This will surprise many, but in Canada, most employees can be dismissed at any time, for almost any reason. However, unless there is just cause for dismissal, notice or pay in lieu is required. The question, then, is what are they entitled to?
Contrary to popular belief, dismissed employees are not automatically entitled to a “package”. Employers can offer working notice, salary and benefit continuance, a lump sum, or a combination of the above.
In order to determine an employee’s entitlement to notice or severance, regard must be had to:
- Employment standards legislation,
- The common law, and
- Any enforceable termination clause in a contract.
Employment standards legislation sets out the minimum entitlements, and it is based solely upon length of service. However, that is only one small part of the assessment. The common law requires that “reasonable notice” be provided, and this is based upon a number of factors, including:
- The employee’s age,
- Length of employment,
- The nature of their position, and
- The availability of similar employment.
The notion that severance is always one month per year of service is simply a myth. Our courts have explicitly stated that severance is not based on length of service alone. And the reality is that the number of potential factors, and the discretion afforded to courts when assessing entitlement to severance, make it impossible to predict a specific individual’s entitlement with certainty.
It is important to bear in mind that the entitlement to severance is subject to the dismissed employee’s duty to make reasonable efforts to find new work, and if they do obtain new employment, your obligation to them will be reduced. As a result, someone may be “entitled” to a lengthy notice period, but if they find new work within that period, your obligation will be reduced.
The obligation to provide reasonable notice can be displaced by a properly-drafted termination clause in an enforceable contract of employment. Such a clause will help you to avoid the cost and risk of trying to determine what is reasonable; instead, you can simply look at what the contract provides.
Unfortunately, many employers follow the advice to implement contracts with termination clauses, but fail to do so properly and end up with clauses that are unenforceable. That is why we always advocate working with us to implement contracts; we can help you to ensure that you will be able to rely upon them when you need them.
Strategic Severance Packages
After we assess your potential obligations to the soon-to-be-dismissed employee, we will explain the options to you, along with the pros and cons of each. That way, you can make an informed decision.
We encourage our clients to consider every termination and assess the most strategic way of approaching it. Many organizations fall into the trap of doing every termination the same way. Perhaps they always offer a lump sum payment, or salary continuance. However, the law allows employers to decide whether they will provide:
- Working notice,
- Salary and benefit continuance,
- A lump sum payment, or
- Some combination thereof.
In some cases, it will be appropriate to provide a period of working notice. This can often be effective in periods of transition, such as where a department is being shut down and the members of the department are needed to help with the process.
In other cases, you may have a long-term employee that will be entitled to extensive notice or severance. However, they may be highly employable, and it would make sense to structure the package so that their entitlement is limited if they find new work quickly. After all, the entitlement to severance is subject to their duty to make reasonable efforts to find new work, and if they do obtain new employment, your obligation to them will be reduced. As a result, it can be to your advantage to assist them in finding new work.
The cost of dismissing an employee can be substantial. We will work with you, from the time we prepare your contract to the time of termination, to ensure you don’t incur more costs than you need to.
When dismissal is being considered, we will provide our opinion regarding the employee’s entitlements and then present options for moving forward. Once our client determines how they want to proceed, we will prepare the necessary dismissal letters and guide them through the process so they can minimize risk.