Understanding Notice of Termination and Termination Pay

Employers are required to give their employees notice of their intention to terminate an employment relationship or pay in lieu of notice.

If an employer fails to give an employee adequate notice of termination, the employee may be able to claim this entitlement through a statutory complaint process or as part of a wrongful dismissal court action.

There are situations, however, where an employer is not generally required to give notice:

1. There is just cause for the termination.
2. The employee resigned.
3. The employment contract expired at the end of a fixed term.
4. The employment relationship is frustrated.

Determining the Legal Requirements of Notice

Statutory Notice

The Employment Standards Act, 2000, establishes the minimum employment standards in Ontario. The Act specifies minimum notice periods for termination of employment or pay in lieu of notice.

The mandatory notice period set out in the Act varies depending on the employee’s length of service. Section 57 of the Act requires that employees be given approximately one week of notice for every year that the employee has worked for that employer, up to a maximum of eight weeks.

If the employment relationship is governed by an employment contract with a well-drafted termination clause, employees may only be entitled to the minimum amount of notice set out in the Act.

When an employee’s employment is terminated, the employee may also be entitled to severance pay, which is a payment that is made by the employer upon termination in addition to the termination notice.

While notice of termination is meant to give the employee an opportunity to seek alternative employment, severance pay is meant to compensate the employee for the investment of their service with the employer. Section 63 of the Act sets out which employers must pay severance to a dismissed employee.

Common Law Notice

The common law is the law developed by the courts. Judges have formulated a framework for awarding notice that is different from what is set out in the Act. Employers often look to limit employees’ entitlement to common law reasonable notice as it is typically greater than the statutory minimum required by the Act.

If an employee does not have an employment contract with a carefully crafted termination provision that limits their notice entitlement to that which is set out in the Act, the courts may import into the parties’ contract an unwritten term for termination requiring “reasonable notice”.

Reasonable notice is determined on a case-by-case basis and is dependent on the surrounding circumstances and a number of factors that have been identified by the courts.

The key factors used to assess reasonable notice are:

• Length of service

• Age of employee

• Character of employment and availability of similar employment

• Having regard to the experience, training and qualifications of the employee

A reasonable notice period may be lengthened where:

• The employee was induced to leave a relatively long term, secure job and terminated in new employment a short time after being hired.

• The employee is pregnant or on maternity or parental leave at the time their employment is terminated.

• The employee is in poor health at the time that their employment is terminated.

Determining reasonable notice is not a straightforward exercise and will often require a review of case law for factually similar cases. Many wrongful dismissal lawsuits involve disputes with respect to the amount of reasonable notice an employee is entitled to receive upon termination of their employment.

Conclusion

Employers who are considering terminating an employee must carefully consider their notice obligations and the legal ramifications for failing to provide adequate notice of termination. Insufficient notice may invite a wrongful dismissal court action or a complaint to the Ministry of Labour.

If your employment has been terminated, it is important to determine if you have a written employment contract. A lawyer can review your employment contract with you to determine your notice entitlements. If you do not have a written contract, you are likely entitled to common law reasonable notice which can require employers to give up to 24 months of notice, or pay in lieu of notice. As a general principle, reasonable notice is capped at 24 months.In exceptional circumstances, an employee may be entitled to more as seen in Dawe v. Equitable Life Insurance Company, 2018 ONSC 3130 where the employee was awarded 30 months of reasonable notice.

Notice is often colloquially referred to as “termination pay”, however, notice or pay in lieu of notice is not the only entitlement that is triggered by termination of employment. Both employees and employers will want to carefully consider an employee’s other possible entitlements upon termination such as severance pay, vacation pay, bonus pay, etc.

Author’s Note: Be advised that Federally regulated employees and unionized employees are governed by different employment legislation and/or agreements and the concepts discussed herein do not necessarily apply to such employees/ employers.