How Does Termination of Employment Work in Ontario?

As employment lawyers, we generally advise our employer clients to conduct a regular employment contract review (or at least annually) to ensure they are up-to-date, especially since employment law in Ontario is constantly changing with new court cases and legislation. This is a baseline practice for employers to help minimize the risk and costs of employment disputes, especially wrongful dismissal claims or constructive dismissal claims by employees.

In fact, it has become even more important for employers to ensure they have legal employment contracts in place since the 2021 case called Waksdale v Swegon North America Inc., 2020 ONCA 391. As a result of the case, it became very difficult for employers in Ontario to successfully convince a court that their termination of employment clauses in employment contracts comply with employment law (specifically, the Ontario Employment Standards Act, 2000).

But to understand exactly how having legally valid and enforceable employment contracts can benefit employers, it is important to first understand what termination of employment works in Ontario employment law.

Wrongful Dismissals: Termination With Cause vs. Termination Without Cause

When deciding to fire an employee, employers can terminate employment either for cause (which means for intentional misconduct justifying no prior notice or termination or a severance package), or without cause (where they need to have a reason, as long as they provide prior notice of termination or a severance package). Given the risk is greater than an employee brings a wrongful dismissal claim if their employment was terminated for just cause (especially since the standard for succeeding in a just cause case is very high), most employers opt to terminate without cause.

Basic Minimum Entitlements for Termination Pay and Severance Pay

As a bare minimum the law requires employers to provide employees with certain entitlements when terminating their employment without cause (as long as they have completed a 3-month probation period).

Federal Employees

For employees governed by federal employment law standards under the Canada Labour Code, the law currently requires employers give an employee with at least two weeks of notice or pay in lieu (or some combination thereof) and two days’ wages for each completed year of employment. However, as of February 2024, this will be increased such that for employees who have worked at least three years of service 3 weeks of notice of termination (or termination pay), up to a maximum of eight weeks for workers with eight or more years of service.

Provincial Employees

For employees governed by provincial employment legislation under the Ontario Employment Standards Act, 2000, the minimum requirements are at least one week notice of termination (or pay in lieu of notice), and severance pay.

Common Law Notice of Termination

Unlike the minimum employment standards legislation (which would only apply if an employee has agreed to restrict their severance pay entitlements under an employment contract), common law requires employers who wish to terminate an employee without cause to first provides the employee with “reasonable notice” (or pay in lieu of notice). When common law applies, an employee’s severance pay entitlements can be significantly longer than minimum employment standards legislation under the Canada Labour Code or Employment Standards Act, where an employee’s severance package providing employees with notice with periods up to two years (24 months). In this case, an employee’s wrongful dismissal severance package is determined on an case-by-case basis depending on a number of factors, taking into account an employee’s character of employment, length of service, age, availability of similar employment and the employee’s experience, training and qualifications).

Why Employers have Employment Contacts

As a prudent business strategy, some employers seek to exclude an employee’s common law entitlements by having them sign employment contracts with termination clauses limiting their severance pay entitlements to the employment standards minimums. However, if the employment contract does not comply with the technical requirements employment standards legislation, the employer will be back on the hook to provide reasonable notice to the employee under common law standards. Therefore, employers have to ensure that an experienced employment lawyer drafts of employment contracts.

Situations Where Employers do not have to Provide Severance Packages to Employees

Under employment standards legislation and common law, employers are permitted to avoid providing notice of termination (or a severance package) in a narrow set of circumstances.

Generally, under the Employment Standards Act, an employee can summarily dismiss an employee if they are:

“guilty of “wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer”.

This language borrows loosely from a longstanding court case called R. v Arthurs, Ex p. Port Arthur Shipbuilding Co. [1967] 2 O.R. 49 at 55 (C.A.), which held that employers can dismiss employees summarily for “cause”:

“if they are guilty of serious misconduct, habitual neglect of duty, incompetence, or conduct incompatible with their duties or prejudicial to the employer’s business, or if they are guilty of wilful disobedience to the employer’s orders on a matter of substance.”

While seemingly similar, there is a subtle difference between the two standards for terminations for just cause under the Employment Standards Act and common law. Basically, the Employment Standards Act sets a stricter standard by adding a “wilful” (intentional) standard to an employee’s misconduct or neglect of duty,” which does not exist under the common law just cause standard.

As a result, employers who rely on the broader common law standard in their employment contracts may still be required to provide statutory notice (or pay in lieu of notice) and severance pay (if applicable) to an employee where the termination does not meet the narrower statutory wilful misconduct or neglect of duty standards.

Call an Employment Lawyer in Toronto

For an employee who believes they were wrongfully dismissed, it is important to speak with an experienced Toronto wrongful dismissal lawyer as soon as they are told by an employer that their employment will be terminated. If you are an employee who believes you have been wrongfully dismissed and the decision to terminate was unjust or discriminatory, please speak with our experienced wrongful dismissal lawyer in Toronto regarding your options, including negotiating your severance package to obtain the severance compensation you deserve, as well as wrongful dismissal claim.

Contact us by phone 647-822-5492 or fill out the contact form to the side. Our employment lawyer in Toronto would be happy to assist in your employment law matter as quickly as possible.

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