your termination package, please call Bune Law to discuss your rights and options. To speak with an experienced employment lawyer, please contact 647-822-5492.

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