Terminating staff must be done properly to avoid hefty fines in Ontario

Toronto, Canada. Aug 25, 2023 - Despite being an integral aspect of effective business management, navigating the termination of employment can be challenging for employers. Generally speaking, there are two types of employment terminations: termination for cause and termination without cause.

“This distinction is crucial in understanding how to handle these situations correctly and in accordance with the law,” says Ed Matei, Legal Counsel at Peninsula Canada.

Ensuring employment contracts contain enforceable termination clauses is vital to making this process much easier. Contracts are generally upheld as long as they provide no less than what is required by the Ontario Employment Standards Act and the Ontario Human Rights Code. Where an employment contract offers less, it will not be effective in safeguarding businesses against potential wrongful dismissal claims. It is important to note that this is one reason it might not be enforceable, but it is far from the only reason why.

Termination without cause is when an employer ends an employee’s employment without a specific reason for dismissal. In this case, the employee would still be owed notice and severance upon termination (which can be significantly limited assuming an enforceable contract).

Termination for cause, in contrast, may be applicable when an employee has committed severe and/or persistent misconduct or negligence of responsibilities. These actions must have directly undermined the core aspects of the employment relationship. This is not an easy test to meet and is not a step that should be taken lightly, as doing so may invalidate a contract that is otherwise enforceable and result in higher liabilities, among other negative consequences.

Is it necessary for employers to provide a rationale for termination in Ontario? Under Ontario's ESA, employers are not obligated to provide a reason for the dismissal of employees. However, when an employer exercises this right to terminate, if the employee in question has worked continuously for the same employer for three months or more, the employer must provide adequate notice of termination or compensation in lieu of notice.

The duration of the notice needed is contingent on the length of the employee's tenure with the company. Alternatively, the employer can combine termination notice and pay provided the total duration matches the entitled notice period.

Even though employers retain the right to terminate employees without cause, this is not the same thing as being able to terminate an employee for any cause: they must ensure the grounds for termination do not relate to a protected category outlined in the Ontario Human Rights Code or any other legislation.

The risks The potential risk for employers in a termination where there is no enforceable contract is the possibility of the employee initiating a wrongful dismissal lawsuit. A wrongful dismissal lawsuit seeks to put the question of what is owed by the employer in the hands of a court, and in addition to its being expensive, it can result in liabilities in the tens or hundreds of thousands of dollars.

To mitigate this risk, employers should offer the employee either appropriate termination notice, termination pay, or a suitable combination of both, and ensure that their employment contracts are well crafted and enforceable.

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