Minimizing Exposure to Termination Pay
Many wrongful dismissal lawsuits involve debates around employee entitlements upon termination. Many of these claims could have been avoided with a well-drafted employment agreement that clearly sets out the employee’s entitlements should the employer have to part ways with that employee.
The Employment Standards Act, 2000 (the “ESA”) is known as “minimum standards legislation” and, as the name implies, it establishes the minimum amount of working notice (or pay in lieu of notice) that an employer must provide when dismissing an employee without cause. Employee entitlements under the ESA are roughly equal to one (1) week of notice (or pay in lieu) per full year of service up to a maximum of eight (8) weeks. The Ontario Government offers a detailed explanation of ESA termination pay.
There is a common and costly misconception among employers that they will satisfy their legal obligations by paying ESA termination pay upon dismissing an employee without cause. The error arises from the assumption that the ESA establishes an employee’s default entitlement upon termination. In reality, employees have greater entitlements upon termination unless the employer expressly limits termination pay to the ESA entitlement in a written employment agreement.
In the absence of express written language, an employee is entitled to “reasonable notice of termination” (or pay in lieu of reasonable notice) at common law. Reasonable notice is not based on a specific mathematical formula like ESA notice and is instead an estimate of the time that it will take the terminated employee to find comparable alternative employment with reasonable effort. Reasonable notice is specific to each employee and will consider things like:
- Length of service
- Seniority of the role
- The current job market
Some employment lawyers will refer to a “rule of thumb” that reasonable notice is approximately equal to one month per year of service up to a maximum of 24 months. This rule is roughly supported by the recent case law, although there is significant deviation based on the context of each case.
Employers will often express anger with the confusing state of employment law in Ontario and, after getting over their initial frustration, they frequently ask “how do I prevent this from happening again?” The answer is relatively simple: Hire employees with a written employment agreement that specifically limits their entitlement upon dismissal to the minimum notice period prescribed by the ESA. Such contracts need to be carefully drafted to be enforceable, but it is not an overly-complicated task for an employment lawyer.
Although there is some expense associated with retaining a lawyer to draft contracts, the cost will be recouped several times over if a dismissal is ever required.
Main Takeaways for Condominium Employers
- A properly drafted employment agreement can also significantly reduce the risk of legal claims for the Condominium employer.
- Terminating employees can be costly, but it does not have to be. Long-term thinking supports short-term investment in properly drafted employment contracts.
The content of this article is intended to provide a general guide to the subject matter and is not legal advice. Specialist advice should be sought regarding your specific circumstance.