Sultan Lawyers on Employment Contracts and Severance Pay, Pt. 3

In this final part of our three-part series on employment contracts and severance pay, we address employee entitlements when an employee does not have an employment contract or when the language within a contract relating to termination is found to be unenforceable.

Part three is intended to build on parts one and two of this series wherein we discussed the importance of employment contracts in defining relationships with employers and the various aspects of employment contracts worth negotiating, particularly in incidents of wrongful dismissal.

The following outlines the potential entitlements of employees who are governed by the laws of Ontario when their employment is terminated without cause and where they either have no employment contract or have a contract that does not restrict their entitlement to termination pay (i.e. if the contract does not speak to termination or it does, but the language is found to be unenforceable).

Notice of Termination

Employees whose employment is terminated without cause are entitled to reasonable notice of the termination of their employment pursuant to the common law unless that right has been limited via an enforceable employment agreement. The Employment Standards Act (“the ESA”) in Ontario provides for a minimum amount of working notice or pay in lieu of notice. While an employment contract can restrict an employee’s entitlement to termination pay, it cannot restrict it such that the employee receives less than what he/she is entitled to under the ESA.

Under the ESA, the minimum notice required to be given to an employee is 1 week per year of service to a maximum of 8 weeks. The ESA further imposes a severance pay obligation on employers with an annual payroll of $2.5 million or more which is equal to 1 week per year up to a maximum of 26 weeks.  Severance is only payable to employees who have at least 5 years of service with an employer.

The important factor to remember is that this is only a minimum amount of notice/termination pay owed to you under Ontario minimum employment standards.

Reasonable Notice at Common Law

The common law generally imposes greater obligations if an employee’s rights upon termination are not restricted by an employment contract, either because there is no written employment contract or because the contract does not have an unenforceable in relation to termination pay.

In determining the length of reasonable notice at common law, courts aim to provide sufficient compensation to support an employee who has had their employment terminated in finding alternative employment. While the courts will often look at a range of factors when setting this amount, more often than not the following four factors will have a disproportionate impact on determining the length of this notice period:

• the character of the employment;
• length of service;
• age of the employee; and
• availability of similar employment.

While each case is determined on its own merits, generally speaking employees tend to receive between 1-2 months of notice per year of service at common law. It is important to consult with experienced employment counsel to more accurately assess your potential entitlements to common law notice of the termination of your employment.

When Will an Employment Contract be Unenforceable?

An employee’s entitlement to reasonable notice of termination (or payment in lieu of notice) of their employment can be limited by an enforceable employment contract. For this reason, it is advisable for employees whose employment has been terminated to seek out experienced counsel to assess the enforceability of their employment contract and, by extension, the size of their termination pay entitlements.

Specifically, if a clause in an employment agreement relating to termination is determined to be unenforceable, then an employee can claim sufficient termination pay to support them in finding alternative employment.

Assessing the enforceability of an employment contract requires a keen understanding of existing employment law, which is constantly evolving. A well-trained employment lawyer can assist you in assessing the enforceability of any termination language in your employment contract. The goal would be to help you understand whether you may have facts to support a claim for wrongful termination against your employer (and whether you may be able to reasonably negotiate for a better termination package).

If you are an employee who has had your employment terminated and would like to have your package reviewed to ensure that you are being offered entitlements that match your rights at law, or if you have questions relating to termination, wrongful dismissal, or otherwise, please contact Toronto employment lawyers, Sultan Lawyers at 416-214-5111 or here.