Upcoming changes to CLC highlight gap between statutory entitlements and reasonable notice at common law
Exclusive to Canadian HR Reporter from Rudner Law.
On February 1, 2024, amendments to the Canada Labour Code (CLC) will come into force, increasing the amount of notice a federally regulated employer must provide an employee on termination of employment from the current two weeks to a maximum of eight weeks.
This brings employee entitlements under CLC in line with provincial employment statutes. However, despite this increase to the CLC, a significant gap remains between an employee's statutory entitlements and reasonable notice at common law - regardless of their location.
Addressing and avoiding the impact of this difference is possible - with the use of an up to date employment agreement safeguarding an employer’s interests. Whether an employer is federally or provincially regulated, this increase serves as a good reminder of the importance of keeping employment agreements up to date and valid.
The purpose of notice
Every Canadian employment statute requires an employer to provide an employee with notice or pay in lieu of notice on dismissal. Two of these, the CLC and Ontario’s Employment Standards Act, 2000 (ESA), require that the employer pay severance pay, in addition to providing notice. The amount of notice and severance pay is based on the employee's length of service and is capped. For example, under the ESA, an employee receives a week of notice or pay in lieu of notice per year of service, to a maximum of eight weeks, and where the employee is eligible, severance pay in the amount of a week per year of service, to a maximum of 26 weeks.
The notice provided in the ESA is to ensure that employees are given some advance warning of dismissal or pay in lieu to make new arrangements for work, as seen in the Employment Standards Act Policy Interpretation Manual.
At common law, an employee is entitled to receive reasonable notice of the employer’s intention to dismiss, or pay in lieu. Unlike statutory notice, the length of notice is not only based on the employee's tenure. Instead, it is based primarily on the “Bardal factors”, including age, length of service, and character of employment, among others.
Reasonable notice and statutory requirements
There are no easy calculations, and while many people believe that it is one month per year of service, that is not the case and it is often significantly more. Courts have confirmed a 24-month “cap”, absent exceptional circumstances. Notably, reasonable notice includes the statutory entitlements. Furthermore, contracts can remove the entitlement to reasonable notice and replace it with a predetermined entitlement so long as it does not provide for less than the statutory entitlements.
The Court has confirmed that the purpose of reasonable notice is to give a dismissed employee time to locate comparable employment, as seen in the 2017 Singer v Nordstrom Equipment Limited.
A dismissed employee has a duty to mitigate their losses by looking for employment. Any income an employee receives will be deducted from their common law entitlements, but their statutory entitlements are guaranteed.
Beyond this distinction, the purpose of notice, whether statutory or common law, is identical: to provide the dismissed employee resources to find another job.
Despite ostensibly being there for the same reason, there remains a drastic difference between an employee's entitlements (and an employer’s obligations) between the two. For example, in Ontario, an employee with 30 years of service could receive as little as eight weeks of statutory pay on dismissal (or thirty four weeks severance pay is required) whereas at common law, the same employee might expect to receive approximately two years of compensation.
Employment litigation and the judicial landscape
An employee's entitlement to reasonable notice is frequently the subject of litigation where the parties cannot agree on an amount. This litigation can be complicated by a disagreement about the enforceability of an employment agreement.
This creates legal costs for the employer and employee, and leaves both in a state of limbo while resolving the matter. The employee’s entitlements on dismissal remain unpaid, and the employer maintains an outstanding, unknown liability to the employee.
A wrongful dismissal may also remain unresolved for a long period of time - since the pandemic, the judicial system throughout Canada has been backlogged, with a procedural motion taking upwards of eighteen months to be heard. A trial or summary judgment motion can take even longer - and cost both parties money throughout the whole process.
The merits of an employment agreement
A dismissed employee is guaranteed to receive their statutory entitlements as set out in the governing employment statute. As outlined above, that is not all that they are entitled to receive. Unless a contract establishes their entitlement and clearly displaces the common law, an employee will also be entitled to receive reasonable notice at common law, which can be substantially more than an employee's statutory entitlement. A dispute over this amount can and regularly does lead to litigation.
An up to date, properly implemented employment agreement can limit an employee's entitlements on dismissal to their statutory entitlements. This requires language in the employment agreement which clearly sets out what an employee will receive on dismissal - and indicates that this is the extent of what an employee will receive.
Courts are often protective of employees, and there is no shortage of cases where courts have found that a termination clause was ineffective. The expectation is that any clause which purports to limit an employee’s severance entitlements will be clear and unambiguous, will have no possibility of falling below the minimum standards in the legislation, and will have been brought to the attention of the employee. Further, to be enforceable, the contract must have been properly implemented; this usually means doing so at the time of hire or providing some new consideration if the contract is signed once they have already been hired.
Avoiding ambiguity in reasonable notice
Even with the pending change to the CLC, an employee's statutory entitlements under it remain substantially lower than what they may receive at common law. The same is true for every other provincial employment statute in Canada.
The requirement to provide “reasonable notice”, which is deliberately ambiguous, is the source of extensive negotiation, litigation, uncertainty, and legal costs. All of that can be avoided with a strong contract.
Geoffrey Lowe is an associate at Rudner Law in Toronto. He can be reached at (416) 864-8500 or [email protected].
