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Employee Terminations: Giving Notice, Severance Pay, And Employee Documentation

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When it comes to employee dismissals, it is in an employer’s best interest to follow HR best practices. Terminating an employee has many legal considerations. It is important to understand the process to avoid legal challenges for wrongful dismissal.

When it comes to dismissals, employees are entitled to notice or compensation in lieu of notice. In some cases, it may also be appropriate to provide your employee with severance pay.

GIVING NOTICE

From an employer’s perspective, the starting point is the employee’s first three months. During those initial months of employment, an employer can terminate the employee without notice.

When the employee has been employed for more than three months, he or she will be entitled to a notice of termination, or termination pay in lieu of notice.

How long is the notice requirement or amount of termination pay?

The amount of notice to which an employee is entitled to depends on his or her “period of employment.” The table below outlines the requirements.

Notice required according to period of employment

Length of Employment                                                                    Notice Required
Less than 3 months                                                                                                 None
3 months but less than one year                                                                         One week
One year or more but less than three years                                                      Two weeks
Three years or more but less than four years                                                  Three weeks
Four years or more but less than five years                                                      Four weeks
Five years or more but less than six years                                                        Five weeks
Six years or more but less than seven years                                                     Six weeks
Seven years or more but less than eight years                                                  Seven weeks
Eight years or more                                                                                                 Eight weeks

How to Provide Notice

In most cases, notice for termination of employment must be:

  • In writing;
  • Addressed to the employee; and
  • Provided to the employee:
  • In person
  • By mail, where the mail delivery permits verification of delivery;
  • By fax or email;
  • By courier; or
  • In a sealed envelope at the employee’s residence with a person who appears to be at least 16 years old.

In some cases, the employment contract or collective agreement may provide seniority rights where a terminated employee can displace another employee. In those cases, the employer may post a notice in a visible part of the workplace, setting out the name, seniority, job classification and planned termination date. This notice is considered the termination notice as of the posting date.

Where the Law Prohibits Termination

Remember: the law prohibits you from terminating an employee for certain reasons, including:

  • Inquiring about or exercising a right under the Employment Standards Act (ESA);
  • Declining to work more than the daily or weekly hours of work maximums; or
  • Taking a leave of absence that he or she is entitled to.

This is called “reprisal” and has legal consequences for employers.

SEVERANCE PAY

Severance pay is not the same as termination pay.

Severance pay is prescribed by the ESA; it applies to employees who have been employed with the same employer for five or more years and where the employer has an Ontario payroll of at least $2.5 million per year. Severance pay is based on years of service, up to a maximum of 26 weeks.

Severance is paid to a capable employee when the employment is “severed.” Severed employment refers to situations where the employer:

  • Dismisses the employee, including in instances of bankruptcy
  • Constructively dismisses the employee who resigns in response
  • Lays the employee off for 35 or more weeks in a 52-week period
  • Permanently discontinues all the business at a location

Severance pay:

  • Compensates for loss of seniority;
  • Rewards the employment for the development of firm-specific skills; and
  • Recognizes long service.

EMPLOYEE DOCUMENTATION

Your detailed understanding of employee termination should be reflected in your company documents such as your:

  • Employee Handbook; and
  • Employee Agreements

Where the employer does not have an Employee Agreement or the contract does not have a termination clause, then the employee is entitled to the common law definition of “reasonable notice” or compensation in lieu of that notice.

Employment Agreements must have termination clauses that are clearly worded, enforceable, and set out termination pay. Employee contracts are generally enforceable so long as they comply with the ESA and other rules such as the Ontario Human Rights Code.

With the growth of your organization, you will constantly be hiring, on boarding, and, as necessary, terminating employees. It’s all part of being a responsible employer.

FAQs

What is the leading cause of legal disputes for employers?

Cases emerging from employee terminations.

Where do courts place the onus to justify an employee termination?

The onus rests on the employer. If you want to terminate an employee, have your case well-documented and properly organized.

When is the person “employed”?

A person is considered “employed” while they are actively working, but also during any time when they are not working but the employment relationship still exists (e.g., on sick leave, or on lay-off).

I am preparing to terminate an employee. What is my employee entitled to?

Employees who have worked more than three months are entitled to notice of termination, or compensation in lieu of a notice period. The amount of notice depends on the length of the person’s employment period.

Is my employee entitled to severance pay?

Once an employee has worked for three months continuously, he or she is now entitled to either notice of termination or termination pay.

Before working those initial three months, the employee has no right to either notice or termination pay.

Is termination pay the same as severance pay?

No, the two are different. Termination pay is given in place of the required notice of termination, while severance pay is paid to a qualified employee who has their employment severed.

Severance pay:

  • Compensates for loss of seniority;
  • Rewards the employment for the development of firm-specific skills; and
  • Recognizes long service.

Severance pay is prescribed by the ESA that applies to employees who have been employed with the same employer for five or more years and where the employer has an Ontario payroll of at least $2.5 million per year. Severance pay is based on the years of service, up to a maximum of 26 weeks.

If I terminate an employee for just cause, are they entitled to notice or compensation in lieu?

Employees terminated for just cause are not entitled to notice or the compensation. However, terminations for just cause are reserved for serious misconduct such as fraud, harassment, theft, fraud or excessive absences. Performance issues are rarely grounds for just cause terminations.

Author Bio:

Vanessa To is a Marketing and Communications Specialist with a passion for covering news, trends and matters on HR and employment law. She has been working with the Canadian Peninsula team which is a business that is an employer resource for HR and employment law supporting over 50,000 small – to medium-sized businesses worldwide. She’s dedicated to helping small businesses benefit from the same expertise that bigger organizations have in place by sharing the companies knowledge and advice on hot topics.

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