Since it’s the beginning of the new year, let’s go back to basics and revisit the one issue that crops up in our practice consistently: obligations of employers once they decide to fire an employee.
The ESA sets out the minimum notice to which a dismissed employee is entitled. If a soon to be ex-employee contacts the Ministry of Labour and the ministry acts on that employee’s behalf, that is the notice that they will obtain for that employee.
However, if that fired employee were to go to court, they would receive common law notice, which is invariably substantially more notice than the act provides for.
There are a few caveats here. Employees can’t have the Ministry of Labour act for them and also sue in court. They must do one or the other. If they proceed to the Ministry, they are then barred from suing for more. The employee’s notice period may also be determined by an employment contract. However, if the employment contract is capable of being interpreted as paying out less than the statutory minimum set out in the act, then the contract is not legally enforceable, and the employee is entitled to common law notice and we go back to square one.
So, let’s get this straight once and for all. The Employment Standards Act does not determine the notice period for termination of employment for most non-unionized employees in this province. The actual common law notice is usually substantially more, as in four to six times more notice or payment in lieu thereof.
But “Aha,” says the employer client, “we have an employment contract.”
Well, if the employment contract, at the time of execution, is capable of, ever resulting in a payout that is less than the minimum statutory payout under the ESA, it is not enforceable. Unfortunately, if you are an employer, a series of court decisions in the last year or so has almost certainly invalidated the termination provisions in your employment contract. I would say that in any employment contract in this province that is more than a year or so old, the termination provisions are almost certainly unenforceable.
But “Aha,” says the employer client again, “I can just have my employees sign new contracts.”
Not so fast. Unless the employee agrees to the change and there is additional consideration, i.e. some new benefit to the employee, the employer may not change the employment contract. Going forward the employer can have new employees execute legally valid employment contracts, but the employer is probably stuck with the existing unenforceable contracts.
So far, so good. The common law governs notice periods and employment contracts more than a year old dealing with termination are unenforceable.
The next most common question: What is the employee entitled to during the notice period?
That’s an easy one. The employee is entitled to everything they would have otherwise made during the notice period but for the termination of their employment. A simple but nonetheless profound answer. The employee is entitled to everything. That includes salary, commissions, stock options, restricted stock units, benefits and anything else they would have received as payment for their services during that period.
This can be difficult for an employer. Suppose that an employee has a benefit that is from a third-party, which will no longer pay because the now dismissed employee is not an “employee” as defined under whatever benefits or payment program is in place. Then the employer is on the hook for that payment if it would otherwise have occurred during the notice period.
This most frequently occurs with medical and disability and life insurance benefits. The insurer is a third-party provider, but the dismissed employee is not an “employee” for the purposes of the insurance policy in place. I have never understood employers who refuse to pony up for replacement benefits during the notice period for a dismissed employee. If the employee were to become disabled or die during the notice period, the employer would be on the hook for the very substantial damages that would ensue. These damages would grossly exceed any possible payment in lieu of notice that would be given to the employee.
To recap so far, notice is not determined by the ESA but rather by the common law. The employment contract dealing with termination is probably invalid if it is more than a year old. The employee is entitled to be paid everything they would have earned during the notice period.
However, the dismissed employee has obligations as well. The former employee has a positive obligation to mitigate damages. This means that the ex-employee has to go out and actively search for new, equivalent, employment. Failure to do so can lead to the court awarding less or no payment in lieu of notice. We always advise dismissed employees to immediately start seeking new employment and most importantly to keep a record of all efforts to secure new, equivalent employment.
The legal rational for awarding damages for wrongful dismissal in the first place is to allow the dismissed employee time to find equivalent employment. That is why employees with senior positions are typically given more notice than more junior employees. The courts figure that it will take longer to find a more senior position. For example, if you are the CEO of a company the courts will take into account that it will take you longer to find a new CEO type of position than a more junior employee.
These then are the basic principles that underpin the law of the termination of employment of non-unionized employees in Ontario. Obviously, we have just set out the basics and there is a lot more to it than this but hopefully it gives both employer and employee a good starting point of their respective rights and obligations.
BY HOWARD LEVITT AND PETER CAREY
Howard Levitt is senior partner of Levitt Sheikh, employment and labour lawyers with offices in Toronto and Hamilton. He practices employment law in eight provinces. He is the author of six books including the Law of Dismissal in Canada. Peter Carey is with Levitt Sheikh.
THIS ARTICLE ORIGINALLY APPEARED HERE: https://financialpost.com/fp-work/thinking-of-firing-an-employee-read-this-first