Business Owner Retirement: The Impact on Employees
When preparing for retirement, there are certain obligations that an employer has to their employees. The entitlements that are owed to employees will depend on how the employee’s termination pay will impact the notice period.
Two important scenarios to consider are:
- If the business is sold (assets or share purchase) upon retirement; and
- If the business is simply wound up and close.
If the business is sold
If the business is sold upon retirement, then there is a possibility that the transfer of ownership will also entail a transfer of employees. In instances where the employer has changed but the fundamental aspects of one’s employment have not, a court will likely regard the employment of workers to be continuous. These aspects may include an employee’s status, responsibilities, compensation and remuneration, and other factors.
Continuous employment is beneficial for employees because it is an important factor that contributes to the assessment of a reasonable notice period. Generally, if the length of service of an employee is lengthier, then this will likely result in a longer reasonable notice period owed to that employee.
If the business shuts down
Under the Ontario Employment Standards Act, 2000 (“ESA”), when an employer decides to shut down or close their business, the employees have effectively been terminated. The effect of termination still applies even if the shutdown of an establishment was a choice and not induced by bankruptcy or economic downfall.
The ESA applies to provincially regulated businesses and employers of non-unionized employees. While most employers in Ontario fall under the scope of the ESA, some employers considered to be federal or national in nature (e.g. in road transportation services, including trucks and buses, that cross provincial or international borders) are governed by the Canada Labour Code (“CLC”). If you are looking for advice on whether your retirement plan abides by the CLC or the ESA, please contact one of our experienced employment lawyers at Achkar Law.
Notice of termination
Employees that have continuously been employed for 3 months and now find themselves laid off or terminated are entitled to reasonable notice of termination prior to the date of effective termination. This statutory notice period is meant to help terminate employees find and transition to another job. Employers can discharge this obligation under the ESA by providing any of the following:
- Notice of termination
- Termination pay
- Combination of both
Reasonable notice of termination is the minimum statutory requirement of notice that an employer has to give an employee that has been terminate. This notice must be made expressly and brought to the attention of the employee in question.
During a notice period, the employee is still under employment and is entitle to the same compensation and benefits prior to the notice being given. Once a notice of termination is given, the employer cannot make any changes to the wages, benefits, or other terms of employment of the employee. They must maintain the same working conditions that were available prior to the notice.
In some instances, a reasonable notice period can be lengthy. If an employer wishes to shut down their establishment and retire instantly, they must provide pay in lieu of the statutory notice period. This can be a substantial amount in the case of long-service employees.
Termination pay is a different entitlement than severance pay.
An employer may choose to provide for termination pay instead of reasonable notice of termination. To discharge this obligation an employer would have to pay employee wages totaling. The number of weeks they were entitle to under the notice period. The employer may elect to provide termination pay instead. The terminate employee would then be entitle to the wages they would earn in five regular work weeks. This option may be the most beneficial or favorable to employees. As they may receive their entitlement period wages without having to work.
Combination of termination pay and notice period
Sometimes it may make more sense to implement a combination of termination pay and a notice period. For instance, an employer’s plan to shut down their business may require additional work from their employees. The employer may need to retain employees for a couple of weeks to conclude. Business matters but not for the whole duration of the notice period. The employer may retain employees for however many weeks needed. The notice period and any remaining weeks would be provided for by termination pay.
The actions of an employer have profound effects on its Employer Retires. While the choice to retire and subsequently sell or shut down. Establishment may be less challenging for small business owners. Mid to large-sized business owners must consider the implications of their decisions because of their larger liability exposure.
Employees who face termination should seek legal advice prior to signing any compensation offers from their employers.
Contact Achkar Law
If you are unsure about any obligations or entitlements upon termination our team of experienced employment lawyers at Achkar Law can help.
Contact us by phone toll-free at 1 (800) 771-7882.