July 17, 2015
Author: Lauren Barteluk
Navigating the Complexities of an Employment Termination
In the past few months, we have heard many stories of both large and small companies located in Alberta laying off substantial numbers of employees. In this uncertain environment, it is essential that both employees and employers alike understand the legal principles surrounding employment terminations. Failing to do so may mean that as an employer, you risk significant liability in the event any of your employees file a wrongful dismissal lawsuit. As an employee, it may mean giving up significant rights to which you are legally entitled.
Here are five things to know about employment terminations:
1. Reasonable Notice
An employee is entitled to “notice” of his or her employment termination in order to allow him or her sufficient time to find new employment. “Notice” can be provided in one of the following ways:
(a) As working notice, during which the employee continues to work and receive his or her regular salary and benefits, but has notice that his or her employment will end on a pre-determined date;
(b) As compensation in lieu of notice, commonly referred to as severance pay, which is paid when the employee is no longer required to report to work for the employer; or
(c) As a combination of the above.
If the employer opts to provide compensation in lieu of notice, instead of working notice, this compensation can be paid in various different manners:
(a) As a lump sum payment, representing the compensation the employee would have expected to receive had he or she continued to be employed over the notice period;
(b) As salary continuance in which the employer will continue the employee’s regular salary and benefits over the notice period, without the employee providing his or her services during this same time period; or
(c) As a combination of the above.
Unless the employee fits within certain exceptions, he or she is at a minimum entitled to a set amount of notice depending on the employee’s length of service with the employer. The minimum periods of notice for a particular employee can be found within either the Alberta Employment Standards Code or the Canada Labour Code, depending on whether the employment is subject to provincial or federal jurisdiction.
Nevertheless, many employees are entitled to a period of notice that is greater than that set out in the applicable labour legislation[1]. There is no ‘formula’ to determine the length of the reasonable notice period. Instead, courts weigh the following four factors in making this determination:
(a) The employee’s age;
(b) The employee’s length of service;
(c) The employee’s position with the employer, or the character of employment; and
(d) The availability of similar employment[2].
2. The Duty to Mitigate
The purpose of the notice period is to financially compensate an employee until he or she finds alternative employment. Employees have a legal obligation to look for another job or consulting position in order to minimize this period of time he or she is without income. This is referred to as the “duty to mitigate”. If an employee breaches this duty (without valid reason), a Court is likely to deduct some compensation from the total compensation in lieu of notice it would have otherwise awarded to the employee.
Considering the purpose of the notice period, employees must also be aware that, if they find a new job or consulting position and bring home other income during the reasonable notice period, these mitigated earnings will be deducted from the compensation in lieu of notice to which they are entitled.
3. Continuing obligations following termination
Following his or her employment termination, an employee has some continuing obligations to his or her former employer. For example, he or she may not disclose the company’s confidential information. Confidential information can include, but is not limited to, trade secrets, customer lists, marketing information, and financial information. However, confidential information does not include general skills and knowledge that the employee gained while employed.
Employees should also consider whether they signed any non-solicitation, non-competition, or confidentiality agreements during their employment, or a Release containing ongoing restrictions upon their employment termination.
Beyond the general restrictions discussed above, fiduciary employees have additional obligations that continue beyond their employment terminations. For example, a fiduciary employee cannot solicit the company’s clients or employees for a reasonable period of time following his or her employment termination.
The Court can deem an employee to have been a fiduciary employee during his or her employment. Fiduciary employees are typically officers or directors of a corporation, or in a senior management position. They usually have the power to unilaterally direct the affairs of the company that can affect the employer’s interests.
4. Disability Benefits
Employers must be cautious about terminating the employment of individuals who are receiving or may apply for disability insurance benefits.
If the wrongful termination of an employee’s employment has prejudiced his or her ability to receive disability benefits during the notice period to which he or she would have otherwise received, the employer may be liable for paying such benefits. As an example, if an employee would have qualified for disability benefits, but his or her application was denied because the employer improperly ceased the disability coverage, the employer may be liable for paying for the benefits that the employee would have otherwise received[3].
However, the particular liability facing the employer will depend largely upon the wording of the disability insurance plan and employment contract.
5. Insolvency
Employees should also be aware of the compensation to which they may be entitled to under the Wage Earner Protection Program. Under this Program, if the employee’s employer declares bankruptcy (or is subject to receivership) under the Bankruptcy and Insolvency Act, the employee may be eligible to receive compensation for unpaid wages and vacation pay earned in the six months prior to the bankruptcy, and for termination and severance pay, up to a maximum of $3,000 or four times the maximum weekly insurable earnings under the Employment Insurance Act.
Further, employees also have a super-priority claim to recover a maximum of $2,000 in unpaid wages over the current assets of the bankrupt employer in the six months prior to the bankruptcy. However, the Wage Earner Protection Program Act subrogates the employees’ super-priority position to the Government when a payment is made to the employee under the Act.
1 However, parties can contract out of this greater notice period, so that upon the employee’s employment termination, he or she is only entitled to the agreed upon notice period (often minimum standards).
2 Bardal v. The Globe & Mail Ltd., [1960] O.W.N. 253 (H.C.J.).
3 Fernandes v. Peel Educational, 2014 ONSC 6506 (CanLII)[/vc_column_text][/vc_column][/vc_row]