Termination of employment

Proper termination practices and policies are imperative as every employment relationship will inevitably come to end and the legal consequences can be serious, especially for terminations that are unilaterally implemented by the employer.

There are ESA minimum requirements upon termination of employment, including but not limited to:

Pay in lieu of notice of termination;
Severance pay;
Mass termination pay;
Unpaid overtime and/or vacation; and
Employee benefits during the statutory notice period.

These minimum standards apply to all employers, including tiny startups. Specific issues that often arise include the following:

(i) Mass termination

It is possible to inadvertently trigger the strict “mass termination” obligations under the ESA. These provisions will come into play in the event that 50 or more employees are terminated in any period of four weeks or less. For example, the “mass termination” provisions could be triggered if a company terminates the employment of 35 employees and constructively dismisses 15 more employees by unilaterally modifying a fundamental term of their employment, all in a period of four weeks. We have seen companies work hard to keep their number under 50, then inadvertently exceed the limit because of a couple of terminations in management ranks that they forgot to include. Mass termination requirements include, but are not limited to, a substantially increased statutory notice period for each employee involved, and the filing of a report with the Ministry of Labour.

(ii) Insurance benefit coverage

Employees are entitled to receive their entire group insurance benefit coverage for the duration of their statutory notice period pursuant to the ESA. In the event an employer does not provide benefits continuance to the extent required by the ESA (due to the insurer’s refusal or the employer’s unilateral termination of the coverage), it may be found to be in violation of the ESA. Furthermore, in the event the employee dies or becomes disabled during the statutory notice period, the employer may become responsible for the proceeds of the life insurance policy or the disability benefits that would normally be in place, and payable, but for the termination of the coverage. As such, employers are advised to contact their insurance provider prior to the termination of employment, in order to obtain confirmation of benefits continuance and conversion possibilities (if any), in writing. Employers should also inform employees, in a termination letter, of the scope of the benefit continuance, the termination date of these benefits and the time limits for any conversion possibilities. This termination letter should also recommend that the employee pursue alternate coverage.

(iii) Cause

On occasion, an employer will attempt to terminate an employee for “cause”. One of the employer benefits of a termination for cause is that the dismissed employee is not entitled to any notice period or pay in lieu of notice. Except in cases of extreme misconduct, however, it will difficult for an employer in Ontario to substantiate an allegation of dismissal for cause unless the employer has implemented a well-documented and properly administered process for record keeping and the issuance of warnings. An investigation and due process to the employee is usually also necessary before cause is alleged. In the case of a termination without notice where the employer alleges cause, but has failed to keep proper records and provide warnings in an appropriate manner, the dismissed employee will likely succeed in an action for wrongful dismissal. Even where proper records have been kept and warnings given, the courts are unlikely to uphold terminations for cause in all but the most extreme circumstances. For this reason, it is important to speak with legal counsel experienced in this area of law well before any termination for cause is attempted.

Questions? Email us at startups@dentons.com.