I was terminated without cause. What is the difference between common law reasonable notice and termination and severance pay under Ontario’s Employment Standards Act?

Clients often ask us what the difference is between common law reasonable notice and minimum entitlements under Ontario’s Employment Standards Act (“ESA”), or any other employment standards legislation. The distinction is an important one to understand as it guides your entitlements upon termination.

Your employer may state your severance package satisfies your ESA minimum entitlements to notice and severance. Do not sign anything before consulting an employment lawyer, because you could be entitled to common law reasonable notice. What is the difference? Up to 4 times the amount in ESA, possibly more. For long term employees, it could be up to 26 months in salary and benefits.

I do not have a written employment agreement. What am I entitled to?

If you do not have a written employment agreement you are entitled to common law reasonable notice. This means you are entitled to significantly more than your ESA entitlements. In our experience, many long-term employees do not have written employment agreements.

In this case, you should immediately consult an employment lawyer upon termination. Most employers will attempt to offer far less than what you are entitled to under the common law.

What are my entitlements if I have an employment agreement?

If you have a written employment agreement, your entitlements will depend on whether your employment agreement has valid termination provisions. If the termination provisions are enforceable, you may only be entitled to your ESA minimum entitlements. Bear in mind that many termination provisions in Ontario are now unenforceable because of the decision in Waksdale v Swegon North America Inc.

Experienced employment lawyers will attack the written employment contract and argue the termination provisions are unenforceable, therefore entitling you to common law reasonable notice.

What is common law reasonable notice?

Upon termination of employment without cause you are presumptively entitled to common law reasonable notice. However, this can be rebutted and limited to a lesser amount (as little as your minimum entitlements under the ESA) through a written employment contract with enforceable termination provisions. Absent a written employment contract with valid termination provisions, you are entitled to common law reasonable notice if terminated without cause.

Common law reasonable notice is calculated based on the “Bardal factors” set out in Bardal v The Globe and Mail Ltd.:

1. Age of the employee;
2. Length of service;
3. Character of employment; and
4. Availability of similar employment.

Your entitlement to common law reasonable notice could be up to, and in special circumstances in excess of 24 months.

Common law reasonable notice is based on total compensation, meaning you are entitled to all benefits, such as bonus or pension contributions, that you would have received had your employer provided you with the appropriate amount of common law reasonable notice.  Employers will try to limit these entitlements by explicitly stating in writing that those benefits will not be provided during the notice period. You should always review and carefully consider, with guidance from your lawyer, any document your employer asks you to sign. If the document mentions changes to bonus plans or the terms of your employment, it is always strongly advised to consult with an employment lawyer to ensure you are not signing your rights away.

Common law reasonable notice, or pay in lieu thereof, is not a “no strings attached” proposition. You have an obligation to mitigate your losses following termination. Practically, this means you must try to find a new job to limit the losses that stem from your termination. Therefore, in theory, generally income earned during the common law reasonable notice period will be balanced against any award you receive. An experienced employment lawyer can negotiate a settlement structure that protects against this situation.

What is termination pay and severance pay under the ESA?

The ESA governs employment standards in Ontario. Every jurisdiction has its own employment standards legislation.

If the presumption of common law reasonable notice is rebutted your entitlement to common law reasonable notice upon termination can be limited to your minimum statutory entitlements to notice or termination pay, severance pay (if applicable), and benefits continuation.

In Ontario, statutory notice or termination pay is 1 week per year of service, up to 8 weeks. You are also entitled to severance pay under the ESA if you have worked for your employer for more than 5 years and your employer has a global annual payroll of $2.5 million. Severance pay is calculated as 1 week of pay per year of service up to 26 weeks. However, at common law your entitlement could reach 24 months (or 2 years) or, on average, 1 month per year of service.

As you can see, there is a significant difference between your entitlements upon termination at common law and under the ESA. #ESA #Terminated #CommonLaw