Termination Without Cause: Overview
Termination of employment in Ontario can occur in two different ways: (i) termination without cause; or (ii) termination for cause. An employee who has been terminated without cause is presumed to be entitled to reasonable notice of dismissal or pay in lieu of notice of dismissal (a.k.a. a severance package). In contrast, an employee who has been terminated for cause because of a serious act of misconduct is not entitled to notice of dismissal or a severance package.
The majority of terminations of employment in Ontario are without cause. The employer does not need a good reason to end the employment relationship and, therefore, is not required to prove that the employee did something wrong in order to justify its decision to dismiss the employee. Instead, the employer simply exercises its right to end the employment relationship by providing the employee with reasonable notice of dismissal.
Typically, an employee who is dismissed without cause does not receive advanced warning of the termination of employment. Instead, the employee is notified in a termination meeting that his or her employment is being terminated effective immediately. The employer provides the dismissed employee with a termination letter that provides an offer of a severance package. The purpose of the severance package is to compensate the employee for the employer’s failure to provide the employee with proper notice of dismissal.
The employer also has the option of providing the employee with working notice of dismissal or a combination of working notice and pay in lieu of notice. There is no difference at law between working notice and payment in lieu of working notice.1 In Ontario the regulations of the Employment Standards Act 2000 2 (“ESA”) require that an employer provide fresh notice of dismissal if the termination date is subsequently extended by more than 13 weeks because the employer has assigned the employee with temporary work.3
An employer who terminates an employee without cause is required to ‘make the employee whole‘ during the period of reasonable notice. In other words, the severance package should be designed to ensure that throughout the employee’s notice period the employee will continue to receive all the compensation and benefits that he or she would have enjoyed if still actively employed with the employer.
If the employee’s employment contract contains an enforceable termination clause the termination clause will rebut the presumption that the employee is entitled to reasonable notice of dismissal and the employee will only be entitled to the notice or payments specified by the termination clause. Significantly, approximately 30% of termination clauses in Ontario employment contracts have not been properly drafted and will not be enforced by a court because they breach the minimum standards of the (“ESA”). If the termination clause is void the dismissed employee will be entitled to reasonable notice of dismissal.
A fixed term employment contract will also rebut the presumption of reasonable notice of dismissal. The Ontario Court of Appeal held in Howard v Benson Group Inc.4 that an employee who has been dismissed prior to the end of the fixed term will be entitled to the wages and benefits he or she would have received to the end of the fixed term unless the employment contract contains an enforceable termination clause that specifies a pre-determined notice period in the event of early termination.
It is not unusual for a severance package offered by an employer to be less than the employee’s legal entitlements. If this is the case the former employee has the right to commence a wrongful dismissal action and ask the court to order the employer to pay damages for failing to provide proper notice. Dismissed employees should have their severance package reviewed by a lawyer whose legal practice is focused on employment law to ensure that the severance package offered is fair.
In the vast majority of wrongful dismissal cases, the employer and former employee reach a voluntary settlement of their dispute prior to the case being decided by a court. However, litigation or the threat of litigation is usually the only leverage that an employer has to negotiate a better severance package.
If you have have been terminated from their employment and are unsure how to respond to the dismissal you will find the sub-chapter titled “Termination of Employment: How to Respond” useful reading.
Calculating the Reasonable Notice Period
An employee’s entitlement to reasonable notice of termination of employment should not be confused with the employee’s entitlements to notice and severance set out in the Ontario Employment Standards Act (“ESA”). The ESA in enforced by the Ministry of Labour and only provides the employee with the minimum notice and severance payments allowed by the law. The right to reasonable notice will, in most cases, entitle the employee to a much larger severance package than that provided by the ESA.
Determining a reasonable notice period for a dismissed employee is more of an art than a science. It involves conducting an individualized assessment of dismissed employee’s circumstances. A court will consider the following factors when determining the notice period to which a dismissed employee is entitled:
- the employee’s age – older, long-term employees are generally entitled to a longer notice period because they are at a significant disadvantage competing for work;
- the employee’s length of service;
- character of the employment (i.e. the employee’s skill set and position); and
- availability of similar employment.
These four factors are known as the “Bardal factors” named after Bardal v. Globe & Mail Ltd.5 the leading decision on calculating a dismissed employee’s reasonable notice period. Although the four Bardal factors are to be considered in all wrongful dismissal cases, there are numerous other factors that might impact the length of the notice period. For example, a longer notice period may be awarded if:
- the former employee was induced (i.e. enticed or actively recruited) by the employer or a head hunter to leave a secure position at another company to join the employer;
- the employer makes false allegations about the former employee that makes it more difficult for the employee to find new employment;
- the employer refuses to provide the employee with a reference letter;
- the employee has a disability;
- the employee is dismissed during a time of year when it will be more difficult to find new employment;
- the employee’s employment contract contains a non-competition or non-solicitation clause that prevents the former employee from working in his or her chosen field for a period of time.
Given the number of factors that may be considered when undertaking the individualized assessment of the dismissed employee, determining a proper notice period is not a mathematical calculation. For that reason, the computer apps that purport to be able to calculate notice period should be viewed as a marketing tool for the law firms that developed the app rather than an accurate assessment of the employee’s notice period.
The most common mistake made when determining an employee’s notice period is to focus solely on the employee’s length of service. It is widely believed, incorrectly, that an employee’s reasonable notice period is calculated by multiplying the employee’s year of service by a number of weeks (i.e. 2 weeks per year of service or 4 weeks per year of service etc.). However, the Ontario Court of Appeal has consistently held that no one Bardal factor should be given disproportionate weight when calculating a reasonable notice period. It is an error of law to determine the employee’s notice period by focusing solely on the employee’s length of service.
Nevertheless, a review of the caselaw reveals that many decisions do implicitly apply what is sometimes described as a “rule of thumb” and award the dismissed employee with approximately one month of notice for every year of service. Despite this tendency in some decision, when seeking to determine a specific notice period both employers and employees should consult with an experienced employment lawyer for assistance in determining the individual’s reasonable notice period. As discussed in detail below, specific notice awards can, do, and should vary significantly from the “rule of thumb” approach.
Employees who have only been employed for a relatively short period of time will often receive more than one month per year of service. For example, a 50-year-old manager who had been employed for 2 years before being dismissed might be entitled to a notice period of approximately 6 months.
The Ontario Court of Appeal held in Lowndes v. Summit Ford Sales Ltd. that generally only exceptional circumstances will support a base notice period in excess of 24 months. Awards of 24 months or greater are normally reserved for older workers who had worked for their former employers for significant periods of time and who can also point to other factors that would support a lengthy notice period. Examples of recent decisions where the court found exceptional circumstances to justify a longer notice period are: the 2011 decision Hussain v. Suzuki Canada Ltd.6 where a 65-year-old assistant warehouse supervisor with 36 years of service the court awarded 26 months reasonable notice; and the 2015 decision Markoulakis v SNC-Lavalin Inc.7 where a 65-year-old senior civil engineer who earned $129,272 per year and was dismissed after 40 years of service was awarded 27 months reasonable notice.
In 2016 the Ontario Court of Appeal upheld an award of 26 months notice to two dependent contractors in Keenan v. Canac Kitchens Ltd.8. The trial judge made the award without providing an exceptional reason to justify the decision to award a notice period longer than 24 months. In dismissing the employer’s appeal of the trial judge’s decision, the Court of Appeal effectively eliminated the 24-month cap, absent extraordinary circumstances. Justice Gillese wrote at para. 32:
Lawrence Keenan and Marilyn Keenan worked for Canac for approximately 32 and 25 years respectively. Together, their average length of service was 28.5 years. They were 63 and 61 years of age at the time of termination. They held supervisory, responsible positions in which they oversaw the installation of Canac’s products and met with Canac’s customers as its representatives. For over a generation, they were Canac’s public face to the outside world. Over a period of approximately thirty years – the entirety of their working lives – the Keenans’ income had come from Canac and they relied on that income to support themselves and their family. Even during the approximately two years that they provided some services to Cartier, a “substantial majority” of the Keenans’ work continued to be done for Canac. These circumstances justify an award in excess of 24 months and I see nothing wrong in the trial judge’s finding that 26 months’ notice was reasonable.
How a court calculates an employee’s reasonable notice period is discussed in detail in the following chapter titled: Calculating the Length of Reasonable Notice.
Working Notice of Dismissal
The term working notice refers to an employer’s right to provide an employee with notice that his or her employment will be terminated at a specific date in the future. It is rare for an employer to provided an employee with working notice of dismissal. Indeed it is so rare that many employees are surprised to learn that their employer even has this option. This is because employers are often concerned that an employee who has been given working notice of dismissal will suffer from low morale and a negative attitude during his or her working notice period. In extreme cases, the employee may engage in a breach of confidence, sabotage, or theft of trade secrets by the employee.
If the working notice period provided is sufficient, at the conclusion of the working notice period the employee’s employment will not be entitled to further notice of dismissal or pay in lieu of notice. In Ontario, however, the ESA mandates that the employee be paid statutory severance pay at the end of the working notice period if the employer has an annual payroll of over $2,500,000 and employee had been employed for at least five years. Statutory severance pay is 1 weeks’ pay per year of service up to a maximum of 26 weeks’ pay.
The Distinction Between Entitlements Upon Dismissal Provided by the Employment Standards Act and an Employee’s Right to Reasonable Notice of Dismissal
There are two different laws in Ontario that provide for a dismissed employee’s entitlement upon dismissal: (i) the ESA which sets out a dismissed employee’s minimum entitlements if dismissed; and (ii) the common law right to reasonable notice of dismissal.
Employees who have been terminated without cause often confuse their entitlement to reasonable notice and their entitlements pursuant to the ESA. It is critical that employees and employers understand the distinction because they often mistakenly believe that a dismissed employee is only entitled to the notice and severance set out in ESA when the employee is actually entitled to a much larger termination package because the employee is entitled to reasonable notice of dismissal.
An employee will be entitled to reasonable notice of dismissal unless his or her termination clause contains an enforceable termination clause that limits his or her entitlement to the minimum set out in the ESA.
The ESA is a provincial statute that only sets out the minimum notice and severance entitlements that the employer must provide an employee. An employer that has dismissed an employee without cause must pay the employee his or her entitlements pursuant to the ESA. The employee is not required to sign a Release or reach any other sort of agreement with the employer in exchange for the payment.
In contrast, the employee’s right to reasonable notice of dismissal will typically entitle the employee to a significantly longer notice period than that provided for by the ESA. An extreme example of the different entitlement would be a long service employee working for a small employer. The employee would only be entitled to 8 weeks notice of dismissal pursuant to the ESA but may have a legal entitlement to a severance package of up to 24 months reasonable notice of dismissal. Obviously, there is a huge difference between a severance package that pays 8 weeks notice of dismissal and a severance package that provides the dismissed employee with 24 months notice of dismissal.
Dismissed employees often believe, incorrectly, that the Ontario Ministry of Labour will take steps to ensure that the employee is provided with a proper severance package. The Ministry of Labour only enforces the ESA. In the example set out in the paragraph above the Ministry of Labour would only enforce the dismissed employee’s entitlement to 8 weeks notice of dismissal. The Ministry would not take any steps to enforce the employee’s right to a severance package representing 24 months notice. The entitlement to 24 months reasonable notice would be enforced by using an employment lawyer and, if necessary, asking the court to order payment.
A dismissed employee cannot file a complaint with the Ministry of Labour and start a court action to ask the court to order his or her former employer to provide the employee with reasonable notice of dismissal. The employee may only proceed with one of these two enforcement options.
A court has the authority to order the employer to pay the employee’s reasonable notice entitlements as well as the employee’s entitlements pursuant to the ESA. In contrast, the Ministry of Labour only enforces the ESA.
The takeaway for employees is to understand their legal claim against their former employers and proceed accordingly. It is usually a mistake to file a complaint with the Ministry of Labour if the employee is entitled to reasonable notice of dismissal.
Removing the Right To Reasonable Notice
The legal obligation to make employee whole during the notice period can be modified if the employee’s employment contract provides for another period of notice will be provided to the employee upon termination of employment. Generally, this will be set out in a termination clause in the employee’s employment contract. The termination clause may specify a fixed notice period or provide a calculation for determining the notice period (as an example, the employee’s notice period might increase at a set amount with each additional year of service). The termination clause may also only provide the employee with specific types of compensation upon termination. For example, the employee may receive his or her base salary during the notice period but not be entitled to stock options or a bonus.
Significantly, any compensation paid out pursuant to the terms of the termination clause will not be subject to the duty to mitigate unless the duty to mitigate is explicitly stated in the contract.
Notice provisions set out in a termination clause will only be enforceable if the termination clause does not breach the minimum notice and severance provisions set out in the ESA. The ESA is a provincial statute that sets out minimum notice and severance payments an employee who is provincially regulated is entitled to upon dismissal. The Canada Labour Code9 governs federally regulated employees and also has minimum notice and severance provisions). It is illegal to provide an employee with less notice and severance than that required by the ESA, even if the parties have agreed that the employee will a lesser amount upon termination. Therefore, a termination clause must provide an amount equal to or greater than the minimum notice and severance required by the ESA.
If the termination clause provides the employee with less than that required by the ESA, a court will strike the clause from the contract and award the dismissed employee reasonable notice of dismissal. Dismissed employees are often confused about their entitlement to notice of dismissal under the ESA (which is enforced by the Ministry of Labour) and their common law right to reasonable notice (the Ministry of Labour does not have the authority to award an employee with reasonable notice of dismissal).
It is important that dismissed employees understand that if they file a complaint with the Ministry of Labour they will be limited to claiming their entitlements under the ESA and will not be entitled to claim damages for their employers’ failure to provide reasonable notice of dismissal. The ESA only provides the dismissed employee with his or her minimum entitlement to notice and severance upon dismissal which is likely significantly less that his or her entitlement to reasonable notice of dismissal.
The Duty to Mitigate
A court, prior to awarding damages (i.e. a money award) for an employer’s failure to provide its employee with reasonable notice, will first deduct any employment income that has been earned by the dismissed employee from other sources during the employee’s reasonable notice period. This deduction occurs because a dismissed employee has a “duty to mitigate” the loss he or she suffered as a result of her dismissal. In other words, the dismissed employee has an obligation to take reasonable steps to find new employment in order to attempt to offset the loss he or she suffered as a result of the dismissal.
The duty to mitigate is imposed upon the dismissed employee because the purpose of a reasonable notice award is to compensate the employee for the loss of income he or she experienced as a result of the dismissal. It is not awarded by a court to punish the employer or as an award for long service or a bonus. It is not an entitlement to be double paid.
Asking for More: An Employee’s Options When Given a Severance Package
A lawsuit, or a threat of a lawsuit, is the only leverage a dismissed employee has to encourage his or her employer to negotiate an appropriate settlement package. Take the threat of a lawsuit off the table and the employer has no reason to deal with the former employee.
An employee who is considering starting a wrongful dismissal claim against his or her employer should understand that if a settlement agreement cannot be reached with the former employer that a judge will ultimately decide the employee’s notice period. Note, however, the vast majority of wrongful dismissal cases are settled voluntarily between the employee and employer prior to the claim ever reaching trial. It is not unusual for a demand letter from a lawyer to be sufficient impetus for an employer to offer a fair settlement package to a dismissed employee.
An employee who is claiming that he or she has been wrongfully dismissed might also seek moral damages (damages for bad faith dismissal) or punitive damages if the employer has acted maliciously in terminating the employee’s employment.
Employer Strategies When Offering an Employee a Severance Package
Employers who have made the decision to terminate the employment of an employee have the option of following one of three basic strategies when determining the notice period that will be offered to the employee:
- undertake an honest assessment of the dismissed employee’s reasonable notice entitlement and offer that notice period to the dismissed employee;
- determine the range of reasonable notice periods that will likely be awarded by a court and offer the employee a severance package that provides the employee with a notice period slightly below the low end of the range that a court is likely to award. This strategy places the employee in a difficult position. The settlement offer is below what a court would award however any potential upside for the employee is limited and may be offset by the legal costs incurred by the employee fighting for a longer notice period; or
- offer the employee a severance package well below his or her entitlement to reasonable notice and hope that the employee is not aware of his or her legal rights or is unwilling to fight to enforce those rights. If the employee is willing to fight, this strategy will almost certainly result in a wrongful dismissal claim.
The last two options are a breach of contract. Nevertheless, these options are regularly used by employers.
- Taylor v. Brown, 2004 CanLII 39004 (ONCA) at para. 14; ↩
- Employment Standards Act, 2000, SO 2000, c 41,; ↩
- see Di Tomaso v. Crown Metal Packaging Canada LP, 2011 ONCA 469 at para. 20; ↩
- Howard v Benson Group Inc., 2016 ONCA 256 at para. 22 ↩
- Bardal v. Globe & Mail Ltd (1960), 24 D.L.R. (2d) 140; ↩
- Hussain v. Suzuki Canada Ltd. (2011), 209 A.C.W.S. (3d) 101 (Ont. S.C.J.); ↩
- Markoulakis v SNC-Lavalin Inc., 2015 ONSC 1081; ↩
- Keenan v. Canac Kitchens Ltd., 2016 ONCA 79; ↩
- Canada Labour Code, RSC 1985, c L-2; ↩