Employers may confuse statutory notice entitlements with common law reasonable notice
Many Canadian employers have had to make difficult decisions over the past year due to the impact of COVID-19. Whether because of a loss in business or to comply with mandatory public health restrictions, many employers have had to implement layoffs or permanent staff reductions resulting in payouts of significant amounts in employee termination entitlements.
In these times, employers need to make careful assessments of their potential liability before implementing staff reductions; otherwise, they could face significant legal claims for wrongful or constructive dismissal from outgoing employees. To make this assessment, employers must understand the sources of employee termination entitlements and how to assess and measure those entitlements.
Employers are legally obligated to provide outgoing employees with entitlements when they dismiss an employee without cause. Employees generally have two main sources of entitlement — employment standards legislation and the common law. This distinction is often misunderstood and employers often conflate the two sources of entitlements. Common law entitlements can be far greater than those provided under employment standards legislation.
Common law reasonable notice requires that employers provide employees with notice of the termination of their employment with the purpose being to provide an employee with a reasonable period to seek similar re-employment. Common law notice may be provided through working notice — advance notice of an impending date that the employee’s employment will terminate — or by providing the employee with payment in lieu of notice.
Common law notice comes from judge-made case law based on established factors including the employee’s length of service, the employee’s age, character of employment, and the employee’s prospects of re-employment. Common law entitlements are not fixed under employment standards legislation but instead fluctuate based on the individual circumstances of the employee.
Statutory entitlements and common law entitlements are distinct and are both owed to employees dismissed without cause. Employment standards legislation provides the baseline for employee entitlements; employers cannot provide employees with less than these statutory minimums.
Employers can contract out of the common law, which employers often attempt to do in their employment agreements. However, contractual termination language is subject to strict legal requirements which are constantly in flux by the courts. As a best practice, employers should seek legal advice before seeking to rely upon termination language when implementing staff reductions.
Where employers have doubts as to whether they can legally rely upon a contractual termination provision, they need to assess relevant factors among their staff such as age, years of service, and the relevant job market. Employees who are older or have more seniority will generally be entitled to more substantial common law notice entitlements. Further, where an employee was specifically recruited from another organization, this can be a factor leading to a longer common law notice entitlement.
Courts have recognized that a poor job market can make it more difficult for an employee to find work, leading to a longer common law notice period. In the context of COVID-19, if an employee can demonstrate that the pandemic has had an adverse impact in their field of work, this could lengthen their common law notice entitlement.
At this time, it is imperative that employers make careful assessments of all options before implementing staff reductions and make conservative estimates of potential liability. Given the recent shifts in the law surrounding enforceable termination language, employers may not be able to rely upon termination provisions previously believed to be enforceable.
Further, while COVID-19 has not substantially increased common law entitlements to date, the true impact on termination entitlements remains to be seen with courts releasing more decisions considering the COVID-19 impact further into 2021. Employers must continue to stay updated on the trends in the law if they expect staff reductions in the near future.
founder and principal of Williams HR Law in Markham, Ont.