What you need to know about Ontario’s Employment Standards Act, termination pay, notice, and wrongful termination in Ontario.
Wrongful Termination in Ontario
Under Ontario’s Employment Standards Act (“ESA“), when an employee is dismissed, they are entitled to working notice. The purpose of providing an employee with working notice is to give the employee advance warning that their employment will be coming to an end so the employee has time to search for a new job without having their wages interrupted.
Because most employers would rather just terminate the employment relationship immediately (instead of giving an employee advance notice that their last day will be some time in the future) employers will instead simply end the employment relationship immediately and provide an employee with a lump sum payment equal to the length of the notice period. This is called “pay-in lieu of notice”. Whether an employee is provided with actual working notice or pay in lieu of notice, the employer must provide the employee with the statutory minimums set by the ESA.
That is all to say, an employee that has been dismissed must be paid (at a minimum) compensation equal to the length of notice they should have been provided under the ESA. Depending on the size of the employer, and the employee’s length of service, dismissed employees may be entitled to an additional payment under the ESA called “severance pay” as well.
However, as stated above, these payments under the ESA are simply the minimum amount of compensation an employer may have to pay. The actual length of notice (or pay-in-lieu of notice) will be determined by looking at the termination provisions in the employment contract to determine whether or not the termination provisions comply with the ESA.
Types of Notice Pay
To explain how employment contracts will determine the amount of compensation an employer will be liable to pay, you have to understand the difference between two types of notice:
- Statutory Notice
- Reasonable Notice
Statutory Notice is the minimum amount of compensation an Ontario employer may be liable to pay an employee who is dismissed without warning. Notice pay, or “termination pay” under the ESA, is equal to 1 week per year of service up to a maximum of 8 weeks. Depending on the size of the employer and the employee’s length of service, a dismissed employee may be entitled to additional compensation called “severance pay” as well (up to a maximum of 26 weeks). Throughout the notice period (or if pay in lieu of notice is provided, what would have been the notice period) the employer must also continue to make whatever benefit contributions they would normally provide while the employee was working.
In contrast, Reasonable Notice is a common law (judge-made) entitlement to a much longer notice period in an amount that will be determined by the courts based on the characteristics of a specific employee. Whereas the ESA treats all dismissed employees the same, in determining the length of the Reasonable Notice period (and therefore the amount of compensation a wrongfully dismissed employee may be awarded) a judge will consider factors such as the employee’s age, length of service, and job title, to decide how long it should reasonably take for this particular employee to find comparable alternative employment.
This means, that with Reasonable Notice, older employees who may face discriminatory hiring practices or those in very niche industries with less demand for their services, would be entitled to longer notice periods. For instance, whereas under the ESA an employee with 12 years of service would be entitled to the maximum 8 weeks’ pay in lieu of notice, under the common law, this same employee may be entitled to 15 months’ reasonable notice pay, depending on the facts.
The Effect of the Employment Contract on the Length of Notice Pay
As a result of these huge differences in the amount of compensation employees may be entitled to under the common law vs. statute (months vs. weeks), employers insert termination clauses into their employment contracts to limit their employees’ compensation on termination to the legal minimums set in the ESA.
Legally, employers are allowed to draft their employment contracts to prevent their employees from claiming they are owed reasonable notice under the common law. However, the employer cannot legally contract out of the ESA by attempting to provide employees with less than the minimum Statutory Notice Pay on termination or inserting vague termination clauses that create ambiguity as to what the employee is actually entitled to when they are let go.
When an employment contract does not provide an employee with the minimum amount of compensation set by the ESA, those termination provisions are rendered void and the employee may bring a wrongful dismissal claim on the basis they are entitled to Reasonable Notice under the common law. This is true, regardless of whether the employer pays the employee all of their statutory entitlements, so long as the termination provisions in their employment contract are invalid.
Before agreeing to accept any severance packages or compensation, employees should consult with an Ontario employment lawyer to see what they may actually be entitled to.
The Employees Duty to Mitigate by Finding Alternative Employment
One very important caveat to determining the amount of compensation an employee may be entitled to in a wrongful dismissal claim is that the employee has a duty to mitigate their losses by seeking similar alternative employment during the common law reasonable notice period. As the purpose of the notice period is to allow the employee time to secure another job, any wages the employee earns from their new job will be deducted from the notice pay owing to them. For example, if an employee is awarded 15 months’ notice, but is able to secure a new job after only 7 months, the employer may only be liable to pay compensation for those first 7 months. On the other hand, where an employee fails to mitigate their losses by making no (or low) effort attempts to secure new employment, the employer may argue the employee has failed to mitigate their damages and therefore the amount of notice should be significantly reduced. The employee’s duty to mitigate may involve returning to work with their former employer.
If you have any other questions or concerns about your situation please reach out and contact Supply Law at your convenience.