By Andrew Mawdryk | January 17, 2022
This general legal information (not legal advice) is subject to change, and there may be exceptions based on your specific circumstances. You should obtain independent legal advice before taking any action which may impact your legal rights. If you are an employee or an employer and need legal advice regarding layoffs or termination of employment, an OA lawyer will be pleased to assist you with your situation.
A termination can be an exceptionally stressful time for both the employee and the employer. As Justice Dickson wrote in a Supreme Court of Canada decision, “work is one of the most fundamental aspects in a person’s life […] a person’s employment is an essential component of his or her sense of identity, self-worth and emotional well-being.”
Termination is rarely a clear-cut case. You’ve probably heard people say before that they were “fired”, that they “quit”, that they were “laid off”, or even that their employer just “stopped scheduling them for shifts.” The reality is that, depending on the specific circumstances, these can all be considered termination. The specific circumstances of a termination will determine what kind of termination it is and what is owed. This article will help you understand some of the legal consequences of termination and what employers and employees should consider during termination.
Employer Considerations at Termination
It is a good idea to get legal advice prior to terminating an employee. Even a consultation can help an employer understand the legal consequences of termination, and shape the termination so that it is done in the best legal interests of the employer. An employer usually has a right to terminate any employee at any time (so long as the termination is not discriminatory). However, unless there is just cause to terminate, some compensation will normally be owed to that employee. Federally-regulated employers and most unionized employers are generally only permitted to terminate employees with cause or in limited other circumstances.
When terminating an employee, the employer will first need to understand whether the termination will be with cause or without cause. In other words, whether the employee has committed misconduct severe enough to disentitle them from notice of termination/pay in lieu of notice. The important thing to keep in mind is this is not necessarily what the employer believes is valid, but what the court will consider a valid reason. To determine whether an employer has just cause for termination, the court will usually:
(1) determine the nature and extent of the misconduct;
(2) consider the surrounding circumstances (i.e. the type of work, the employer’s business, the degree of employee responsibility); and
(3) decide whether dismissal was warranted.
Where just cause exists, an employer is usually not required to pay anything to the employee, except accrued and owing compensation. If the termination was without cause, the employee will be owed at least their Employment Standards Act, 2000 (the “ESA”) entitlements and at most their common law entitlements.
The minimum statutory requirements under the ESA are just that – the minimum an employee is owed when terminated without cause. The ESA mandates that an employee is provided termination pay/notice of termination, severance pay, and benefit continuation in certain circumstances. The calculation for each entitlement is contained in the ESA and is dependent on the employee’s years of service, among other factors. The terminated employee may also be owed other entitlements pursuant to their contract of employment and under the common law. These entitlements might include: reasonable notice of termination (or pay in lieu of), bonus pay, RRSP contributions, benefit continuation, and more. To determine what an employee is owed, the first point of reference will be the employment contract. The contract between the employer and the employee forms the basis for understanding what the parties agreed the employee is entitled to upon termination. If there is no written employment contract, an employee will usually be owed common law reasonable notice, which is usually more than what the ESA requires. This notice is subject to the employee’s duty to mitigate (more on mitigation later).
If, as an employer, your standard practice when hiring a new employee is to dust off an old employment contract and run it through the photocopier, or open a 2007 Microsoft Word document in compatibility mode, it is probably time to have a lawyer look over your employment contract(s). A lawyer can recommend changes that will protect the employer and increase the probability that the courts uphold the clauses in an employment contract. A lawyer can also tailor different employment contract templates to suit different positions better. The best practice is to have a lawyer look over an employment contract at least every year or two. This will keep the employment contract up to date and more enforceable as the law changes. Recent jurisprudence examining the relationship between common law “just cause” and the termination provisions of the ESA have cast considerable doubt on the enforceability of contractual termination provisions. If employment contracts have not been reviewed in this light in the last two years, they should be now.
An employer should always act in good faith when terminating an employee, and pay the terminated employee what they are entitled to. This could save the employer the legal costs of defending an action in court and a potentially larger pay out if the court finds the employer acted in bad faith.
Employee Considerations at Termination
An employee will want to ensure that the employer is meeting their obligations when terminating. If the employee is leaving on their own account, the employee should ensure that they receive any accrued and outstanding compensation, and provide the proper notice to the employer.
In addition to compensation that might be owed, an employee will typically want to ensure that they have what they need for future employment. This might consist of training records, a letter of employment, and/or a letter of recommendation. The key priority for an employee should be getting what they are owed and what they need from the employer sooner rather than later. An employee should be open to reasonable requests, such as an exit interview.
A wrongfully terminated employee usually has a duty to mitigate their damages (i.e. their loss of employment income for the notice period). In the event that an employee sues for wrongful termination, they will likely need to show that they have been actively looking for new comparable employment. The employer will normally argue that the employee did not sufficiently mitigate damages, and is therefore entitled to less pay in lieu of notice. This means not only should an employee be actively looking for new employment, but they should keep a detailed record of their efforts. An employee is only expected to make reasonable efforts to mitigate—they are not obligated to take a substantially different job with substantially lower pay, for example. A failure to mitigate may disentitle the employee to some compensation owed.
If an employee is offered a severance package or a settlement, they should take time to understand the clauses in the package that will continue to be in effect after their termination. These can include a confidentiality clause, a non-solicit clause, a non-disparagement clause, etc. It is important that the employee is prepared to abide by these clauses or they risk legal action by the employer for breach of contract. Further, the severance package may require the employee to release their rights to take any legal action against their employer in exchange for the package. A lawyer will be able to advise on what the clauses mean and whether or not the clauses are actually enforceable, and tell you whether your severance package is reasonable. This can be extremely valuable if the package falls far below an employee’s entitlement, and requires the employee to sign a release.
When an employee’s employment ends on bad terms, the termination may not be so straight forward. The employer or employee may be contemplating litigation against the other, or third parties like the benefits provider. It is especially important in these cases that an employee keep in mind that they should consult a lawyer before dealing with their employment situation in any way. A lawyer can establish clear guidelines for what to do—and what not to do.
O’Neill Associates is proud to support students from the Bora Laskin Faculty of Law (Lakehead University, Thunder Bay) through the school’s unique Integrated Practice Curriculum (IPC) Program. The IPC, a Bora Laskin variation of the “articling” program students complete at most other law schools, matches students with law firms to work side-by-side with experienced lawyers for one full semester during the third and final year. This article was written by Andrew Mawdryk who will be completing his third year IPC with OA in the fall of 2021.
 Wallace v United Grain Growers Ltd., 1997 CarswellMan 455 (SCC).
 Or wilful misconduct within the meaning of the ESA, please see later in article.
 Dowling v Ontario (Workplace Safety & Insurance Board) 2004 CarswellOnt 4923 (C.A.) citing McKinley v BC Tel 2001 SCC 38.
 The applicable minimum payments under the ESA must still be given to a terminated employee when there is just cause to terminate, but the just cause does not amount to the level of “wilful misconduct” within the meaning of the ESA. The ESA describes the behaviour “wilful misconduct” as: wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.
 Employment Standards Act, 2000, S.O. 200, c.41 at s. 57.
 Honda Canada Inc. v Keays, 2008 SCC 39 at para 50.
 An employee with a fixed term contract that does not stipulate that they have a duty to mitigate could mean that they do not have a duty to mitigate and will be guaranteed to be paid for the duration of the fixed term.