Termination Pay – Firing Without Cause

Firing employees is among the least comfortable tasks that face business owners. Whether it’s a result of poor quality of work, conduct in the workplace, budget cuts, or restructuring, dismissing an employee is rarely a decision that’s made easily.

Employees can be let go for a reason – poor work quality, dishonesty, fraud, disciplinary issues – known as dismissal “for cause.” I’ll cover dismissal for cause in another article.

In Ontario, the Employment Standards Act, 2000, or ESA, sets the minimum standard for employee rights. It protects workers from unfair actions by employers. It is a “one size fits all” law, meaning that it imposes the same rules on small businesses as it does on Fortune 500 companies. On top of the complexities in the written law, the courts have fleshed out certain “common law” rules. Breaking those rules can mean paying big financial penalties for bad faith conduct, and a whole lot of time and heartache spent fighting lawsuits.  You should always consult with a lawyer before letting an employee go, just to make sure you’re not exposed to extra risk. You may pay more to the employee and your lawyer up front, but you can avoid a costly court case.

Dismissal Without Cause

If an employee is being let go without cause – due to the sale or merger of the business, budget cuts, or in a restructuring for example – the ESA requires employers to give a reasonable notice period. The employer may:

  • give written notice of dismissal and require the employee to work through the notice period while allowing them to search for new employment, or
  • terminate them immediately and pay their salary and benefits for the length of the notice period

Fixed Notice

Some employment contracts, particularly for management, will dictate a specific amount of notice that is required, such as:

The employer shall be entitled to end the employment relationship at any time, without cause, and at the employer’s discretion. Should the employer dismiss the employee without cause, the employee shall be entitled to payment of four months’ notice or pay in lieu of notice, including benefits.

If the employee is let go without cause, the employer must pay this amount without conditions such as requiring a release. A failure to pay, or an attempt to reduce the amount payable could be seen as bad faith, and could result in a big damages award against the employer.

Even if the employee mitigates their damages by finding another job right away, they’re still entitled to receive the full amount of damages.

ESA Minimum Notice

Many employment contracts state simply that:

The employer shall be entitled to end the employment relationship at any time, without cause, and at the employer’s discretion. Should the employer dismiss the employee without cause, the employee shall be entitled to the minimum notice or pay in lieu of notice, including benefits, required by the Employment Standards Act, 2000.

The general rule of thumb is one week of notice for every year of service is the starting point. Bear in mind, however, that this is only a minimum. Courts can award additional notice based on age, long-service, or their duties (managers or supervisors are often entitled to more notice) based on the common law, below. This is where your lawyer earns his keep – looking at the circumstances, and helping you to determine a reasonable notice period.

Bonuses and other discretionary benefits are tricky, and must be dealt with on a case-by-case basis.

Common Law Notice

If there is no notice provision in the contract, or a court finds that the ESA minimum would be unfair in the circumstances, the common law will apply. What a “reasonable” notice period is depends on the circumstances. Courts will decide the appropriate notice period based on a number of factors, including the employee’s age, length of service, and their role and responsibilities at the company. Again, this is where your lawyer earns his keep in helping you to determine what a reasonable amount of notice would be.

The above is a big picture view of what the law requires employers to consider when letting an employee go without cause. As usual, it’s for your information only, and no substitute for a discussion with a lawyer. I happen to know a guy…

Mike Hook
Intrepid Lawyer
@MikeHookLaw

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