Procedures For Terminating the Agreement
Subject to what is contained in the written employment agreement itself, there is no specific procedure for terminating the employment agreement. However, if an employee has been continuously employed for three months or more and the employer wishes to give the employee working notice of termination, the notice must be in writing.
Under Ontario law, there are special rules for mass terminations where the employer seeks to terminate 50 or more employees within a four-week period. When a mass termination occurs, the employer must submit a prescribed form to the Director of Employment Standards. Any termination notice to the affected employees is not effective until the form is received by the Director.
If there is an interruption in the employee’s wages at any time, the employer must issue a Record of Employment.
An employer can terminate an employee without notice if the employee’s conduct amounts to “just cause” for termination.
Conduct constituting “just cause” is conduct incompatible with the employment relationship. It includes serious dishonesty, such as fraud and theft, serious breach of trust, subordination which is not trivial, or engaging in sexual harassment or violence in the workplace.
In Ontario, even where there is just cause for dismissal, an employer must still provide the dismissed employee with termination pay in lieu of notice, severance pay and benefit continuation as required under the Employment Standards Act, unless the employee has engaged in wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.
An employment agreement can be terminated by the employee’s resignation. There are no legislative provisions requiring the employee to give any notice to the employer. However, a notice period may be stipulated in the employment agreement.
In the absence of an express agreement respecting an employee’s notice, the employee is obliged to give the employer reasonable advance notice of resignation at common law. In virtually all cases, this notice will be substantially less than the notice period which would be required of the employer in the event of a dismissal.
Termination On Notice
An employer can terminate an employment agreement on notice. This notice cannot be less than the minimum notice set out in the Employment Standards Act.
In addition, at common law, there is an implied term that the employee will be provided with reasonable notice of termination, which is often greater than the statutory notice. This implied term can be replaced by a contractual provision.
An employee who is terminated for just cause is not entitled to notice unless the employee has not also engaged in wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer. In that case, the employee will only be entitled to the minimum notice under the Employment Standards Act.
The reason for which the employer dismissed the employee cannot be, even in small part, for a discriminatory reason, and must comply with the Employment Standards Act and the Human Rights Code.
Termination By Reason Of The Employee's Age
Generally, it is a violation of the Human Rights Code to dismiss an employee on the basis of age. However, if the employer can show that there is a bona fide occupational requirement for the age restriction, the dismissal will be permitted and will not constitute discrimination.
Automatic Termination In Cases Of Force Majeure
An employment agreement will terminate automatically in cases of force majeure, without notice. True instances of force majeure are rare.
An employment contract is “frustrated” when surrounding circumstances make it impossible for the parties to perform the employment contract, through no fault of either party.
Disability cannot be the basis of a frustrated contract under the Employment Standards Act.
Under the Employment Standards Act, if more than 50 employees will be terminated at the employer’s establishment in a four-week period because of the permanent discontinuance of all or part of the business, the employer must first give notice to the Director of Employment Standards by its prescribed Form 1. If the form is delivered late, the employer will lose credit for any statutory working notice that is given prior to the form being delivered.
Enhanced notice of termination must also be given to the dismissed employees. Unlike an ordinary termination, the length of notice required in a mass termination depends on the number of employees who will be terminated and not on the individual employees’ years of service.
In addition, statutory severance pay is ordinarily only payable by employers with a payroll of $2.5 million or more. However, employees with five or more years of service who are dismissed are entitled to severance pay even if the employer does not have a payroll of $2.5 million or more.
The mass-termination rules do not apply if the number of terminated employees is not more than 10 per cent of the employees who have been employed for at least three months at the establishment and the terminations are not caused by the permanent discontinuance of all or part of the employer's business.
Termination By Parties’ Agreement
The parties can terminate the employment agreement by mutual consent at any time.
Directors Or Other Senior Officers
There are no separate legal rules for dismissing directors or senior officers from employment. Directors, in their capacities as such, may only be removed from the board in accordance with company law, which often requires a vote of shareholders.
Senior officers are often fiduciaries and may have post-termination obligations to the employer under the common law, including the obligation not to solicit customers of the employer for a reasonable period of time.
Special Rules For Categories Of Employee
Under Ontario law, all employees owe their employers a duty of honesty, loyalty, and good faith.
However, “fiduciary” employees have a higher duty of loyalty to the employer. It is the obligation of fiduciary employees, who have been entrusted with information and discretion to potentially adversely affect the employer’s interests, to always act with a view to the best interests of the employer. The common law also imposes certain restrictions on the fiduciary employees’ post-employment, even where there is no written employment contract or other agreement.
Specific Rules For Companies in Financial Difficulties
The Ontario Business Corporations Act may make the directors of a corporation jointly and severally liable to employees of the corporation for debts not exceeding six months wages which become payable while they are directors.
The federal Wage Earner Protection Program Act provides compensation to workers who are owed unpaid wages or other forms of compensation by employers who have declared bankruptcy or are subject to a receivership. The Wage Earner Protection Program reimburses eligible workers for unpaid wages, vacation pay, severance pay, or termination pay they are owed when their employer refuses or neglects to pay such monies as a result of bankruptcy or receivership, up to a maximum amount.
Restricting Future Activities
Ontario law favours free competition. There are therefore few restrictions placed on the future activities of a departing employee.
At common law, all departing employees have a continuing obligation not to disclose confidential information belonging to the former employer.
Non-competition and non-solicitation agreements must be clear and reasonable to be enforceable. Enforceable non-competition agreements must be sufficiently limited in both geographical scope and time. Non-solicitation agreements are easier to enforce, but again only in circumstances where they are non-ambiguous and subject to a reasonable time restriction.
Any employee who owes a fiduciary duty to the employer will also be prevented from soliciting the employer’s clients for a reasonable period of time.
The Occupational Health and Safety Act protects employees who disclose unsafe practices or health concerns.
Individuals and corporations are encouraged to report securities-related misconduct under Ontario’s Securities Act. That legislation provides for a civil cause of action for whistleblowers who experience a reprisal for providing information to the Securities Exchange Commission.
The federal Criminal Code protects whistleblowers who disclose information to authorities regarding criminal activity by their employers.
Special Rules For Garden Leave
Under the Employment Standards Act, termination pay (i.e., payment in lieu of notice) is distinguished from severance pay (i.e., compensation for loss of seniority). Subject to the mass termination exception, a dismissed employee is only entitled to statutory severance pay if the employee was employed for five years or more and if the employer has a payroll of more than $2.5 million.
In common parlance, however, the term “severance” commonly refers to not only compensation for an employee’s loss of seniority, but also a payment in lieu of reasonable notice at common law. Thus, a “severance package” will include statutory termination and severance pay, as well as common law pay in lieu of notice, and other benefits and perks.
At common law, an employer is liable to an employee for damages for wrongful dismissal if the employer dismisses the employee without notice and without “just cause”. The amount of this payment is related to several factors, the principal ones being i) length of service, ii) the employee’s age, iii) the nature of the position, and iv) the employee’s ability to find alternative employment.
Special Tax Provisions And Severance Payments
Severance payments are generally considered to be income and are subject to the customary taxation, unless they are identified as “retiring allowances” under the federal Income Tax Act, in which case there may be a lower percentage of tax withholding.
General damages are non-taxable. To characterize an amount as general damages, there must be an element of the damages suffered by the former employee that is separate from the damages suffered as a result of the loss of their employment. General damages are intended to compensate the employee for personal injury, such as pain and suffering, mental distress, or human rights violations which occurred during employment.
Amounts paid by an employer to an employee for the purposes of re-employment counselling are not considered a taxable benefit and are therefore non-taxable.
Allowances Payable To Employees After Termination
Under the Employment Standards Act, an employer is required to continue making its regular benefit contributions to maintain the terminated employee's benefits until the end of the statutory notice period, provided that the employee has not engaged in wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.
At common law, an employee who has been terminated can seek to recover not only the loss of income the employee would have likely earned over the reasonable notice period, but also the loss of benefits as well.
Time Limits For Claims Following Termination
Claims for wrongful dismissal in the civil courts must be brought within 2 years after the employee is dismissed.
Human rights applications must be filed with the Ontario Human Rights Tribunal within one year of the discriminatory incident, or within one year of the last incident in a series of incidents.