For employers in Canada, it is essential to properly understand the legal requirements for employee termination. Requirements for legal termination vary between provinces and territories and depend on legislation where the employee works.
Litigation risks for not providing an employee with proper notice, termination pay, severance, or other case-specific requirements invites an employee-initiated wrongful dismissal case. However, employers should follow these steps to avoid potentially negative situations.
Why Should Employers Include Employment Contracts?
Employment contracts are an essential layer of security for businesses. Within the contract, a properly drafted termination clause limits an employee's termination entitlements. These entitlements include advanced termination notice, payments, and other province- or territory-specific requirements for termination. Employers must provide entitlements equal to or higher than the minimum Employment Standards legislation requirements in the province the employee resides. In virtually all cases:
- The clause must expressly continue all employment benefits for the notice period and include a common-law waiver. This means that the employee waives any additional rights under common law.
- The absence of a clear and enforceable termination clause means the employee is entitled to common law “reasonable notice” of termination. This reasonable notice period could far exceed the employment standards requirement in the employee’s province.
Understanding Types of Employee Terminations in Canada
Employers dismiss employees for many reasons, but each case falls under one of the following types of terminations.
- Without Cause Termination: The employer terminates an employee because they no longer require the employee’s services. This type of termination is often because of company reorganization or unsatisfactory work performance. However, employers must be careful implementing this option; it can turn into a wrongful dismissal case if the employee does not receive adequate notice, whether it be working notice, termination pay, or a combination of both.
- Just Cause Termination: The employee did something to cause the termination. Example scenario: If an employer investigates an alleged workplace harassment claim and ultimately deems the employee guilty. The cause could be performance-related, but in a Just Cause termination, documentation is critical. Employers must show the employee is at fault for the fireable offense, especially if the employee claims wrongful dismissal.
- Wrongful Dismissal: An employer terminates an employee without proper termination notice. This type of dismissal also applies to situations when termination occurs without notice because the employer believes they have just cause. Employers mitigate this risk because it exposes them to litigation, such as civil action, where there are no limitations to the settlement amount an employee receives.
- Constructive Dismissal: A form of wrongful dismissal when an employer, without the employee’s consent, changes the employment contract’s terms (i.e., decreasing the employee’s wage) and forces the employee to accept the change or quit. In this case, an employee may feel “pushed out the door.”
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Essential Employee Termination Requirements and Protected Leave in Canada
Like types of terminations, employers must be aware of the following termination requirements, classifications, and protected leave cases.
- Notice Period: The amount of notice (working notice) employers must give an employee upon without-cause termination. Canadian provinces' and territories’ requirements differ, so employers must consult employment standards legislation first.
In Ontario, for example, employees are entitled to a termination notice (or termination pay instead of notice) if continuously employed for at least three months. An employee with an employment period less than one year must receive one week’s notice, while employment of one to three years requires two weeks’ notice. Employers may give more notice than the minimum.
- Termination Pay: Considered payment in place of a working notice, and often used when employers insist on immediate dismissal. Termination pay is a lump sum payment equal to the employee’s regular wages for a standard week’s work and disbursed instead of having the employee work through the notice period.
Using Ontario as an example, an employee earns vacation pay on their termination pay as well. Employers must pay contributions required to maintain the employee’s benefits allotted during a written notice period.
- Severance: Compensation paid to a qualified employee upon termination. Severance compensates long-term employees for losses (such as seniority) upon termination; it is not the same as termination pay.
- Common Law: Established by, and varies between, provincial and territorial courts and applies minimum standards when terminating an employee. However, courts identify more substantial or specific obligations outlined in individual employment contracts and, in some instances, cover situations where there is no employment contract. The terminated employee is entitled to court-determined reasonable termination notice.
- Job Protected Leaves: Each province’s protected leaves allow employees to take time off work for personal reasons without compromising their employment. Unpaid leaves of absence are detailed in each province’s employment standards legislation and vary between these provinces. In Alberta alone, there are 11 job-protected leaves.
Ensuring alignment with these protected leaves is especially critical during departmental reorganization. If an employer terminates an employee who recently returned from a protected leave, the termination may be seen as discriminatory. Most often, employers want to forgo terminating this employee to avoid a potential discrimination case.
Ensure Alignment with Global Market Employment Laws
Termination is a difficult but necessary part of managing a global team. Ensuring your business aligns with market-specific termination procedures is essential to provide employees with the notifications, pay, and other considerations they are due—and avoiding a potential lawsuit in Canada.
Whether you expand into Canada or elsewhere, Velocity Global’s team of expansion experts guide you through the intricacies of local labor laws, ensuring you meet all legal requirements hiring and terminating employees.
Want to learn more about how we help businesses like yours compliantly expand into more than 185 markets? Reach out to us today.