Upcoming Changes to the Canada Labour Code: What Employers Need to Know about Termination, Layoff, and Dismissal

Effective February 1, 2024, the termination entitlements under Part III of the Canada Labour Code (“CLC”) will undergo significant changes. These changes were introduced in the Budget Implementation Act, 2018, No. 2, which aimed to modernize labour standards.

What Employers Are Regulated by Part III of the CLC?

Part III of the CLC, which sets labour standards for employment conditions, applies to employers in the following industries:

• air transportation, including airlines, airports, aerodromes and aircraft operations;
• banks, including authorized foreign banks;
• grain elevators, feed and seed mills, feed warehouses and grain-seed cleaning plants;
• first Nations Band Councils (including certain community services on reserve);
• most federal Crown corporations, for example, Canada Post Corporation;
• port services, marine shipping, ferries, tunnels, canals, bridges and pipelines (oil and gas) that cross international or provincial borders;
• radio and television broadcasting;
• railways that cross provincial or international borders and some short-line railways;
• road transportation services, including trucks and buses, that cross provincial or international borders;
• telecommunications, for example, telephone, internet, telegraph and cable systems;
• uranium mining and processing and atomic energy; and
• any business that is vital, essential or integral to the operation of one of the above activities.

Change #1: The Length of Termination Notice During Individual Termination

Under the current rules, employers are required to provide two weeks’ notice of termination or two weeks’ pay in lieu of notice to employees who have completed at least three months of continuous employment. The length of the notice is fixed at two weeks, no matter the employee’s tenure. This requirement does not apply in cases of termination for just cause or during a “group termination,” involving 50 or more employees facing termination.

Effective February 1, 2024, employers will have a graduated notice of termination, pay in lieu, or a combination of both, based on the length of an employee’s continuous employment.

For employees with three months to three years of continuous employment, their notice entitlement remains at two weeks. However, as employees reach the three-year mark, their entitlement increases to three weeks. Subsequently, entitlement increases in one-week increments for each additional year of employment, reaching a maximum of eight weeks:

• 3 months to 3 years less a day: 2 weeks
• 3 years to 4 years less a day: 3 weeks
• 4 years, to 5 years less a day: 4 weeks
• 5 years, to 6 years less a day: 5 weeks
• 6 years, to 7 years less a day: 6 weeks
• 7 years, to 8 years less a day: 7 weeks
• 8 years or more: 8 weeks

The increase only applies to individual termination.

Change #2: Statement of Benefits Requirement During Individual Termination

In addition to the increase in termination notice periods, employers will also be obligated to provide employees with a statement of benefits upon termination in the case of individual termination, starting February 1, 2024. This statement should detail employees’ entitlements, including vacation benefits, wages, severance pay, and any other benefits and pay arising from their employment. The statement must be provided at the time of termination, either as part of a working notice or, if pay in lieu is provided, no later than the date of termination. Note that this is the existing requirement for employers in the case of group termination.

How Will This Affect Employers?

For federally regulated employers, the increase in individual termination notice introduces a more nuanced and graduated approach to termination obligations, which aligns with employment and labour standards at the provincial and territorial levels. Bear in mind that, in addition to the termination notice, employers are required to pay severance pay when terminating employees with at least twelve months of continuous employment under S.235 of the CLC. Severance pay is calculated based on either two days’ wages for each completed year of employment or five days’ wages, whichever is greater.

Starting on February 1, 2024, it will be important for employers to ensure that employment contracts comply with the new minimum entitlements. Any contracts that provide less than the new minimum entitlements, such as limiting notice to the existing minimum of two weeks, may not be enforceable. This means that employers who do not comply with the new law may have to provide an employee with a common law reasonable notice, which can be a much larger amount than the minimum notice under the CLC. It is important for employers to review their employment contracts to ensure they are in compliance with the new minimum entitlements.

Next Steps for Employers?

Employers in federally regulated industries should take good note of these changes. Here are four key steps to take before February 1, 2024:

• Update Employment Contracts: Seek legal counsel to ensure your employment contracts align with these changes to the CLC.
• Update HR Policies: Review and update HR policies to ensure they are aligned with the amendment, reducing the risk of disputes and legal issues.
• Update Termination Documents: Revise termination documents to ensure compliance with the amendment to CLC.
• Budgetary Planning: Assess the potential financial impact of these changes and adjust your budgetary planning accordingly if you are planning to downsize or re-organize.