Friday, September 16, 2011

Back to Basics: I've been fired for no reason! How can they do that?

Occasionally in this blog, I start talking about things like reasonable notice in fairly cursory ways.  And judging from the search terms people use to find this blog, I'm fairly confident that many of my readers don't need any further elaboration of the concept.

However, it's also clear that some of my readers are not experienced in employment law, and are looking for information about the legal framework surrounding dismissal.  So let's back up for a moment and talk about what a dismissed employee, without just cause, is entitled to.

As a beginning qualification, let's be clear that I'm talking here about the non-union context.  In union contexts, not-for-cause terminations are usually limited to layoffs, and have a different framework.

Practicing employment law, it is not at all uncommon to get a call from a prospective client who says, outraged, "They fired me without any reason at all!  They even said they didn't have a reason!  How can they do that?"

People like to think that they have job security, that they can't get fired unless they do something wrong.  That's not true at all; without just cause, an employee can be fired on notice (or pay in lieu thereof).  I would say that upwards of 85% of the terminated employees I have seen were terminated on a not-for-cause basis.  (It's also true that the *vast* majority of not-for-cause terminations involve some employer dissatisfaction with the employee - poor productivity, poor chemistry with co-workers or managers, misconduct that the employer isn't confident rises to the level of "just cause" is exceedingly rare to have a purely economic decision for a layoff.  But that doesn't really matter to the analysis.)

Employment as Contract

Even when there isn't a formal written contract, the provision of service in exchange for wages is still contractual in nature.  Let's suppose I hire you to work for me, and all I tell you is the job title, a brief summary of the job duties, your wages, your hours, and where you have to go to report for work in the morning.

That's all the important stuff, right?  That's enough for you to accept the job, show up for work, and start doing the job.  But what about other matters?  The tools that will be made available to you to do your job?  The extent of contact you're going to have with clients, or the extent to which you will be supervised in your duties?  What about vacation time?  Overtime?  Breaks?  And, importantly for our purposes, how does either party terminate the contract?

These things are defined by a couple of different sources.  So let's start with the most authoritative source, the Employment Standards Act, 2000.  This is the Provincial statute that applies to employment relationships within the jurisdiction of the Province - some employers are Federally regulated, and they fall under a different statute (the Canada Labour Code), but the principles are largely similar.

The Employment Standards Act, 2000

The ESA sets minimum entitlements for employees.  There are provisions in the ESA that state that any contractual provision giving more than the minimum to the employee is enforceable, but any contractual provision giving less to the employee than the minimum is void.  The easy example to understand is "minimum wage".  If I offer to pay you $8/hour, yet the minimum wage under the circumstances is $10.25/hour, then you could take the job, then insist on $10.25 even notwithstanding that you agreed to $8.

So the ESA sets minimums for paid vacation, unpaid lunches, overtime pay.  It also creates entitlements for employees in the sense of creating maximum numbers of hours that can be worked over a period of time.  And it sets a minimum standard for notice of termination and severance pay, based on a formula taking into account length of service and, in some cases, the size of the employer's Ontario operations.  (See below.)  Note that the Regulations under the ESA create a number of exemptions to these entitlements.

The Common Law

Where the government hasn't enacted a law speaking to a point (i.e. in the ESA), and where the parties haven't reached a binding contract in respect of the point, the point is governed by the common law.  Over centuries, judges have looked at fact-patterns and decided the most just resolution.  These cases become precedents, and subsequent cases are likely to be determined similarly.

So the Courts have looked at a lot of employment relationships, and they have read in certain "implied" terms, and in particular an implied term that neither party will terminate the employment relationship without giving the other party "reasonable notice".  (While the employee is, strictly speaking, required to give reasonable notice, it's relatively rare that there is any litigation flowing from this, and what's "reasonable" for the employee to have to give is very different from the "reasonable" notice required of the employer.  So from here on in, when I discuss "reasonable notice", it's the notice required of the employer.

Let's be clear that the common law can be displaced by a binding contract.  So if there's an enforceable termination clause in the contract (see my discussion of the ESA above...there are other pitfalls to enforceability as well), then that will have replaced the "implied" term with an express term, and there will be no entitlement to "reasonable notice" as defined by common law.

Reasonable notice of termination is defined with reference to several factors.  The usual four (though they are not an exhaustive list) are age, length of service, character of employment, and availability of replacement employment.  So a young person who has spent a few months in a front-line service position has fairly minimal entitlements, whereas an older person who was fired from a CEO position held for many years will likely have significant entitlements.  Either way, common law reasonable notice entitlements are usually measured in months (seldom exceeding 2 years).

One more important point is that common law notice entitlements are subject to an obligation to "mitigate".  Suppose an employee is terminated without cause and without notice, and has a reasonable notice period of 12 months.  During the notional notice period, the employee is obligated to try to find equivalent replacement employment.  (Failing to take reasonable efforts can result in a loss of entitlements.)  Now suppose that the employee obtains a new position at 90% the pay rate after 4 months.  He is entitled only to be 'topped up' to what he would have received over the whole notice period.  (So the first four months pay in full, and then over the remaining 8 months he gets only the 10% extra that he would have gotten in his old job.)


This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer


Ontario's Employment Standards Act, 2000:  Minimum entitlements on termination for most employees

The first entitlement (again, provided no exemption applies) is notice of termination.  This minimum entitlement can be satisfied by either actual notice or pay in lieu thereof - they can tell you, "Your employment is terminated effective x weeks from now", or they can say "Your employment is terminated effective immediately, but we will continue paying you for x weeks."

This is entirely based on length of service:

Nil to 3 months of service:  No minimum entitlement.
3 months of service to 1 year of service:  1 week notice
1 year to 3 years of service:  2 weeks notice
3 years to 4 years of service:  3 weeks notice
4 years to 5 years of service:  4 weeks notice
5 years to 6 years of service:  5 weeks notice
6 years to 7 years of service:  6 weeks notice
7 years to 8 years of service:  7 weeks notice
8 years of service and up:  8 weeks notice.

(For simplicity, I've abbreviated the language.  In truth, 2 weeks notice is what you get if you have 1 year of service but less than 3 years of service, meaning that if you're fired without cause on your 3rd anniversary, you get three weeks notice.)

The second entitlement, in some cases, is to severance pay.  This cannot be satisfied by notice, but must be provided by way of pay, though it too is measured in terms of number of weeks, meaning that entitled employees must be paid the equivalent of x weeks pay, in addition to their notice entitlements.

Eligibility for severance entitlement, again subject to various exemptions in the regulations, requires two criteria be met:

(1)  The employee must have five years of service or more, and
(2)  The employer's Ontario payroll must be in excess of $2.5 million, OR the severance is part of a mass layoff where the employer is terminating all or part of its business at an establishment resulting in 50 or more layoffs in a six month period.

The quantum of severance pay is one week's pay per completed year of service, up to a maximum of 26 weeks.

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