CANADIAN TERMINATION & SEVERANCE PRACTICES – PART 2

In our previous blog, we discussed a survey by VF Career Management on Termination & Severance Practices In Canada (2016), which was presented at an event hosted by Verity on September 30, 2016.

In this blog, we will discuss another presentation from that event by guest Speaker Madeleine Loewenberg, co-founder of Loewenberg Psarris Workplace Law LLP.  Madeleine reviewed some of the statutory and case law in Ontario regarding notice of termination and severance pay.  In the process, she also responded to questions from the attendees which reflected specific real-world concerns.  The following are only selected points from Madeleine’s well-considered review of the law.

Probationary Period

While the Employment Standards Act (ESA) may seem to indicate that the first three months of employment constitute a probationary period which disentitles employees with less than three months’ service from notice of termination, the case law suggests otherwise.  To avoid the required notice, employment contracts must explicitly specify that a probationary period applies to employees if they are terminated before the end of three months of employment.

Employers cannot extend the probationary period beyond three months to avoid paying compensation to a terminated employee.  While performance improvement plans can be implemented after the three-month probationary period, an employer should not tell an employee that they are “back on probation”, as courts may find this to be effectively a constructive dismissal.

Benefits

Employers are statutorily required to extend an employee’s benefits throughout the statutory notice period (up to eight weeks), but they often exclude long and short term disability benefits in the termination letter.  This approach is contrary to the ESA.  Notably, in one case, an employee was found to be entitled to around $200,000 in disability benefits for an illness that occurred during the common law notice period, 16 months after his dismissal.

Severance Pay and Payroll

Severance pay, which is an additional statutory benefit beyond termination pay, is available where employees have worked for five or more years and the employer has a payroll in Ontario of at least $2.5 million.  However, one court has held that severance pay was available based on a $2.5 million payroll that included company operations outside Ontario.

Bonuses

Many bonus plans require the employee to be under active service to receive a bonus.  If they are terminated before the date specified for receipt of the bonus, employers will usually not offer it to them.  However, the clause requiring active service has to be very carefully crafted.  Otherwise, as has occurred in some cases, courts may award employees the bonus through the common law notice period.

Non-Compete and Non-Solicit Clauses

Separate and distinct non-compete and non-solicit clauses should be placed in the offer of employment if at all possible.  Waiting to impose these conditions at the time of termination will likely attract demands for greater consideration from departing employees.

The clauses should not be blended as courts tend to look with disfavour on non-compete clauses but are more accepting of non-solicit clauses.  Courts may strike out an entire blended clause even though they might have upheld a distinct non-solicit clause.  Moreover, draft the clauses carefully to avoid overreach, and require them only in circumstances where there is a realistic and reasonable potential for a negative impact on the organization.

Practical Tips

In light of the statutory and case law, and drawing from her extensive experience practicing exclusively as an employment and labour lawyer, Madeleine also provided this practical advice:

• Employers should enter into a formal employment contract with all employees, even if it is brief or simply a letter of offer.
• To guard against employees seeking expanded common law damages, carefully draft an employment contract which specifically limits their right to bring a claim for such damages by, for example, stating they will only be entitled to the minimums specified in the ESA.
• Working notice is generally not advisable because terminated employees usually do not want to continue coming into work, and they need to apply their energy to the job search. From the employer’s perspective, they will likely be less focussed on doing their job, and the morale of remaining employees may be negatively impacted by their presence.
• Provide letters of reference to departing employees, where there is no cause for termination, because it assists them in finding new employment more quickly which in turn supports mitigation of losses.
• Offer career transition services so terminated employees can develop effective job search strategies and tools through professional coaching and counselling. This will not only help them find work, but it will just as importantly let the remaining employees know that they will be taken care of should they ever be in similar circumstances.

It should go without saying that this blog is not be taken as providing legal advice.  You should always consult with a legal professional to get guidance regarding any particular situation.