When an employment relationship ends, the terms of termination may be set out in the employment contract. Generally, examining the terms of an employment contract can be a good way to understand an employee’s rights upon termination. However, in some cases, employees may be entitled to more than what is set out in the employment contract. This may be the case for situations where the termination clause breaches the minimum standards set out by the Ontario Employment Standards Act. A termination clause may breach the minimum employment standards if it limits the benefits available to an employee during their notice period after termination. It is important to carefully consider the terms of an employment contract to ensure clarity, especially in how they relate to the minimum standards.
In this post, we will discuss an employee’s rights upon termination. In particular, we will examine when an employee may be entitled to their benefits after termination and what these benefits may include. This post will also provide an overview of the minimum standards for the employee upon termination to help employers ensure that the employment contract terms are valid. This discussion will provide key takeaways for employees seeking to understand their rights to benefits upon termination and employers seeking to ensure that the employment contract terms are valid, especially with respect to termination clauses.
What are employees entitled to upon termination?
Employees who are terminated are entitled to minimum standards as set out in the Ontario Employment Standards Act (ESA). Employers and employees cannot contract out of the standards set out in the ESA.
If an employee has been continuously employed for 3 or more months, the employer cannot terminate the employee unless the employee has provided written notice of termination and the notice has expired, or the employer has paid the employee termination pay. Termination pay would need to be a lump sum equal to what the employee would have been entitled to receive if notice was given. This includes any benefit plan contributions so the employee could have maintained their benefits during the notice period.
If the employee worked for the employer for less than a year, the employer needs to provide at least one week of notice or pay in lieu of notice. It is important to note that the employer cannot reduce the employee’s wage rate or change any other condition in the employment contract when providing notice or pay in lieu. Contributions to benefit plans also cannot be reduced during the notice period. Other bonuses or benefits specified in the employment contract also cannot be reduced, such as vacation pay, life insurance, etc.
What happens when an employment contract breaches employment standards by limiting benefits after termination?
It is important for parties to carefully consider the terms of the employment contract because if it breaches the ESA, some terms may be invalidated.
At common law, it is presumed that the employee cannot terminate employment without providing reasonable notice. This presumption can be rebutted if the employment contract specifies another notice period. This can be expressed or implied. Parties can contract to any reasonable notice period as long as it does not breach the ESA’s minimum standards.
If the termination clause does not comply with the standards in the ESA, it could be struck out, meaning that the reasonable notice period would be determined under common law. The notice period under common law may be longer than specified under the employment contract, depending on the particular factors involved in the case. For instance, an employee would be entitled to a longer reasonable notice period under common law if they worked for the employer for a long time or were older at the time of termination.
If a part of the termination clause breaches the minimum standards in the ESA, the court does not have the discretion to strike out only that part. This means that the termination clause as a whole may be invalidated, even if only part of it breaches the minimum standards.
Even if the employer includes a term specifying that any breaches are severable from the rest of the termination clause, this will not allow the court to strike out only the offending portion of the termination clause. This is primarily to protect employees from exploitative employment agreement terms, given the unequal bargaining power in favour of the employer.
Court Finds Employee’s Benefits Limited After Termination, Breaching Employment Standards
In a recent Ontario case, Wilds v. 1959612 Ontario Inc., 2024 ONSC 3452, the court struck out a termination clause, as it limited the employee’s benefits specified in the employment contract.
In this case, the employer was a company that provided roofing and exterior building supplies. The employee worked as an executive assistant for the company for 4.5 months. When she was terminated, she was not provided notice or cause and was 52 years old.
The employment contract contained terms concerning bonuses and expenses. The bonuses were discretionary, but the contract also specified that the employee would not receive any bonuses that she would be entitled to if she was terminated. This was found to be a breach of the ESA, as it limited the employee’s rights upon termination. The termination clause was struck out, and her reasonable notice period was determined by common law rather than the employment contract.
The court stated that wrongful dismissal damages could include an amount for bonuses or benefits that the employee would have received if they continued their employment during the notice period. Damages can also include the lost opportunity to earn a bonus or benefit, especially where the bonus or benefit was an integral part of the employee’s compensation. Even discretionary bonuses can be considered.
The court also found that the employee should have received a bonus, as she had completed two bonus tasks before termination. She was also found to be entitled to benefits for the notice period.
Contact Haynes Law Firm in Toronto for Advice on Termination and Wrongful Dismissal Claims
Employers and employees should carefully consider the termination clauses set out in the employment contract, as there are significant consequences if the clauses do not comply with legislative standards, including a potential wrongful dismissal claim. Our experienced employment law legal team at Haynes Law Firm in Toronto can assist you with issues that arise from termination. Our goal is to ensure that employees understand their rights and receive maximum compensation in wrongful dismissal cases. Haynes Law Firm also assists employers in avoiding liabilities that may arise from terminations that are not permitted by the legislation. We are dedicated to finding the best resolution for you.
To book a consultation, please contact us online, or by phone at 416-593-2731.
