By Donovan Plomp
McCarthy Tetrault
When employees are terminated in Canada, unless they have been fired for “cause” (such as theft) employers have an obligation to provide common law “reasonable notice” of termination or pay in lieu of reasonable notice.
Unless the amount of reasonable notice is clearly set out in an employment agreement, it will be assessed in a court action after an employee has been terminated. The courts consider factors such as age, length of service, the nature of the position, and the likelihood of the employee finding reemployment in deciding how much reasonable notice to award.
Previous decisions provide some guidance, but each case is decided on its own facts. Thus, the parties often will negotiate to obtain a settlement most favorable to their interests. The majority of these cases settle without ever reaching court.
In most terminations, common law reasonable notice is the biggest potential liability for employers. Employers also can be liable for termination and statutory severance pay, but it’s usually much less than common law reasonable notice. Employers must also issue a Record of Employment (ROE) under Canada’s Employment Insurance Act after termination.
The ROE and statutory severance are “the small stuff” that employers might overlook or prefer to deal with later as part of a settlement of all employment related claims. This can be dangerous if negotiations fail and the matter goes to court.
Employees have argued that an employer’s failure to issue an ROE or pay statutory severance is evidence that an employer acted in bad faith, which can result in substantially increased damages awards. Developing a checklist can help ensure that you meet your statutory obligations when terminating an employee. We suggest employers consider the following points:
Statutory payments
- Is the employee entitled to statutory notice or termination pay in lieu of notice? Consult the applicable employment standards legislation to determine what termination pay is payable to the employee as of the date of termination.
- Is the employee also entitled to statutory severance pay? If so, check whether the length of service for purposes of calculating severance pay is the same as that used for notice of termination or termination pay.
- When does the termination and severance pay have to be paid to the employee? In British Columbia, for example, an employer must pay all termination pay owing within 48 hours of the termination. In Ontario, however, termination and severance pay must normally be paid within seven days of termination or on the employer’s next regularly scheduled payday, whichever is later. The rules for severance pay may be different.
Records of employment
- On what date must the ROE be issued for the employee? The Employment Insurance Act provides that an ROE must be issued no later than five days after “an interruption of earnings.”
- Even if the employer is still negotiating with the employee, the employer should issue the ROE within the statutory deadline. If the parties reach a settlement later, the employer must file a new, corrected ROE. When plans are being made to terminate an employee, the employer should diarize and keep track of the dates by which statutory payments must be made and the ROE must be issued. Such advance planning should help make the termination process less stressful for employer and employee alike and can help to avoid allegations of bad faith conduct on the part of your organization.