Whether there is an agreement or not with the employee about common law notice, statutory minimum entitlements must be paid
Exclusive to Canadian HR Reporter from Rudner Law.
HR professionals are well acquainted with the issues surrounding post-termination entitlements of a dismissed employee. Disputes about these entitlements form the basis of a considerable amount of employment law litigation, and both employees and employers can spend considerable time, effort and money litigating these disputes.
As I wrote about previously, a well-drafted employment contract containing a legally enforceable termination clause will bring certainty to an employee's post-termination entitlements and avoid costly litigation, which can be to the benefit of both parties.
An employment contract can displace a dismissed employee’s entitlement to reasonable notice of termination at common law. However, regardless of whether or not there is an employment contract, an employee that is dismissed without cause will always be entitled to their statutory minimum notice/termination pay (which can be provided as salary continuance or a lump sum), and Severance Pay if applicable (which must be paid as a lump sum, unless the employee agrees), pursuant to the Employment Standards Act, 2000 (ESA).
Ontario courts emphasize ESA entitlements
The courts in Ontario have repeatedly made it clear that even where there is an ongoing dispute about the employee’s post-termination entitlements, the employer is still required to pay the employee their minimum statutory entitlements under the ESA. A failure to do so could lead to an award of punitive damages against the employer.
For instance, in Chen v. MagIndustries Corp., an employee was dismissed without cause and was not provided any amount of severance, including the minimum entitlements under the ESA. In addition to awarding the employee damages for wrongful dismissal, the court awarded punitive damages in the amount of $20,000. In that case, the court found the following:
“I am of the view that to dismiss Mr. Chen without cause and to not pay even the minimum amounts of severance is reprehensible conduct. It is my view that the failure to pay the minimum amounts owing pursuant to employment standards legislation is an independent actionable wrong which is separate from the breach of the employment contract.”
Similarly, in Fogelman v. IFG, the court found that the employee was constructively dismissed. In addition to damages for constructive dismissal, the court awarded the employee $25,000 in punitive damages on the basis that the employer did not provide the employee with his statutory minimum entitlements. The court stated the following:
“It is also my view that the failure to comply with the ESA is an independent wrong that is outrageous and reprehensible behaviour deserving of punitive sanction… I agree with Mr. Fogelman’s position that IFG’s refusal to pay anything to Mr. Fogelman was an attempt to play hardball with him.
“I have considered the compensatory aspects of the damages award and determined that ‘there is a shortfall between the amount of that compensation and the total amount required to accomplish the objectives of retribution and deterrence and denunciation of the defendant’s misconduct.’”
Full entitlements versus statutory entitlements
Therefore, it is important to understand the difference between an employee’s full post-termination entitlements and their statutory minimum entitlements. Full entitlements are often the subject of negotiations, and usually these negotiations include the requirement for the employee to sign a release in favour of the company. However, statutory minimum entitlements, which are usually only a portion of the employee’s full entitlements, are different: these need to be paid regardless of whether there is an agreement or an ongoing legal dispute with the employee.
Companies should be mindful of the requirement to pay dismissed employees their statutory minimum entitlements. Regardless of whether or not there is an agreement with the employee about their common law notice, the statutory minimum entitlements must be paid. The failure to do so could be costly for the company, and could result in an award of punitive damages in addition to any other amounts that would be owing.
If you are unsure about how to approach a dismissal, the employee’s entitlements or the negotiations with a dismissed employee, it is best to seek the advice of a lawyer practicing employment law.
Alex Minkin is an associate lawyer at Rudner Law in Toronto. He can be reached at (416) 864-8500 or [email protected].