Losing your job can be a stressful and emotional experience. Whether you were terminated due to downsizing, performance issues, or other reasons, it is essential to understand your rights and options. If you have been let go, here are some key things you need to know before signing any documents and as you navigate this challenging situation. Most employers offer only the minimum, which is often about a quarter or even less of what you are owed. Why? Because employees sign without seeking legal advice.

Do I Have to Sign a Termination Letter Right Away?

When your employer informs you of your termination, they may ask you to sign a termination letter immediately or within seven days. You do not have to sign immediately or within any timeframe they provide. It is crucial to pause and get legal advice immediately.

Understanding Your Rights

Under Ontario’s Employment Standards Act, 2000 (“ESA”), you have certain rights, such as the minimum statutory notice of termination or pay in lieu of notice, severance pay, etc. However, absent an enforceable termination clause that limits your termination entitlement to the ESA minimum, you are entitled to common law reasonable notice, which is generally much more than the ESA minimum standards.

Consequences of Signing Severance Documents

Termination letters often include a “full and final release” to prevent terminated employees from pursuing further rights after they sign it. In addition to statutory or contractual entitlements, employers usually offer extra benefits in exchange for signing this full and final release, such as additional severance pay, extended benefits, outplacement services, or other forms of compensation.

By signing the release, you agree to receive the extra benefits and give up your right to sue for any additional claims related to your employment or termination. In Hall v. ESC Automation Inc., 2023 HRTO 1676, an employee’s application at the Human Rights Tribunal of Ontario (“HRTO”) was dismissed because the employee had already voluntarily signed a full and final release. Therefore, they lost the right to submit the human rights claim to pursue extra entitlements.

Your Right to Seek Legal Advice

Your employer cannot force you to sign any termination documents right away. You have the right to seek advice from an independent lawyer before signing. If you are pressured or rushed into signing a severance agreement or final release without enough time to seek legal advice, you could challenge the validity of these documents. In Rubin v. Home Depot Canada Inc., 2012 ONSC 3053, the Ontario Superior Court of Justice found the employer pressured the employee, suggesting that he would only receive termination package benefits if he signed the termination documents, making the employee believe he had no other option. As a result, the signed termination letter and release were unenforceable. The employee was awarded a 12-month reasonable notice period under common law, almost doubling the 28 weeks offered by the employer.

Understand Your Options

You are not obligated to sign any termination documents, especially when the termination package is less than what you are legally entitled to. By choosing not to sign the release, you can retain the right to pursue additional claims or entitlements under common law and start your negotiation for a more favourable package with your former employer.

If the severance package is far below your legal entitlement and the negotiation does not result in any improvements, you may have to resort to legal procedures. Under Ontario’s Limitations Act 2002, you must file a claim in court within a maximum of two years from the date of termination to avoid losing the right to sue. Further, if your termination is a result of discrimination under the Ontario Human Rights Code (“Code”), you can also consider filing a case with the HRTO within one year from the termination date.

Practical Steps

Here are some practical steps to take after being let go:

1. Engage Legal Counsel: Have a qualified lawyer review any severance documents. These are complex documents understood by lawyers. Even a few words misplaced can entitle you to payment four times the minimum ESA standards.
2. Document Everything: Keep records of conversations, emails, and any evidence of your termination. This documentation can be crucial if you decide to pursue legal proceedings.
3. Timelines Matter: Contacting a lawyer immediately is your best strategy to protect your rights. While you have two years to sue there are obligations to mitigate by finding a job. Ultimately remember the two-year limit under Ontario’s Limitations Act 2002, and the one-year limit under the Code. If you are considering a legal proceeding, do not miss the deadlines.

Being let go is never easy, but do not rush to sign anything, even if your employer asks you to sign the severance documents within a specific timeframe. Consult an employment lawyer to ensure you are treated fairly and receive the compensation you deserve. Signing a release usually forfeits your right to seek additional compensation or take legal proceedings against your former employer. Ensure you fully understand the implications before signing.

As an employee, it is important to understand how your contractual benefits work in wrongful termination cases. Recent developments in Canadian employment law have brought attention to this issue, and it can have significant financial consequences for employees, especially those in executive positions. In one case, the court awarded an employee a bonus of over $1 million under a long-term incentive plan. In another case, the court granted the employee travel privileges valued over $1.8 million. If you are not aware of your entitlements, you could be leaving a lot of money on the table during negotiations if your employer has not structured your severance package correctly.

What Counts as Contractual Benefits?

Contractual benefits generally include the financial payments and non-monetary benefits provided to an employee on top of their base salary. For executives, contractual benefits often include short-term bonuses, long-term incentive plans (“LTIPs”), and other benefits such as stock options or RSUs. In many wrongful dismissal cases, employees often wonder if their bonuses should be paid out as part of severance package calculations. The answer to that is often yes.

In O’Reilly v. IMAX Corporation, 2019 ONCA 991 (“O’Reilly”), the Ontario Court of Appeal stated that contractual benefits include “pension benefits, bonuses, stock options, or other incentives.”

Sometimes, contractual benefits may include privileges like a company car, a business-paid cellphone, and, at the highest level, access to private travel by rented or owned jet. For example, in Ruel v. Air Canada, 2022 ONSC 1779 (“Ruel”), the Ontario Superior Court confirmed that the flight passes or travel privileges of the plaintiff, who was an executive of Air Canada, would fall with the rubric of “other incentives.”

Legal Framework

In the landmark case of Matthews v. Ocean Nutrition Canada Ltd., 2020 SCC 26 (“Matthews”), the Supreme Court of Canada (“SCC”) affirmed a pivotal doctrine: in the event of an employee’s termination without just cause, that employee is entitled to compensation equivalent to what they would have earned during the notice period, including contractual benefits, unless there is language unambiguously excluding that entitlement.

For employees to claim these contractual benefits during the reasonable notice period, two prerequisites need to be considered under the Matthews framework:

1. Would the employee have been entitled to contractual benefits as part of their compensation during the reasonable notice period?

The SCC confirmed the first arm of the test set out in Paquette v. TeraGo Networks Inc., 2016 ONCA 618 (“Paquette”), with some modifications. It agreed with the Ontario Court of Appeal that “courts should examine whether, but for the termination, the employee would have been entitled to the bonus during the reasonable notice period.”

In favour of the employee, the SCC found that the “integral” test in Paquette is not required in every situation, especially when the benefits are not discretionary. For instance, if the realization event of an LTIP occurs during the reasonable notice period, the LTIP payment is assumed “integral” to his compensation because it is not based on the employer’s discretion.

Courts should only assess whether the benefits are “an integral part” of the employee’s overall compensation in cases where they are discretionary, similar to Paquette.

In other words, if the realization event, such as the maturity date, falls within the reasonable notice period, an employee can say that satisfies the first arm of the test.

2. If yes, do the terms of the employment contract or incentive plan unambiguously take away or limit that right?

The SCC confirmed the second arm of the Paquette test. That is, whether the terms of the employment contract or incentive plan clearly limit or remove that common law right. Courts always interpret the terms in favour of employees.

The SCC noted that only using the terms such as “full-time” or “active” does not remove an employee’s common law right to damages for loss of bonus/incentives, because the employment contract is not considered “terminated” for calculating wrongful dismissal damages until after the reasonable notice period. If the employee had received adequate notice, they would have been actively employed full-time during the reasonable notice period. As such, even if the clause explicitly refers to an “unlawful termination,” it still will not clearly and unambiguously affect the employee’s common law entitlement.

Further, in O’Reilly, the Ontario Court of Appeal held that the simple term “termination for any reason” does not unambiguously take away the employee’s entitlement to contractual benefits upon wrongful dismissal. Similarly, simple language like “termination with or without cause” does not exclude an employee’s entitlement to benefits.

In other words, “unambiguity” means that the exclusion or limiting clauses must be very detailed to clearly cover every circumstance that may lead to the end of an employment relationship. Employees should receive all contractual benefits absent such an unambiguous exclusion clause.

Stock Options and Restricted Stock Units

When it comes to stock options or Restricted Stock Units (“RSUs”), things can be more complex since the concepts of “granting” “vesting”, and “exercising” can be confusing to employees.

When employees are granted either stock options or RSUs, it does not mean they obtain ownership immediately of any shares or cash in lieu. Employees do not own either until they are vested. Typically, they vest in tranches over a period of time, such as 25% per year over four years.  Once stock options are vested, an employee has the right to “exercise” the vested options by purchasing shares at a pre-determined price (of great value if the business is doing well and the stock price is rising).  In contrast, once an RSU is vested, the employee is usually paid out in shares, without having to purchase them, or provided with a cash amount pegged to the price of shares, depending on the RSU plan’s terms.

For employees fighting wrongful dismissal cases involving stock options or RSUs, the key is examining the language used in the plans. Specifically, they need to see if the exclusion clause unambiguously restricts or eliminates the stock options or the RSUs from being vested during the reasonable notice period. If it does not, the employee likely has the right to continue the vesting process even after termination.

Conclusion

Employees are generally entitled to nondiscretionary contractual benefits during the common law notice period, unless their employment contracts or bonus/incentive plans clearly and unambiguously limit or remove the entitlement.

The intricate legal interplay between wrongful dismissal cases and contractual benefits, like bonuses, incentives, stock options, and RSUs, underscores the necessity of understanding how courts have looked at employees’ termination entitlements and the importance of carefully examining the contractual language. In navigating the complexities of contractual benefits, employment documents and termination packages, employees are strongly advised to engage legal counsel to ensure their rights and entitlements are safeguarded.

The COVID-19 pandemic has fundamentally changed the workplace and the operation of businesses in Ontario.

For employment lawyers, 2021 will be remembered most significantly for two developments. The first is the provincial government’s implementation of the Infectious Disease Emergency Leave regulation (“IDEL”) and its impact on constructive dismissal claims. Secondly, the development of mandatory vaccination policies in the workplace left employers grappling with the consequences of those refusing to be vaccinated or refusing to disclose their vaccination status. Other important developments relate to common law reasonable notice periods evolving to deal with the impact of COVID-19, and the government’s law relating to the “right to disconnect” and restricting the use of non-competition covenants.

Below are the most important employment developments of 2021, and what they could mean for employers in 2022.

Employment Development #1: IDEL and Constructive Dismissal Claims

Many employers have relied on the IDEL to place employees on leave to protect their businesses during the COVID-19 pandemic. However, many employees and their lawyers questioned whether the IDEL ousts common law claims of constructive dismissal. Specifically, the question is whether the IDEL permits employers to place employees on temporary layoffs as generally temporary layoffs, unless agreed to, are considered constructive dismissal at common law. Coutinho v. Ocular Health Centre Ltd., (“Coutinho”),Taylor v Hanley Hospitality Inc, (“Taylor”), and Fogelman v IFG (“Fogelman”)  wrestled with this issue, and came to opposite conclusions.

In Coutinho, Justice Broad of the Ontario Superior Court (“ONSC”) concluded that the IDEL did not oust the common law and an employee objecting to being put on IDEL could still sue for common law constructive dismissal damages. This was also the case in Fogelman.

On the other hand, in Taylor, Justice Ferguson of the ONSC came to the opposite conclusion, that the plaintiff was barred from suing for constructive dismissal due to the IDEL. This decision has been appealed to the Ontario Court of Appeal (“ONCA”), with the appeal anticipated to be heard in April 2022.

Overall, the controversial IDEL provisions have placed employers in a complicated position if they were forced to lay off or put employees on leave for COVID-19 related business reasons. Can an employee sue for constructive dismissal if put on IDEL?

If so, the potential liability could have serious financial consequences for employers who failed to revise their employment contracts to take into account the Court of Appeal’s June 2020 decision in Waksdale v Swegon North America Inc.(“Waksdale”). This decision likely invalidated many employers’ attempts to limit liability on termination to the minimums under the Employment Standards Act, 2000 (“ESA”).  If the decision in Taylor is overturned on appeal, the failure on the part of smaller employers to update their contracts could change an anticipated maximum of 8 weeks termination pay to over ten times that for longer term employees (up to 26 months or 113 weeks in one case).

Employers can anticipate some clarity on this issue once the Court of Appeal hears and releases its decision in Taylor.

 

Employment Development #2: Termination due to non-compliance with vaccination policies

The question everyone is asking right now is whether an employee can be terminated for cause due to non-compliance with a mandatory vaccination policy.

We have some guidance on this issue from arbitration decisions in unionized workplaces.

In United Food And Commercial Workers Union, Canada Local 333 and Paragon Protection Ltd (“Paragon“), arbitrator Frederick R. Von Veh, upheld the employer’s vaccination policy. He noted that according to their collective agreement, if an employee is assigned to a client site where specific vaccination or inoculation is required, the employee must agree to receive such vaccination or inoculation. The majority of the employer’s clients have also implemented their own vaccination policies. As a result, employees and contractors must be fully vaccinated in order to work or remain working at these client sites. This was a contributing factor for the arbitrator to uphold the mandatory vaccination policy. Paragon proved that the courts could uphold reasonable vaccination policies. However, we should note that the employer, in this case, agreed to an accommodation to move non-vaccinated employees to worksites that did not require vaccination. This accommodation meant avoiding the question of termination for cause due to non-compliance with a vaccination policy.

In another labour arbitration decision, Electrical Safety Authority and Power Workers Union (“PWU”), arbitrator John Stout found the employer’s mandatory vaccination policy, which provided that unvaccinated employees would eventually be disciplined and ultimately discharged for just cause, unreasonable. Unlike in Paragon, the Collective Agreement in this case did not address vaccinations and, specifically, did not require employees to be vaccinated if required by the employer’s client. This factored into Stout’s decision on whether termination was reasonable due to non-compliance with the vaccination policy. Among other things, the arbitrator reasoned that when other reasonable alternatives to mandatory vaccination are available, such as rapid testing, the employer may not be able to justify its mandatory vaccination policy and termination for cause as a result of not following the policy. This decision is significant because it notes that context is extremely important when assessing the reasonableness of a workplace rule or policy that may infringe upon an individual employee’s rights. It also indicates the way the courts may consider these cases in the non-unionized context. Further, this case highlights the fact that the situation is ever evolving, so while the policy is not reasonable now, it could be later.

The above decisions, while in unionized workplaces, will shed some light on non-unionized employees as well. In non-unionized workplaces, some considerations may vary. However, it is expected that the general principles will be similar. So, whether a vaccination mandate that leads to a termination for cause for unvaccinated employees will be upheld will depend on the specific context of the workplace and the policy itself. What we can tell so far is that context is important, and each decision will be approached on a case-by-case basis with no easy answers for employers.

For example, in a case where employees are client-facing, especially if working with vulnerable populations, such as in a long-term care home, termination for cause due to non-compliance with a vaccination policy is likely reasonable. However, if the employee is an IT professional who works remotely, termination for cause for failure to vaccinate would likely be unreasonable.

Employers can anticipate that a decision from a non-unionized workplace will be released sometime in 2022, which will provide guidance on this important issue.

 

Employment Development #3: Working for Workers Act, 2021

Late in the year, on December 2, 2021, Bill 27, Working for Workers Act, 2021 (“Bill 27”) received royal assent. Two of the most noticeable changes made by Bill 27 are employees’ “right to disconnect” and a prohibition on non-compete agreements.

Employers with 25 or more employees will be required to have a written policy with respect to disconnecting from work, and have until June 2, 2022, to do so. The term “disconnecting from work” is defined to mean “not engaging in work-related communications, including emails, telephone calls, video calls, or the sending or reviewing of other messages, so as to be free from the performance of work.” There is a lack of clarity of what this “right to disconnect” actually entails, as the obligation on employers appears to be transparency about work-related communications, and what an employee’s usual work entails.

Bill 27 also prohibits non-compete agreements between employers and employees, with two noted exceptions. The first exception regards the sale (or a lease) of a business. Non-compete agreements between the seller and purchaser may be allowed as a part of the sale where the seller becomes an employee of the purchaser immediately thereafter. The second exception is that a non-compete agreement is not prohibited between an employer and its executives. “Executive” is defined in Bill 27 as “any person who holds the office of chief executive officer, president, chief administrative officer, chief operating officer, chief financial officer, chief information officer, chief legal officer, chief human resources officer or chief corporate development officer, or holds any other chief executive position.”

Employers should note these changes and implement the required written policy before the June 2, 2022, deadline. Further, employers should update their employment contracts to align with Bill 27’s prohibition on non-compete agreements. While executives are an exception to the prohibition on non-compete agreements, it is important to regularly review your non-compete agreements and clauses to ensure they are enforceable.

Employment Development #4: Yee v Hudson’s Bay Company

In 2021, employers were faced with submissions on the part of employee counsel arguing that the pandemic should be a factor leading to an increase in the period of common law reasonable notice.  Based on a review of the cases, whether or not there is such an increase will be determined on a case-to-case basis, and on whether the employee has been able to prove that market conditions for re-employment were affected by the pandemic. Employers should consider the industry in which their business operates and assess whether it is likely that a court would extend the reasonable notice period.

Yee v Hudson’s Bay Company (“Yee”) was the first of a number of cases where the Plaintiff argued that the reasonable notice period should be increased due the pandemic, based on the limited availability of similar employment. In Yee, Justice Dow of the ONSC found that the COVID-19 pandemic’s impact on market conditions was a relevant consideration when determining the reasonable notice period. He awarded 16 months’ reasonable notice for an employee with approximately 12 years of service. However, while Justice Dow acknowledged the pandemic was a relevant consideration, he noted that the Plaintiff was terminated prior to the pandemic. Therefore, the pandemic’s effect on employment opportunities should not attract the same consideration as a termination that occurred during the pandemic. Justice Dow did not explicitly state that the pandemic resulted in him awarding the Plaintiff additional reasonable notice.

In each of Kraft v Firepower Financial Corp. (“Kraft”) and Pavlov v Australian Lamb Company Limited, (“Pavlov”), the former employees were successful and awarded additional pay in lieu of reasonable notice where they had evidence of the pandemic’s impact on their re-employment prospects. In Kraft, the increase was one additional month; however in Pavlov, the reasonable notice period was extended to 10 months for an employee with just under three (3) years service.

 

Employment Development #5: Rahman v Cannon Design Architecture

As previously discussed, the ONCA’s decision in Waksdale rendered the termination provisions of many employment agreements in Ontario unenforceable. It also left employers exposed to an onslaught of costly wrongful dismissal lawsuits.

As a result, the decision in Rahman v. Cannon Design Architecture (“Rahman”) seemed to provide some relief for employers. Justice Dunphy of the ONSC distinguished Rahman from Waksdale, noting both employee and employer in Rahman had equal bargaining power during negotiations. Justice Dunphy noted that the employee was sophisticated and represented by a lawyer during negotiations, and  that each party had a shared a mutual intention to contract out of the ESA.  This decision surprised many employment lawyers, as the termination provisions in the plaintiff’s employment agreement were similar to the termination provisions held to be unenforceable in Ojo v Crystal Claire Cosmetics Inc. (“Ojo”).

Unfortunately for employers, the relief was short-lived, as the decision in Rahman was strongly criticized by Justice Black in Campbell-Givons v. Humber River Hospital (“Campbell-Givons”), who rejected the approach in Rahman, concluding that an illegal provision is illegal and the party’s sophistication is irrelevant.

In our opinion, Rahman is unlikely to be widely followed as the standard. Employers should ensure that their termination provisions are air-tight, regardless of the sophistication of their employees.

 

Employment Development #6: Hawkes v Max Aicher (North America) Limited

Hawkes v Max Aicher (North America) Limited (“Hawkes”) provided some welcome direction to a question that has frustrated employment lawyers and courts for years.

In Hawkes, Justice Dambrot of the ONSC clarified section 61(1) of the ESA, specifically that the $2.5 million payroll for the payment of statutory severance applies to an operation’s global operations, not only their Ontario operations. Therefore, if an employer has a payroll of $2.5 million globally, and employed an employee for more than five years, that employee is at least entitled to statutory severance pay. Employers with national or international business operations can anticipate that employee’s counsel will routinely raise this argument to secure ESA severance payments for their clients.

 

Employment Development #7: Perretta v Rand A Technology Corporation

In Perretta v Rand A Technology Corporation (“Perretta”), Justice Sanfilippo of the ONSC found that an employer cannot rely on a contract to limit an employee’s entitlements at termination where an employer’s post-termination actions show an intention not to be bound by the terms of an employment agreement.

The employer in Perretta refused to provide the employee with the two weeks’ pay in lieu of notice as set out in her employment agreement, unless she first executed a Full and Final Release. The employee stated this action constituted a repudiation of the employment agreement, and that she was entitled to common law damages. Justice Sanfilippo agreed and awarded the employee 6 months’ common law reasonable notice.

This case is a reminder that employers should not insist on a release in exchange for an employee’s contractual entitlements. Failure to provide a contractual entitlement on termination could mean that the employer forgoes the benefit of any valid termination clauses in the agreement.

 

Employment Development #8: Currie v Nylene Canada Inc.

Only in exceptional circumstances will a court award a notice period of more than 24 months. The employee in Currie v Nylene Canada Inc. (“Currie”) presented those exceptional circumstances. The employee, who was 58 at the time of termination, had worked for the employer for almost 39 years in a specialized field, but also had a limited education and skill set.

Justice Smith of the ONSC concluded that the termination amounted to a forced retirement, and therefore justified a reasonable notice period of 26 months. While factual situations like this are likely rare, employers should realistically consider a terminated employee’s likelihood of re-employment before engaging in costly and unsuccessful litigation.

 

Written by Lai-King Hum, Founder Hum Law with assistance from Associates Weinan Wang and Ben Markusoff.

 

These developments may be difficult to navigate.  If you need guidance from an experienced employment lawyer, call Hum Law today at (416)214-2329 or email info@thehumlawfirm.ca.

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