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.

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 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. 

Calculating an employee’s entitlement to reasonable notice of dismissal will vary with circumstances of any particular case. The most frequent factors considered by a court when determining the dismissed employee’s entitlement to reasonable notice include the employee’s: age; length of service; character of employment; and availability of similar employment. A court will weigh and balance all of these factors and may consider other factors relevant to the specific facts of the case.

It is an error of law to apply a rule of thumb whereby the employee is provided with one months’ notice for every year of service. It is an error because the approach only considers the employee’s length of service and not the other relevant factors such as the employee’s age and availability of similar employment.

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.