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2. Prior Notice of Termination (ESA)

(a) General

This chapter discusses an employer's duty under the Employment Standards Act (ESA) to give employees proper and prior notice of termination (or, alternatively "pay-in-lieu" for the notice period missed: ESA s.54,61), and related ESA issues. Common law notice duties are considered in s.5: ["Wrongful Dismissal and Just Cause", below].

The ESA notice (and/or 'pay-in-lieu') entitlement applies to most employment relationships, but for the categorical exemptions discussed below in (e), and those employees who are otherwise exempted from the ESA as set out in Ch.1 ["Coverage of the Law"]. It is important to remember that the exemptions to these ESA duties do not necessarily also apply to exempt common law notice requirements. Common law notice entitlements are determined by more generous - though more uncertain - criteria [see s.5: "Wrongful Dismissal and Just Cause", below].

Of course, the whole concept of "just cause" for a termination is the employer's main defence to the prior notice requirement, either under the ESA or the common law.

Note as well that "mass terminations" (ie. some large employers and/or group terminations), invoke separate "mass termination" notice duties and notice periods which are usually longer than the 'normal' ESA minimums) [see (e) "Mass Termination Notices (ESA)", below].

(b) "Working Notice" Period and Pay-in-Lieu

. General

In practice, notice considerations often fall into two categories: "working" notice and "pay-in-lieu" notice. "Working" notice can be considered 'proper' notice in that it refers to the time period, after the issuance of proper notice of termination, which the employee 'works out their time'.

Where proper "working notice" is given - and actually 'worked' by the employee, the time is essentially treated legally as normal employment time, and no additional pay-in-lieu claim against the employer exists (though residual vacation pay, potential severance pay, and other entitlements may persist).

Of course, to the extent that inadequate notice is given (and sometimes none at all), that creates an ESA claim against the employer for wages over the period of the inadequate (or completely absent) notice [ESA s.61].

Unless the employee consents, the period of working notice shall not include the taking of any vacation time [Reg 288/01, s.7].

Note that where a seniority "bumping" system exists in the workplace [see s.2(e), below] and a junior "bumpee" refuses "alternative employment made available through a seniority system", they are no longer entitled to either prior notice of termination or pay-in-lieu [Reg 288/01, s.2(1)6].

. Wage and Benefit Preservation During Working Notice; Exception

To reinforce the status quo during the "working notice" period, the ESA provides that, during 'working notice' (and during any notional period of "pay-in-lieu" for that matter) the employer [ESA s.60(1), 61]:
  • shall not reduce the employee's wage rate or alter any other term or condition of employment; and

  • shall continue to make whatever benefit plan contributions (aka "premiums") would be required to be made in order to maintain the employee's benefits under the plan until the end of the notice period.
So where the employee has regular work weeks or is otherwise paid by time spent working, the wage payment status quo continues during working notice, and base wages may not fall below the employee's regular rate for a regular work week [ESA s.60(1), 61(1)] ("regular rate" excludes vacation, holiday and overtime pay). Of course, any vacation, holiday and overtime premium pay entitlements are also preserved if such time is worked. Similarly, where "pay-in-lieu" is made, regular weekly wages are determined as an average of the "regular wages" (exclusive of overtime pay, vacation pay, holiday pay [ESA s.1 Defns]) paid to the employee over the previous 12 weeks [ESA s.60(1-2)].

Benefit plans are typically paid for by a combination of deductions from the employee's paycheque (the employee's contribution), and corresponding contributions by the employer - both flowing into employer or third party managed insurance-type schemes. Failure of the employer to make their benefit plan contributions during the period of legal notice entitles the employee to claim the value of the unpaid employer contributions as unpaid wages [ESA s.60(3), 62(2)]. As well of course, the employee's benefit plan eligibility persists for the period over which proper notice is due - despite the employer's payment default [ESA s.60(4), 62(1,3)].

An exception to these 'continuation' rights is where seniority "bumping" rights are exercised [see s.2(e): "Exceptions to ESA Notice Requirements: Seniority and Bumping" Rights, below]. In that case the normal prohibition against altering an employee's wages or other terms of employment during the notice period does not apply [Reg 288/01, s.5(3), ESA s.60(1)(a)]. Thus the "bumper" does not carry with them any superior wage or employment terms, but accepts those of their "new", less beneficial, employment.

. No Mitigation Duty

Common law damages for wrongful dismissal, which are very similar ESA termination "pay-in-lieu" claims, are subject to a duty on the employee to seek to reduce their loss by seeking and accepting reasonable new employment. Under the common law any earnings within the "notice period" that the former employer should have given are deducted from wrongful dismissal damages. This is called "mitigation". However, the courts have held that there is no similar mitigation duty on an employee claiming ESA termination or severance pay entitlements, even if this is done in a civil court proceeding: Boland v APV Canada [2005] OJ (QL) #510 (Div Ct) [although job-search efforts are an expected duty under collateral benefit programs such as Employment Insurance and welfare].

(c) Length of Notice

. ESA Notice Periods

ESA minimum notice of termination durations are as follows [ESA s.57]:

Duration of EmploymentLength of Notice
3 mos to less than one yearone week
1 yr to less than 3 yrstwo weeks
3 yrs to less than 4 yrsthree weeks
4 yrs to less than 5 yrsfour weeks
5 yrs to less than 6 yrsfive weeks
6 yrs to less than 7 yrssix weeks
7 yrs to less than 8 yrsseven weeks
8 yrs or moreeight weeks

Note of course that common law notice periods are almost always longer than these [see s.5: "Wrongful Dismissal and Just Cause"].

Note as well the different (and usually longer) notice periods that can apply in cases of "mass terminations", see (e) below.

. Determining Duration of Employment

Determining the duration of employment for these termination notice period purposes is usually a simple matter, but in those cases where there are significant gaps in the continuity of employment, the following duration-determination rules apply [Reg 288/01, s.8]:
  • start counting at the date of the most recent commencement of employment (hiring);

  • end counting at:

    - where proper notice of termination is given, the date it is given (not the date of termination specified)

    - where proper notice of termination is not given, the actual date of termination;

  • any periods of employment with the same employer that are less than 13 weeks apart are treated in a combined fashion. For example, a termination followed within 10 weeks by a 're-hiring' would use the commencement date of the original hiring, not the re-hiring.
Leave time and any other "inactive employment" are included as periods of unbroken employment for this counting, but time after a "termination lay-off" commences is excluded [see s.1(c): "Lay-offs", above] [ESA s.52(1),59].

(d) Form and Service of Notice

There is no Ministry-issued standard form for a "Notice of Termination", however it must be addressed to the employee, in writing and served in accordance with the service rules set out in Ch.7, s.7 [ESA s.54, 95; Reg 288/01, s.4(1)]. Logically of course it should also set a termination date.

(e) Mass Terminations

. Overview

A "mass termination" occurs whenever an employer "terminates the employment of 50 or more employees at the employer's establishment in the same four-week period." In such situations - and in addition to the normal "Notices of Termination" to be served on employees (above) - special "Mass Termination" notices must be served on the Employment Standards Director (and posted as required) [ESA s.58(1)].

As well, the normal Notice of Termination (the notices served on employees) rules are modified somewhat, most importantly by changed (usually lengthened) notice periods. Note however that any "mass termination" notice of termination rights, like the "normal" notice of termination rights, can be 'bought' out by pay-in-lieu [ESA s.61(1)] (ie. payment of regular wages for the period that the notice was short or absent). As well, all other employee rights related to notice of termination and notice periods apply to any mass termination notice period [as per (a-d) above, and the exemptions in (g) below].

Note further that posting, and delivery to the ES Director, of timely and complete mass termination notice/s (as above) must precede the employee Notices of Terminations, failing which the employee notices are void [ESA s.58(4)].

For the above purposes an "establishment" is [ESA s.1 defns]:
... a location at which the employer carries on business but, if the employer carries on business at more than one location, separate locations constitute one establishment if,

(a) the separate locations are located within the same municipality, or

(b) one or more employees at a location have seniority rights that extend to the other location under a written employment contract whereby the employee or employees may displace another employee of the same employer. ["bumping rights": see s.2(f): "Prior Notice of Termination (ESA): Exceptions to ESA Notice Requirements: Seniority and "Bumping" Rights", above].
. Exceptions

The duty to issue mass termination notice is excepted if [Reg 288/01, s.3(4)]:
  • the number of employees terminated do not exceed 10 percent of long-term employees (those working there 3 months or more),

    and

  • the terminations were not caused by the permanent discontinuance of part of the employer's business at the establishment.
. Contents of Mass Termination Notice

The required contents of a mass termination notice are [ESA s.58(3); Reg 288/01, s.3(2)]:
  • the employer's name and mailing address;

  • the location/s where the terminated employees work;

  • the number of (all) employees at each location who are paid,

    - on an hourly basis,
    - on a salaried basis, and
    - on some other basis.

  • the number of terminated employees at each location who are paid,

    - on an hourly basis,
    - on a salaried basis, and
    - on some other basis.

  • the date/s on which it is anticipated the terminations will occur;

  • the name of any trade union local representing the terminated employees.

  • the economic circumstances surrounding the terminations;

  • the name, title and telephone number of the individual who completed the form on behalf of the employer.

    Note:
    The ESA legislation authorizes the Ministry to require additional information to be included in mass termination notices, but to date this authority has not been exercised by the passage of appropriate regulations. This additional information authority includes [ESA s.58(3)]:

    - consultations, past or proposed, with communities in which the terminations will take place or with the affected employees or their agent;
    - any proposed adjustment measures and the number of employees expected to benefit from each; and
    - a statistical profile of the affected employees.
. Manner of Delivery and Posting

Mass termination notice is to be both posted in the work establishment/s and delivered to the government, using the following government-issued form [ESA s.58(2)]:

Notice of Mass Termination

Delivery to the government is done by "delivering the form to the Employment Practices Branch of the Ministry of Labour between 9 a.m. and 5 p.m. on any day other than a Saturday, Sunday or other day on which the offices of the Branch are closed." [Reg 288/01, s.3(3)].

Posting shall commence on the first day of the notice period and shall be done "in at least one conspicuous place in the employer's establishment where it is likely to come to the attention of the affected employees and the employer shall keep that information posted throughout the notice period required under this section." [ESA s.58(2,5)].

. Mass Termination Notice Periods

The notice periods for employee Notices of Termination in mass termination situations are as follows [Reg 288/01, s.3(1)]:

# of terminationsPrior Notice Required
50-1998 weeks
200-49912 weeks
500 plus16 weeks

Note that posting - and delivery on the ES Director - of timely and complete mass termination notice/s (as above) must precede the employee Notices of Terminations, failing which the employee notices are void [ESA s.58(4)].

Note as well that "mass termination" notice periods are either equal to or longer than "regular" termination notice periods [see (c), above].

. Resignation By Employee After Mass Termination Notice

While normally the employee is under no duty to provide an employer with prior notice of the employee's termination of the employment, when a mass termination notice has been posted, employees wishing to quit must give written notice of their resignation (ie. quitting) as follows [ESA s.58(6)]:

Duration of EmploymentPrior Notice
less than 2 yearsone week
2 years or moretwo weeks

This resignation notice duty does not apply if the employer has "constructively dismissed" the employee or otherwise breaches a term of the employment contract [ESA s.58(7); s.5(e), below]. The impact of this provision is to allow an employee - who has not given such resignation notice - to still claim that wrongful "constructive dismissal" has occured [see s.5: "Wrongful Dismissal and Just Cause", below].

(f) Waiver of Notice of Termination by Re-Employment

There is a principle in law known as "estoppel" or waiver. In one of its forms, it holds that actions of a party that are inconsistent with their prior statements void the prior statements. The issue has arisen in past when employers have retained employees past or subsequent to termination dates.

The ESA however provides that a notice of termination is not 'waived' (ie. not cancelled) by any periods of temporary employment within the 13 weeks after the termination date set out in a proper (and properly-served) notice of termination [Reg 288/01, s.6] (ie. any further work within 13 weeks after the termination date does not void the termination).

As this rule applies specifically to cases where a proper notice of termination was issued, it is a reasonable statutory interpretation that any such temporary work after an improper notice runs the risk of waiving the termination. Further, its plain implication is that any employment after 13 weeks after the termination date does waive (ie. cancel) the earlier notice of termination.

(g) Exceptions to ESA Notice Requirements

. Overview

There are circumstances - some categorical and some situational - where the ESA notice of termination provisions do not apply. Where this is the case, the pay-in-lieu provisions don't apply either [ESA s.55]. The first of these is that the employee may consent to waiving the ESA notice of termination provisions [Reg 288/01, s.2].

Note however that the below exceptions do not necessarily also avoid the common law duty to issue prior notice of termination [see s.5, "Wrongful Dismissal and Just Cause", below]. While in some situations (such as a just cause termination) the common law may - like the ESA - justify the absence of prior notice, the exceptions noted here - strictly speaking - only apply to avoid ESA notice of termination duties.

. Categorical Exceptions

The following types of employees are not entitled to ESA notice of termination rights [Reg 288/01, s.2]:
  • Probationary Employees

    Employees of 3 months or less duration [ESA s.54(1)].

  • Term or Task Contract Employees

    These are employees under a contract with a fixed task - or a fixed termination date, if that date is within 12 months.

    However where the employment is terminated before the task is completed or the contractual fixed date, or if the employment continues for 3 months or more after the task is completed or the contractual fixed date, then the ESA notice of termination rules apply.

  • Construction Workers

    A construction worker is one who works either on or off-site in "businesses that are engaged in constructing, altering, decorating, repairing or demolishing buildings, structures, roads, sewers, water or gas mains, pipe lines, tunnels, bridges, canals or other works at the site" [Reg 285/01, s.1; Reg 288/01, s.1].

  • Retirement

    Employment which, in accordance with established employer's practices, terminates at "the age of retirement" so established - unless the termination would contravene the Human Rights Code". The Code prohibits against employment discrimination on the basis of "age" (which it defines as between 18 and 65) - except where such discrimination is a "reasonable and bona fide qualification because of the nature of the employment" [OHRC s.5(1),10(1),24].

  • Some Ship Workers

    Employees "whose employer is engaged in the building, alteration or repair of a ship or vessel with a gross tonnage of over ten tons designed for or used in commercial navigation" who have with their employer a supplementary unemployment benefit plan (other than federal Employment Insurance or EI), and who agree (or whose union agrees) to waive their Notice of Termination rights.
. Situational Exceptions

The major situational exception to the notice of termination duties, both ESA and common law, is "just cause" (ie. employee misbehaviour). This is discussed in s.5 ["Wrongful Dismissal and Just Cause"], below.

In addition, the following types of situations do not invoke the ESA notice of termination provisions [Reg 288/01, s.2]:
  • Temporary Lay-offs

    Logically enough, employees on a "temporary lay-off" - or who fail to return to work within a "reasonable time" after being recalled from a temporary lay-off -are not entitled to prior "notice of termination" from the employer [Reg 288/01, s.2(1)2, 2(1)7]. [see s.1(c): "Overview: Lay-Offs", above].

  • "Frustration"

    "Frustration" is a contractual doctrine applying to situations where external events render the continuation of a contract effectively impossible. The classic example would be a lease for house that burns down. ESA notice of termination duties are avoided where the "contract of employment has become impossible to perform or has been frustrated by a fortuitous or unforeseeable event or circumstance".

    "Frustration" for these purposes does not include "the result of an illness or injury suffered by the employee".

  • Some Job Change Refusals

    The situation where an employee's job duties or position is significantly changed by the existing employer is fairly common and fraught with legal uncertainties. Conventionally it is the main ground of 'constructive dismissal' claims [see s.5(e), below], which are situations where no overt termination is asserted by the employer, but the employee alleges that the changes made (or proposed) are so significant that they materially alter the employment relationship to the point of ending it. The classic example would be a workplace demotion or perhaps a significant workplace relocation.

    The ESA dispenses with its notice of termination provisions (essentially asserting that no constructive dismissal has occured, and treating the situation as a "quit") where the employee refuses:

    - "an offer of reasonable alternative employment with the employer",

    - "alternative employment made available through a seniority system" (note the absence of the 'reasonable' qualifier here)

    The difficulty for both parties in such circumstances is in determining with any precision what alternative employment is "reasonable" before a legal adjudication is made on the issue, which is not a practical on-the-spot option. Another complication is that employers sometimes offer the alternative employment in the form of a 'new' employment contract, trying to eliminate the employee's accumulated length of service (a tactic likely to be viewed as 'unreasonable').

  • Terminations Consequent to Labour Disputes

    Terminations "during or as a result of a strike or lock-out".
. Termination Lay-Offs

"Termination lay-offs" are those which exceed "temporary lay-offs" in duration [see s.1(c): "Overview: Layoffs", above], thus invoking the employee's termination (and perhaps severance) rights.

For ESA purposes, the "date of termination" of any "termination lay-off" is the date that the lay-off began [ESA s.56(5)]. Due to the 'when and if' uncertainty of recall which accompanies a layoff situation, it is often practically difficult for an employer to issue a Notice of Termination to coincide with the date that a "temporary layoff" finally converts into a "termination layoff" [see s.1(c), above]. Consequently, as a practical matter in layoff situations employers may choose to fall back on their 'pay-in-lieu' alternative [ESA s.61].

As well, where an employee facing a "termination lay-off" elects to retain the right to be recalled to work, their entitlement to termination pay is suspended for that time [see s.1(d): "Overview: Recall Elections Where Lay-Off Exceeds Extended Temporary Lay-Of"].

. Seniority and "Bumping" Rights

Some workplaces, particularly unionized ones, provide an internal 'pecking order' amongst employees in the case of terminations (and lay-offs). This is typically based on the seniority (ie. longer employment duration) of the employee, who is given the right to "bump" less senior employees into demotions, lay-offs or even terminations in place of themselves. The ESA provides for alternatives to the usual "notice of termination" rules in such cases.

Firstly, where bumping rules exist in the workplace and the employer intends to terminate employment by way of either lay-off or express termination, they may satisfy the notice of termination requirements by posting: "a notice in a conspicuous part of the workplace setting out the name, seniority, job classification and proposed lay-off or termination date of the employee"/s [Reg 288/01, s.5(1-2)]. The date of the posting is taken as the date of the issuance of the notice.

Further, where seniority "bumping" is exercised, the normal prohibition against altering an employee's wages or other terms of employment during the notice period does not apply [Reg 288/01, s.5(3), ESA s.60(1)(a)], (thus the "bumper" does not carry with them any superior wage or employment terms, but accepts those of their "new", less beneficial, employment).

As well, where a "bumpee" refuses "alternative employment made available through a seniority system", they are no longer entitled to either prior notice of termination or pay-in-lieu [Reg 288/01, s.2(1)6].


3. Severance Pay

(a) Overview

While superficially similar to termination pay-in-lieu (above) payments, "severance pay" has several important and distinct qualities and eligibility aspects which are important to clarify. As well, while the general eligibility criteria (ie. terminations by large employers) for severance pay are superficially similar to the criteria which trigger the employer's duty to provide "mass termination notices" to the ES Director [s.2(e), above], the two things are quite distinct and the distinctions need to be made clear.

Other similarities and differences include:
  • entitlement to severance pay is independent of any employer default in giving notice (unlike termination "pay-in-lieu", which can substitute for short or absent notice of termination);

  • there is a "just cause" defence to the severance pay duty;

  • severance pay duties have no counterpart in common law (unlike the common law termination prior notice duties which are the basis of wrongful dismissal lawsuits). Severance pay is entirely a creation of statute law [ie. the Employment Standards Act (ESA)];

  • the payment of severance pay does not reduce an employee's ESA termination-related rights to notice and/or ESA pay-in-lieu entitlements [ESA s.65(7)], although it is credited to the employer when calculating common law "wrongful dismissal" damages;

  • the criteria triggering both severance pay and "mass termination" notice duties, while similar, are distinct and unrelated. "Mass termination" notice duties involve terminating 50 or more employees within any single four-week period. On the other hand entitlement to severance pay can be triggered (with respect to employees of five or more years duration) by terminations of 50 or more employees within a six month period resulting from discontinuance of business, or for smaller terminations (even single ones) where the payroll of the employer exceeds $2.5 million/year [see more below].
(b) "Severance" Defined

"Severance" for severance pay purposes includes any of the following [ESA s.63(1)]:
  • employer's dismissal or other refusal or inability to continue employment;

  • employer's constructive dismissal of the employee followed within a "reasonable period" by the employee's resignation in response;

  • lay-off/s of 35 weeks or more in any 52 consecutive week period [see "termination layoffs" at s.1(c), above];

    A week of lay-off for these purposes, and for those who have a regular work week, includes [ESA s.63(2-2.4)] any week where the employee earns less than 25% of their regular rate ("regular rate" excludes overtime pay [ESA s.1 Defns]).

    For employees who do not have a regular work week, the lay-off criteria is met if for 35 weeks out of 52 consecutive weeks "he or she earns less than one-quarter the average amount he or she earned per week in the period of 12 consecutive weeks that preceded the 52-week period".

    However for these purposes a week shall not count as a week of lay-off (an "excluded week") if during the week, for one or more days, the employee is not able to work, is not available for work, is subject to a disciplinary suspension or is not provided with work because of a strike or lock-out occurring at his or her place of employment or elsewhere - although such a week shall count as one of the 52 consecutive weeks.

    Similarly such "excluded weeks" are not included in the 12-week periods used to assess the average wages of an employee who does not have a regular work week.

  • lay-off due to "permanent discontinuance of all of the employer's business at an establishment";

  • after receiving a notice of termination, the employee gives two weeks written notice of termination with a termination date within the employer-given notice period. However, the severance will still be deemed to have occured on the original date of termination [ESA s.63(3)].
(c) Circumstances Where Severance Pay Due

Employees of five years or more duration are entitled to severance pay if they are "severed" from employment (see above) and if [ESA s.64(1)]:
  • the severance occurred because of a permanent discontinuance of all or part of the employer's business at an "establishment" (see below), and the employee is one of 50 or more employees who have their employment relationship severed within a six-month period as a result;

    or

  • the employer has an annual payroll of $2.5 million or more. This occurs if either the total wages of the employer's employees [ESA s.64(2)]:

    - in the four weeks that ended with the last day of the last pay period completed prior to the severance of an employee's employment, when multiplied by 13, was $2.5 million or more; or

    - in the last or second-last fiscal year of the employer prior to the severance of an employee's employment was $2.5 million or more.
Generally for ESA purposes an "establishment" is [ESA s.1 defns]:
... a location at which the employer carries on business but, if the employer carries on business at more than one location, separate locations constitute one establishment if,

(a) the separate locations are located within the same municipality, or

(b) one or more employees at a location have seniority rights that extend to the other location under a written employment contract whereby the employee or employees may displace another employee of the same employer. [ie. "bumping rights: see S.2(f), above"]
Additionally, for severance pay purposes an "establishment" also includes any single physical employment location which itself is part of a multi-location "establishment" as defined above, if the severance occurred because of a permanent discontinuance of all or part of the employer's business at the location, and the employee is one of 50 or more employees who have their employment relationship severed within a six-month period as a result [ESA s.64(4)].

For these purposes, employment duration includes all employment time, be it continuous or interrupted, active or inactive [ESA s.65(2)] - except that where an employee is severed after 06 November 2009 while they are receiving an actuarially unreduced (ie. an early, but nonetheless full) pension then employment time in which they contributed credits to that pension are not counted towards eligibility for severance [ESA 65(2.1)].

(d) Amount and Payment of Severance Pay

The amount of severance pay is one regular work week's wages for every year including residual full months as a decimal fraction) of employment duration [ESA s.65(1)]. However it is capped at a maximum of 26 regular work week's wages [ESA s.65(5)].

Where the employee does not have a regular work week - or is paid on some basis other than time - wages for a regular work week are the average weekly wages in the 12 worked weeks before either [ESA s.65(6)]:
  • the severance, or

  • if the severance was by way of lay-off (see "Severance Defined", above), the date the lay-off commenced.
For these purposes, employment duration includes all employment time, be it continuous or interrupted, active or inactive [ESA s.65(2)] - except that where an employee is severed after 06 November 2009 while they are receiving an actuarially unreduced (ie. an early, but nonetheless full) pension then employment time in which they contributed credits to that pension are not counted towards calculating the amount of severance pay [ESA 65(2.1)].

As well, where an employee terminates their employment on two weeks notice in response to receiving a termination notice from the employer, the employee's employment duration ends at the new (employee's) date of termination [ESA s.65(3)]. Further, if employment is terminated without proper notice of termination the employment duration continues to the date of termination that should have been given [ESA s.65(4)].

(e) Allowable Deductions from Severance Pay

Generally, the right to severance pay is in addition to any other ESA and/or contractual entitlements of the employee on termination [ESA s.65(7)].

However, amounts for the following termination-related items may be deducted from severance pay [ESA s.65(8)]:
  • contractual (ie. private, not (EI) "supplementary unemployment benefits" paid on severance, if paid before the severance pay becomes payable to the employee [such coverage is sometimes privately provided by the employer for the two-week Employment Insurance waiting period [EI law is explained at an excellent government EI website: Digest of Benefit Entitlement Principles].

  • any other contractual or ESA severance payments;

  • any payments "for loss of employment under a provision of the employment contract if it is based upon length of employment, length of service or seniority".

    The courts have held that this description encompasses common law wrongful dismissal damages: Stevens v G&M [1996] OJ #1614 (QL) (Ont CA)]. The major implication of this is that severance pay may not be claimed in addition to common law wrongful dismissal damages, and that severance pay is deductible from common law wrongful dismissal claims [see s.5: "Wrongful Dismissal and Just Cause", below].
(f) Manner of Payment of Severance Pay

If either the ES Director or the employee agree, the employer may pay severance pay in instalments not to exceed three years duration [ESA s.66]. On failure of any such instalment payments, the full balance remaining becomes immediately due [ESA s.66].

(g) Recall Elections

If a "right of recall" exists after what - technically - is a severance [these would typically be "termination layoff" situations: see s.1(d), above] it sets up an 'either/or' choice for the employee regarding severance (and termination) pay entitlements. Thus, despite the occurence of a severance which otherwise triggers a severance pay entitlement, the employee's right to severance pay is suspended during the time that they are exercising a contractual election to be recalled the employment [ESA s.67(1,3,4)].

However this suspension does not apply if the parties have agreed to pay severance pay in instalments [see "Manner of Payment of Severance Pay", above] [ESA s.67(2)].

Where a non-union employee fails to elect, or elects to preserve the right to recall, the severance payments must be made to the Employment Standards Director, into a trust account [ESA s.67(6)].

Where a union employee fails to elect, or elects to preserve the right to recall, then - failing other trust arrangements worked out between the union and the employer (as determined by the union) - the severance payments must be made to the Employment Standards Director, into a trust account [ESA s.67(7)].

Of course, if the employee elects to receive the severance pay they thereby abandon the right of recall [ESA s.67(5)]. Similarly any renunciation by the employee of the right to recall - or expiration of such right - entitles them to the trust monies [ESA s.67(9)]. Of course, any later exercise by the employee of a right to recall (ie. by return to active work) entitles the employer to the refunding of any such monies held in trust [ESA s.67(8)].

(h) Exceptions to Severance Pay Entitlement

Employees in some categories or under some circumstances are not entitled to severance pay [ESA s.64(3); Reg 288/01, s.9]. These are similar to some situations where employees are not entitled to termination pay, and include:
  • Business Discontinuance Caused by Strike

    Where the severance is caused by the permanent discontinuance of all or part of the employer's business that the employer establishes was caused by the economic consequences of a strike;

  • "Frustration"

    "Frustration" is a contractual doctrine applying to situations where external events render the continuation of a contract effectively impossible. The classic example would be a lease for house that burns down. Similarly, ESA notice of termination duties are avoided where the "contract of employment has become impossible to perform or has been frustrated by a fortuitous or unforeseeable event or circumstance".

    However, "frustration" for these purposes does not include [thus re-instating the right to severance pay] frustration or impossibility caused by any of the following:

    - a permanent discontinuance of all or part of the employer's business because of a fortuitous or unforeseen event; (the essence of common law frustration is 'fortuitous or unforeseen events', so the emphasis here is on the "permanent discontinuance" of all or part of the business);

    - the employer's death, or

    - the employee's death, if the employee received a notice of termination before his or her death; or

    - "an illness or injury suffered by the employee". [this is as a result of the important case: ONA v Mount Sinai Hospital 75 OR (3d) 245 (Ont CA)]

  • Retirees with Full Pension

    Severed employees who retire with a full pension (ie. as per the employment contract). Note that sometimes employers, as an aspect of a termination settlement, provide a full pension (ie. calculated as though no severance occured) despite the employee not having full pension credits at the date of severance.

  • Some Job Change Refusals

    The situation where an employee's job terms or position is significantly changed by the existing employer is fairly common and fraught with legal uncertainties. Conventionally it is the main ground of 'constructive dismissal' claims [see s.5(e) below], which are situations where no overt termination is asserted by the employer, but the employee alleges that the changes made (or proposed) are so significant that they materially alter the employment relationship to the point of ending it. The classic example would be a workplace demotion.

    The ESA dispenses with severance pay entitlement (essentially asserting that no constructive dismissal has occured, and treating the situation as a "quit") where the employee refuses:

    - "an offer of reasonable alternative employment with the employer",

    - "reasonable alternative employment made available through a seniority system".

    The difficulty is in determining with any precision what alternative employment is "reasonable" before a legal adjudication is made on the issue (which is not a practical 'on-the-spot' option). Another complication is that employers sometimes offer the alternative employment in the form of a 'new' employment contract, trying to eliminate the employee's accumulated length of service (a tactic likely to be viewed as 'unreasonable').

  • Just Cause Terminations

    "An employee who has been guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer."

  • Construction Worker

    A construction worker is one who works either on or off-site in "businesses that are engaged in constructing, altering, decorating, repairing or demolishing buildings, structures, roads, sewers, water or gas mains, pipe lines, tunnels, bridges, canals or other works at the site" [Reg 285/01, s.1; Reg 288/01, s.1].

  • On-site Works Employees

    An employee engaged in the on-site maintenance of buildings, structures, roads, sewers, pipelines, mains, tunnels or other works.

4. Some Special Termination and Severance Rules Regarding Building Service Providers (ESA)

(a) Building Service Providers

A "building services provider" is "a person [which includes a corporation] who provides building services for a premises", even if they are the owner or manager of the building housing the premises. Building services" are defined as services [ESA s.1 Defns, Reg 287/01, s.1]:
  • for a building with respect to food, security and cleaning;

  • relating to a parking garage or lot;

  • relating to a concession stand; and

  • of property management relating only to the building.
"Building service providers" are subject to some special rules respecting continuity of employment of employees through a transfer of service providers for a facility [see s.1(f): "Overview: Special Continuity Rules For Building Service Providers", above]. Readers may want to review these as they provide a context to the present special termination and severance-related rules.

(b) Special Termination and Severance Duties

When a new "building service provider" comes into a premises and does not continue with the employment of some or all of the previous employees, then termination and severance pay duties (normally placed on the now-outgoing employer) are transferred to the new provider "as if the new provider had terminated and severed the employee's employment" [ESA s.75 (1-3)]. These duties would include all of those covered in this chapter, including both notices of termination and pay-in-lieu, and severance pay (if any).

(c) Exceptions

Incoming building service providers are excepted from the special rule set out in (b) above with respect to the following employees [ESA s.75(4), Reg 287/01, s.2]:
  • Some Building Service Employees

    An employee whose work, before the changeover date, included providing "building services" at the premises, but who did not perform his or her job duties primarily at those premises during the 13 weeks before the changeover date; and

    An employee whose work included providing building services at the premises, but who,

    - was not actively at work immediately before the changeover date, and

    - did not perform his or her job duties primarily at the premises during the most recent 13 weeks of active employment.

    For these purposes, "building services" includes:

    - services that are intended to relate only to the building and its occupants and visitors with respect to a parking garage or parking lot, and a concession stand, and

    - property management services that are intended to relate only to the building.

  • Some Inactive Employees

    An employee who did not perform his or her job duties at the premises for at least 13 weeks during the 26-week period before the changeover date;

    The counting of this 26-week period shall not include any period during which the provision of building services at the premises was temporarily discontinued, or any period during which the employee was on an ESA leave of absence.

  • Refusal of Reasonable Re-employment

    An employee who refuses an offer of employment with the new provider that is "reasonable in the circumstances".

    [see my earlier comments re constructive dismissal at s.2(f), "Exceptions to ESA Notice Requirements: Some Job Change Refusals", above]

    For these purposes, "reasonable" must be assessed at least in part in light of the terms and conditions of the employee's contract with the former provider.

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