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Employment Law (Ontario)
(01 January 2016)

Chapter 6 - Termination and Wrongful Dismissal

  1. Overview
    (a) General
    (b) Types of Termination
    . Overview
    . Quit (Employee Termination)
    . Constructive Dismissal
    . Frustration
    . Insolvency
    . Compulsory Retirement
    (c) Lay-Offs
    . General
    . ESA "Termination Lay-Off" Priniciples
    . ESA "Temporary" Lay-Offs Duration
    (d) Recall Elections Where Lay-Off Exceeds Extended Temporary Lay-Off
    . General
    . Payments into Trust
    (e) Continuity of Employment Through Employer Status Changes
    . Overview
    . Assignment or Re-Hiring on Sale or Transfer of
    . Business
    (f) Special Continuity Rules For Building Service Providers
    . General
    . Special Continuity Provisions
    . Special Changeover Provisions
    (g) Leaves and Termination

    Employment Standards

  2. Prior Notice of Termination (ESA)
    (a) General
    (b) "Working Notice" Period and Pay-in-Lieu
    . General
    . Wage and Benefit Preservation During Working Notice; Exception
    . No Mitigation Duty
    (c) Length of Notice
    . ESA Notice Periods
    . Determining Duration of Employment
    (d) Form and Service of Notice
    (e) Mass Terminations
    (f) Waiver of Notice of Termination by Re-Employment
    (g) Exceptions to ESA Notice Requirements
    . Overview
    . Categorical Exceptions
    . Situational Exceptions
    . Termination Lay-Offs
    . Seniority and "Bumping" Rights
  3. Severance Pay
    (a) Overview
    (b) "Severance" Defined
    (c) Circumstances Where Severance Pay Due
    (d) Amount and Payment of Severance Pay
    (e) Allowable Deductions from Severance Pay
    (f) Manner of Payment of Severance Pay
    (g) Recall Elections
    (h) Exceptions to Severance Pay Entitlement
  4. Some Special Termination and Severance Rules Regarding Building Service Providers (ESA)
    (a) Building Service Providers
    (b) Special Termination and Severance Duties
    (c) Exceptions

    Common Law

  5. Wrongful Dismissal and Just Cause
    (a) Overview
    . General
    . Reinstatement
    . Wrongful Dismissal
    . Just Cause
    . Res Judicata
    . Collateral Benefit Deductions
    . Multiple Forums and Abuse of Process
    (b) Damages
    . Overview
    . Length of Notice Period: the Bardal Factors
    . Other Length of Notice Issues
    . Aggravated and Punitive Damages
    . Inducement (or Negligent Misrepresentation)
    (c) Damage Reductions
    . Overview
    . ESA Minimum Standards Termination/Severance Pay-Out and/or Working Notice
    . Mitigation
    . Employment Insurance Benefits Received
    . ODSP/Welfare
    . WSIB
    . STD/LTD Benefits
    . Human Rights Code (HRC) Awards
    (d) Just Cause
    . Overview
    . The Nature of the Employment Relationship
    . Categories of "Just Cause" Misbehaviour
    . Categories of "Just Cause" Misperformance
    . Condonement
    . Prior Warnings
    . Remedial Efforts by Both Parties
    (e) Constructive Dismissal
    . Overview
    . Social Basis
    . Human Rights Discrimination
    . Condonement
    (f) Procedures and Limitation Periods
________________________________________

Important Note:
The Employment Standards Act (ESA) is riddled with many full and partial exemptions to it's provisions, as well as numerous 'special rules' for various industries or types of work. While I may note these variations throughout this Employment Law (Ontario) Guide when explaining individual topics generally, readers facing a specific fact situation should carefully review Ch.1 "Primary, ESA-Special and ESA-Exempt Employment Sectors" to determine if their specific employment situation is governed by any of these exemptions or special rules.

1. Overview

(a) General

With a few very rare exceptions, employees have no "right" to their job, and - nless it is under a term contract - it can be terminated by the employer without reason. In most cases however the employees does have a right to adequate prior "notice of termination" of their employment, the purpose of which is to give them time to locate similar replacement employment.

Further, when inadequate prior notice of termination is given (or none whatsoever), the terminated employee is generally (as always, there are exceptions) entitled to "pay in lieu" damages measured by the time that the notice is 'short': this is the essence of a "wrongful dismissal" claim. The main exception to this rule is the employer "defence" of "just cause": the allegation that the employee's misbehaviour essentially constitutes a material breach of the employment contract, justifying summary termination.

This primary entitlement to adequate prior notice of termination lies at the centre of most termination-related employment law. In Ontario law it takes two forms: the employment standards (ESA) "minimum" notice requirements, and the common law notice requirement. The two aspects of termination law are often closely intertwined, and care must be taken in reading (and writing) this chapter to ensure that the nature of any rights are clear. Such issues bear heavily on remedial and tactical choices to be made [on this generally see Ch.2: "Advocacy"].

These issues, as well as related ones such as lay-offs, constructive dismissals and severance pay entitlements are covered in this chapter.

(b) Types of Termination

. Overview

A "dismissal" is simply the voluntary act of the employer in terminating the employment. The term itself harkens to the class-based origin of employment law, previously (and still sometimes) referred to as "master-servant" law: thus "dismissal" by the master, while the employee simply "quits".

But not all terminations are employer-initiated dismissals of the "you're fired, get out" variety. They can take other forms, such as [ESA s.56 (1-2)]:
  • employee "quits";
  • constructive dismissals;
  • frustration;
  • insolvency;
  • prolonged lay-offs.
These several forms of termination are discussed immediately below. The topic of lay-offs is quite extensive so is covered in a separate sub-section [(c)], following.

. Quit (Employee Termination)

Technically, an employee-initiated "quit" is just as much a termination as an employer-initiated "firing". Of course, a purely voluntary "quit" does not attract either the common law or ESA entitlements that are the main subject of this chapter, and as well it has major implications for such practical matters as employment insurance entitlements and any other "collateral benefit" wage-replacement type of entitlement such as social assistance [on such issues see Ch.2: "Advocacy"].

While there is no generally-acknowledged common law entitlement for any amount of prior notice to be given to an employer before an employee quits (and thus no recognized "wrongful quit" action against the employee), this does preclude the possibility that a duty to provide prior notice to the employer has been included in the employment contract between the parties (presumably with a corresponding "just cause" defence by the employee). As well, there are some occasions where the ESA establishes brief prior notice provisions for 'early' terminations by an employee who is already in a "working notice" period brought about by an employer's notice of termination [see s.2(e): "Prior Notice of Termination: Mass Terminations: Resignation By Employee After Mass Termination Notice", below].

As well, where what "on it's face" looks like an employee "quit" is brought about by unacceptable behaviour of the employer (eg. unwarranted demotion, harassment, abuse, etc) then the situation may constitute one of "constructive dismissal" [see below], and be held in law to be an employer-initiated termination.

. Constructive Dismissal

A constructive dismissal, while superficially similar to a "quit" in that it is the employee who first declares the employment terminated, is (when eventually adjudicated to be so) legally treated as a dismissal without just cause because it is grounded in the unacceptable behaviour of the employer. Typical examples of such behaviour include unwarranted demotion, harassment or abuse.

The ESA adds to this definition the requirement that "the employee resigns from his or her employment in response to [the behaviour] within a reasonable period" [ESA s.56(1)(b)], an addition which reflects the common law principle of "estoppel" (aka "condoning" or "waiver"). An estoppel in such a situation would be the prolonged toleration of the situation by the employee, which - absent good reasons (eg. pressing financial necessity) - would legally negate the constructive dismissal claim.

Constructive dismissal is covered more thoroughly in s.5(e), below.

. Frustration

"Frustration" is a common law contractual doctrine applying when (usually)external events render the continuation of a contract effectively impossible. An example would be a contract to repair a car which is defeated when it is subsequently destroyed in a fire. Normally, 'frustration' is considered to terminate both party's future duties towards each other as they stand at the time of frustration (ie. both parties 'walk away').

However, the ESA provides that the employer is deemed to have terminated the employment where they are "unable to continue" the employment", for example by an involuntary, fortuitous or unforeseeable event or circumstance [ESA s.56(1)(a)]. The effect of this is to invoke the standard ESA notice and other ESA employer duties in most 'frustration' situations.

Note that the "ESA v common law" distinction in the definitions of "frustration" can result in the same fact situation being categorized - on the one hand - as a dismissal for ESA purposes (giving rise to ESA notice and pay-in-lieu rights), and on the other hand a common law frustration, giving rise to no further employee rights.

On this topic, the important case of ONA v Mount Sinai Hospital 75 OR (3d) 245 (Ont CA) should be noted. There the court voided an (old) ESA provision that denied severance pay to employees whose continued employment was "frustrated" [see s.1(b), above] by reason of their illness or injury. The court held that to include ill or injured employees within the definition of "frustration" was a s.15 Charter equality violation as it disregarded their potential rehabilitation. The case is important for placing ill and injured employees in a now unique class, which is entitled to employer accomodation in their unfortunate circumstances. The nature and extent of such accomodation will be spelt out in future cases.

. Insolvency

A termination brought about by reason of insolvency, if workplace activities simply halt, is very similar to a frustration in that the employer is no longer able to continue the emplpoyment. Such terminations have been held to trigger ESA rights to termination entitlements and, where applicable, severance pay: Rizzo v Rizzo Shoes [1998] 1 SCR 27. On this topic also see (e): "Continuity of Employment Through Employer Status Changes: Assignment or Re-Hiring on Sale or Transfer of Business", below.

. Compulsory Retirement

The issue of compulsory retirement at a fixed age is complex and involves contractual and human rights law. I do not presently address it in this Employment Law (Ontario) Guide.

(c) Lay-Offs

. General

A "lay-off" is the act of an employer 'suspending' active employment either with or without a specified recall date.

The ESA distinguishes [and defines (below)] between "temporary lay-offs" and longer "termination lay-offs" (my term) which it treats (for ESA purposes) as terminations, subject to the employee's right to elect to treat them otherwise. Essentially, under the ESA a "termination lay-off" is simply a lay-off that is not a "temporary lay-off".

The common law treatment of lay-offs is much less consistent, and tends to focus on the intention and behaviour of the parties. Thus if an employee 'accepts' the lay-off by holding themselves ready to return for a time, it will not be initially treated as a termination. However if the lay-off continues for an extended period, and if the employee demonstrates or communicates an end to their tolerance of the situation - then a termination may have occured. On the other hand, initial and immediate treatment of the lay-off by the employee as a termination may be accepted as such, but their damages reduced through a failure to "mitigate" their loss by a continued willingness to return to work.

In these respects the common law situation faced by a laid-off employee is similar to the uncertainty they face in constructive dismissal situations: in neither case does an employee have certainty as to their legal status until a (much) later legal adjudication of the matter.

Not surprisingly (under either the common law or the ESA) employees on a "temporary lay-off" and who have demonstrated a willingness to be recalled - who then fail to return to work within a "reasonable time" after being recalled - are treated as having "quit", and have no termination notice or other rights [Reg 288/01, s.2(1)2,7]. This principle demonstrates the significance of the 'recall election', either under the ESA or common law.

. ESA "Termination Lay-Off" Principles

Determining when a "temporary" lay-off converts into a "termination" lay-off under the ESA is sometimes complex, and is explained in detail below. First though there are some important principles to appreciate.

As noted, a lay-off longer than a "temporary lay-off" (below) is a "termination lay-off" for ESA purposes, and at that point can be treated as an employer dismissal. Where a lay-off is made without a specified recall date, the lay-off shall be deemed to be temporary until the duration of the lay-off renders it a termination lay-off [ESA s.56(4)]. Of course, where a lay-off is made with a specified recall date that exceeds "temporary" status, then the employer is free to treat it as a termination at that point.

Importantly for ESA purposes, the "date of termination" of any "termination lay-off" is the date that the lay-off began - not the date that the lay-off finally 'converts' into a termination by passage of time [ESA s.56(5)].

. ESA "Temporary" Lay-Offs Duration

"Temporary lay-offs" come in two forms, A and B as follows [ESA s.56(1)(c),(2)(3.2)]:
A. Simple Temporary Lay-Offs

13 weeks or less lay-off in any 20 consecutive weeks (so when the 14th week of lay-off starts, it becomes a "termination lay-off");

Note 1: "Excluded Weeks"

A week shall not count as a week of lay-off (and is thus 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 [ESA s.56(3)].

Note 2: Earnings Level Where Regular Work Week

Employees with regular work weeks are laid-off for a week if "in that week, the employee earns less than one-half the amount he or she would earn at his or her regular rate in a regular work week" [ESA s.56(3.1)]. This does not include "excluded weeks" (above). "Regular rate" excludes overtime, vacation and holiday pay [ESA s.1 Defns]; "regular work week" is the usual ('standard') work week, not the average hours worked per week.

Note 3: Earnings Level Where No Regular Work Week

Employees without regular work weeks are laid-off for a week if they earn "less than one-half the average amount he or she earned per week in the period of 12 consecutive weeks that preceded the 20-week period" [ESA s.56(3.3,3.4)]. "Excluded weeks" may not count as weeks of lay-off, nor may they count as weeks over which the earnings are averaged for the above purposes.

or

B. Extended Temporary Lay-Offs

More than 13 weeks lay-off in 20 consecutive weeks (see above), but 34 weeks or less layoff in any consecutive 52 weeks (so when the 35th week of lay-off starts, it becomes a "termination lay-off") if ANY of the following are also the case:
  • the employee continues to receive substantial payments from the employer,

  • the employer continues to make payments for the benefit of the employee under a legitimate retirement or pension plan or a legitimate group or employee insurance plan,

  • the employee receives supplementary unemployment benefits,

  • the employee is employed elsewhere during the lay-off and would be entitled to receive supplementary unemployment benefits if that were not so, or

  • the employer recalls the employee within the time approved by the Director.
Note 1: "Excluded Weeks"

A week shall not count as a week of lay-off (and is thus 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 [ESA s.56(3)]

Note 2: Earnings Level Where Regular Work Week

Employees with regular work weeks are laid-off for a week if "in that week, the employee earns less than one-half the amount he or she would earn at his or her regular rate in a regular work week" [ESA s.56(3.1)]. This does not include "excluded weeks". "Regular rate" excludes overtime, vacation and holiday pay [ESA s.1 Defns]; "regular work week" is the usual ('standard') work week, not the average hours worked per week.

Note 3: Earnings Level Where No Regular Work Week

Employees without regular work weeks are laid-off for a week if they earn "less than one-half the average amount he or she earned per week in the period of 12 consecutive weeks that preceded the 52-week period" [ESA s.56(3.5,3.6)]. "Excluded weeks" may not count as weeks of lay-off, nor may they count as weeks over which the earnings are averaged for the above purposes.

Note 4: Exception re Extended Temporary Lay-Offs

In any case where the employee is represented by a trade union, where a lay-off longer than an "extended temporary lay-off" occurs, and where the employer recalls the employee within the time set out in an agreement between the employer and the trade union - then the lay-off is still a "temporary lay-off" [ESA s.56(2)(c)]. That is, the union can 'contract out' of the extended temporary lay-off definition by agreeing to a longer "temporary lay-off" period.
See the "recall election" where an "extended" temporary lay-off is exceeded (immediately below).

(d) Recall Elections Where Lay-Off Exceeds Extended Temporary Lay-Off

. General

Where an "extended temporary lay-off" [see (c) above] is exceeded (35 weeks layoff in 52 consecutive months and at least one of the above pre-conditions), then a termination event has occured and the employee has the right to claim both termination and severance pay.

However, if the employee does not want the employment relationship to end - and if their contract of employment gives them a right of recall - they can elect to decline those payments (for the time being), and accept a continued "right of recall" [ESA s.67(1,3)].
Note:
The requirement for a "contractual" right of recall amounts to an added requirement of mutual party consent to the recall election, as such consent constitutes an 'amendment' to the employment contract.
Of course, if the employee has the right to both termination and severance pay (not all do), the election to decline the payments must be the same for both termination and severance pay [ESA s.67(4)]. An election for the payments surrenders the recall right [ESA s.67(2,5)].

. Payments into Trust

Where a non-union employee fails to elect, or elects to preserve the right to recall, the termination and/or 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 termination and/or severance payments must be made to the Employment Standards Director, into a trust account [ESA s.67(7)].

Any later exercise by the employee of a right to recall entitles the employer to the refunding of any such monies held in trust [ESA s.67(8)], and 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)].

(e) Continuity of Employment Through Employer Status Changes

. Overview

Normally, contracts - being "between" two parties - end when one of the parties dies or otherwise renounces the contractual relationship, either directly or indirectly. However most (not all) employment contracts are made between employees and employers, and employers are engaged in on-going businesses which themselves are items of commerce which can be themselves bought and sold. This creates a need to provide for continuity of the employment relationships.

When ownership of a corporation changes this is not normally a problem for the employee, as the transfer occurs through share purchases. As the employment relationships are still with the "same" corporation (rather than either the now or the old shareholders directly), the transition for the employee is seamless.

However where the business is a proprietorship or a partnership, the employment contract is more akin to an "asset" of the corporation, like furniture or client contracts. In such cases a business may either be sold off 'in parts' or 'whole' as a "going-concern". If business vendor and purchaser wish to 'transfer' the employment contract (ie. preserve it), then arrangements have to be made to achieve this.

Situations similar to a business sale include the taking over of the business by a bankruptcy trustee or a court-order receiver. The ESA and the courts have partially resolved some of the legal uncertainties which these situations give rise to, as follows.

. Assignment or Re-Hiring on Sale or Transfer of Business

The main contractual method used to preserve employment contracts through a business sale is to include in the (usually written) employment contract the right of the employer to unilaterally "assign" (ie. transfer) the employment contract to another legal entity (ie. person, incorporated or unincorporated business organization).

Of course the purchaser may not wish to take on the economic or other burdens of the existing workforce and may wish to "pick and choose" - or even completely shed -the existing workforce (note: the situation with unionized workers is quite distinct in this regard and is not covered in this Guide).

Where the purchaser choses to preserve an employment relationship, the ESA provides that the employment relationship is transferred with the employee's accrued duration of employment), which is so important for numerous ESA purposes such as termination pay and seniority "bumping" rights. This applies whether the purchaser either openly accepts the assignment of an employment contract or otherwise 're-hires' the previous employee within 13 weeks or less of the earlier of [ESA s.9(1,2)]:
  • the final date of employment with the seller, or

  • the day of the sale of the business.
Note: there are special 'continuity' provisions respecting "building service providers" [see (f) below]).
Note that for ESA purposes "business" is defined broadly to include "an activity, trade or undertaking" [ESA s.1 Defns].

Note further that, for the above purposes, "sells" "includes leases, transfers or disposes of in any other manner", so that the same rule would apply on any assignment or similar transfer brought about as the result of insolvency proceedings (eg. bankruptcy) [ESA s.9(3)] - if of course the trustee chooses to preserve the business as a "going concern". Otherwise a termination brought about by reason of insolvency has been held to trigger ESA rights to termination and, where applicable, severance pay: Rizzo v Rizzo Shoes [1998] 1 SCR 27.

(f) Special Continuity Rules For Building Service Providers

. General

A "building services provider" is "a person who provides building services for a premises", and it can can include the owner or manager of 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.
Incoming "building service providers" are subject to some exceptions regarding normal termination and severance duties with respect to employees that they do adopt [see s.4: "Some Special Termination and Severance Rules Regarding Building Service Providers", below].

. Special Continuity Provisions

"Building service providers" receive some special treatment under the ESA when employer changeovers occur. While the above ESA rules [(e)] on transfer generally apply where a new "building service provider" takes over, the date by which re-hiring must take place in order for the duration of the employee's employment to be preserved is slightly different. For building service providers it is within 13 weeks or less of the earlier of [ESA s.10)]:
  • the final date of employment with the previous provider, or

  • the day on which the new provider began servicing the premises.
. Special Changeover Provisions

The ESA also sets out special provisions facilitating changeovers between building service providers. Presumably these are to prevent the former service provider from 'sabotaging' the situation for the successful bidder (who is likely a business competitor).

Persons and corporations interested in bidding for upcoming building service contracts are legally entitled to be given - by the owner or manager of the premises - the following information about the current employees [ESA s.77(1), Reg 287/01, s.3(1,3-5)]:
  • the employee's job classification or job description;

  • the wage rate actually paid to the employee;

  • a description of any benefits provided to the employee, including the cost of each benefit and the benefit period to which the cost relates;

  • the number of hours that the employee works in a regular work day and in a regular work week;

    If the employee does not have a regualr work week, the owner or manager shall instead, provide the number of the employee's non-overtime hours for each week that the employee worked during the 13 weeks before the request date.

  • the date on which the provider hired the employee;

  • any period of employment attributed to the provider under section 10 [see "Special Continuity Provisions", above] of the Act;

  • the number of weeks that the employee worked at the premises during the 26 weeks before the request 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.

  • a statement indicating whether either of the following subparagraphs applies to the employee:

    A. the employee's work, before the request date, included providing building services at the premises, but the employee did not perform his or her job duties primarily at those premises during the 13 weeks before the request date.

    B. the employee's work included providing building services at the premises, but the employee was not actively at work immediately before the request date, and did not perform his or her job duties primarily at the premises during the most recent 13 weeks of active employment.
If and when the bidder is granted the service contract they are legally entitled to be given - by the owner or manager of the premises - the above information and the employee's name, residential address and telephone number [ESA s.77(2), Reg 287/01. s.3(2)].

In either case the present (or past) service provider is required to give the owner or manager the information they require to comply with the above duties [ESA s.77(3)].

Parties receiving such information for these purposes may only use it for the ESA compliance-related purposes, and shall otherwise keep it confidential [ESA s.78].

(g) Leaves and Termination

Employees taking ESA-"minimum standard" leaves [see Ch.5, s.2: "Benefit Plans, Leaves and Other ESA Rights: Leaves of Absence"] are entitled to return to their old job (if it still exists) or - otherwise - to a comparable position [ESA s.53(1)].

However, this right does not apply to preserve re-employment where the employer terminates the employment "solely for reasons unrelated to the leave" [ESA s.53(2)].

Thus, while generally an employer is not required to have any reason for termination, at least a leave 'reprisal' termination is prohibited [on that topic, see the special 'reprisal' remedies (which apply to ESA leave violations) at Ch.9, s.2.].

Where employment is reinstated, the employee is entitled to at least their old wage, including any increases that would have taken effect had the leave not been taken [ESA s.53(3)].

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