Termination Without Cause in Ontario Explained
In Ontario, an employer can dismiss an employee without cause, also known as being fired without cause, at any time, through no fault of the employee. It is important to distinguish termination without cause from constructive dismissal, where an employee resigns due to significant changes to their employment terms imposed by the employer. Under Ontario employment law, this means an employee does not have to do something wrong to be dismissed. Most employees in Ontario are fired without cause. However, employers can only proceed with a termination without cause by providing the employee with advanced notice and/or severance pay.
What Is Termination Without Cause?
Termination without cause refers to the practice of an employer ending an employee’s employment contract without specific or justifiable reasons. In this situation, the employer is not alleging any wrongdoing or misconduct on the part of the employee, but rather is choosing to end the employment relationship for reasons such as restructuring, downsizing, or changes in business needs.
Termination without cause typically requires the employer to provide the employee with notice or pay in lieu of notice, which helps the employee transition to new employment. Employees are often entitled to a termination package, which includes compensation for employment benefits that would have been earned during the notice period. In Ontario, employment laws govern termination without cause, specifying the rights and entitlements of both employers and employees.
The reasons for an employee being fired without cause can include:
Company-wide restructuring
Shortage of work
Cost-cutting measures
Poor work performance
Simply being considered a “bad fit”
While an employer may terminate an employee at their discretion, carrying out the termination improperly or for unlawful reasons can result in serious legal consequences. For example, terminating an employee for discriminatory reasons or in retaliation for raising health and safety concerns could expose an employer to further liability.
Employee Entitlements for a Termination Without Cause and Severance Pay
Under Ontario employment law, an employee dismissed without cause is entitled to reasonable notice of termination or a termination package. In addition to termination pay, employees may also be entitled to severance pay. The employer must provide:
- Working Notice: The employee continues working until a future termination date.
- Pay in Lieu of Notice: The employer compensates the employee for the notice period without requiring continued work.
- Combination of Both: Employers may provide both working notice and pay in lieu.
The Ontario Employment Standards Act, 2000 (ESA) sets out minimum notice requirements. Enforceable employment contracts can limit entitlements to ESA minimums of one week per year of service, up to a maximum of eight weeks. For federally regulated employees, the Canada Labour Code applies.
Employees with five or more years of service may also qualify for statutory severance pay if:
- The termination results from the permanent discontinuance of all or part of the business, and 50 or more employees are affected within a six-month period.
- The employer has a payroll of $2.5 million or more.
Under the ESA, statutory severance pay equals one week of pay per year of service, up to 26 weeks. However, many employees are entitled to significantly more under common law reasonable notice, typically around one month per year of service.
Risks of Improper Termination
Employers must handle dismissals carefully. Improper terminations can lead to aggravated, punitive, or human rights damages. Risk factors include:
Denying employees their statutory entitlements
Publicly embarrassing the employee
Terminating to deny benefits
Misleading or intimidating the employee
Falsely alleging cause or misconduct
Employers must comply with human rights legislation. Terminations based on prohibited grounds, such as age, disability, or pregnancy, can lead to substantial damage awards, including lost wages from the date of dismissal to the hearing date.
Employers should also assess whether they have grounds for termination with cause. Alleging cause without sufficient justification can backfire, resulting in additional damages.
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Factors That Affect Severance Pay
When determining severance pay there are many factors to consider, including:
The wording of the termination clause
Employee’s age and years of service
Position and responsibilities
Compensation level
Availability of similar employment
Employers must, at a minimum, provide ESA entitlements. Employees cannot waive these minimums. However, they can negotiate or sue for greater amounts under common law.
How an Employment Lawyer Can Help
Whether you are an employer or an employee, consulting with an employment lawyer is a smart first step. A lawyer can:
Clarify your legal risks and entitlements
Draft or review termination documents
Negotiate severance packages
Prepare demand letters or court documents
Represent you in legal proceedings
For employees, a demand letter often initiates settlement discussions. If the employer does not respond favourably, the next step may be a claim for wrongful dismissal.
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Conclusion
In Ontario, most terminations are without cause, but this does not mean employers can ignore their legal obligations. Employers must ensure they provide proper notice or pay in lieu, comply with human rights laws, and avoid bad faith practices.
Employees should understand that even without cause, they may be entitled to significant compensation. Common law notice, statutory entitlements, and potential damages can amount to much more than initially offered.
Whether you are an employer or employee, Achkar Law can help you address terminations without cause.
Contact us today to protect your rights and interests.
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