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Letting an employee go is never easy, yet dismissals handled without a precise understanding of Ontario’s employment-standards framework can balloon into wrongful-dismissal claims or Ministry of Labour orders. The Employment Standards Act, 2000 (ESA) sets minimum notice, termination-pay, and severance-pay requirements; common-law “reasonable notice” often goes further. Below is a practical guide for employers looking to manage terminations lawfully, minimise litigation, and protect workplace morale.
Distinguishing Notice, Termination Pay, and Severance Pay
Working Notice
You may require the employee to work through the statutory notice period—up to eight weeks depending on length of service. Wages, vacation accrual, and benefits continue unchanged.
Termination Pay in Lieu
If you prefer an immediate exit, you owe termination pay equal to the ESA notice period. Payment must arrive no later than seven days after the termination date—or on the next regular payday, whichever is later—and it must include vacation pay plus continued benefits for the notice length.
Severance Pay
Separate from notice or termination pay, ESA severance applies only if
- the employee has five or more years of service, and
– - the employer’s global payroll exceeds $2.5 million, or 50+ employees are terminated within a six-month window for the same reason.
Severance equals one week’s pay per year of service (pro-rated for partial years), up to 26 weeks, and is due in a lump sum or instalments (with employee consent).
Drafting Contracts That Limit Liability
A well-drafted employment contract can confine your obligations to ESA minimums—if termination clauses:
- Provide at least ESA notice and benefits continuation.
– - Avoid language that inadvertently contracts out of any ESA right, such as “continue salary but not benefits.”
– - Survive the Waksdale precedent by ensuring termination-for-cause and without-cause clauses are both ESA compliant.
Courts void clauses that breach a single ESA provision, exposing employers to common-law notice that can reach one month per year of service (or more).
Procedural Steps for a Compliant Dismissal
- Review the personnel file – Confirm length of service, last wage increase, vacation balance, and any outstanding bonuses.
– - Calculate statutory entitlements – Use the ESA formula for termination and severance; apply the employee’s regular wage, averaged if variable.
– - Prepare the termination letter – Outline last day worked, statutory payments, benefit-continuation dates, and return-of-property expectations.
– - Draft a release for enhanced packages – If you offer more than ESA, tie the extras to a signed full-and-final release; allow time for independent legal advice.
– - Provide the Record of Employment – Issue within five days of interruption of earnings; inaccurate codes invite Service Canada audits.
– - Pay everything on time – Late payments incur ESA penalties and prejudgment interest.
– - Keep records – Retain termination documents for three years; the Ministry may audit retroactively.
Benefits Continuation—The Overlooked Requirement
During the ESA notice period—whether worked or paid in lieu—health, dental, life-insurance, and disability benefits must remain in force. Failing to extend benefits exposes the employer to civil claims and Ministry orders. Carriers often require notification when an employee switches to “notice-only” status; coordinate well in advance.
Mass Terminations: Special Rules
If you terminate 50 or more employees at a single location within four weeks, you must:
- Provide Group Notice to the Ministry and employees on Form 1.
– - Increase notice (and corresponding termination-pay equivalents) to 8, 12, or 16 weeks depending on headcount.
– - Post Form 1 conspicuously at the workplace.
Mass-termination notice runs from the date Form 1 is filed—miss the filing, and notice obligations restart.
Constructive Dismissal Traps
Unilateral pay cuts, significant changes in duties, or hostile work environments can force an employee to resign and sue for constructive dismissal. Before altering terms:
- Secure written consent, ideally with fresh consideration (e.g., bonus).
– - Roll out changes gradually and communicate business reasons.
– - Document acceptance to defeat later claims that the change was imposed.
Common Pitfalls and How to Avoid Them
| Pitfall | Consequence | Preventive Measure |
| Misclassifying long-service staff as contractors | Back-owed termination and severance, CRA audits | Use the four-factor test; convert to employee and pay entitlements |
| Offering “salary continuance” but cutting benefits | Clause void for ESA breach; common-law notice applies | Continue benefits or pay cash equivalent |
| Relying on outdated “just cause” clauses | Hard to prove post-Bill 148; risk full notice payout | Modernise progressive-discipline policies and documentation |
| Late ROE filing | EI payment delays; Service Canada penalties | Automate ROE issuance via payroll software |
| Mass termination without Form 1 | Restart notice period; MOL prosecution | File Form 1 before issuing notices |
Negotiating Enhanced Packages
Paying more than ESA often buys a release, reducing litigation risk. Enhancements can include:
- Additional weeks of pay to approximate common-law notice.
– - Extension of health benefits beyond ESA period (popular during pandemics).
– - Outplacement services and career coaching.
– - Pro-rated bonus or commission payments.
Make offers “without prejudice” and give employees at least five business days to obtain independent legal advice.
Tax and Record-Keeping Nuances
- Retiring allowance treatment may apply to severance and additional notice—triggering withholding at lump-sum rates.
– - T4 slips must separate employment income from retiring allowances.
– - Maintain payroll records supporting calculations for seven years to satisfy CRA audits.
How AMAR-VR LAW Can Help
- Contract drafting & updates to lock notice limits to ESA minimums.
– - Termination-package design that balances cost control with litigation deterrence.
– - Mass-termination planning—Form 1 filing, communication strategy, and compliance checklists.
– - Defence of wrongful-dismissal claims, including mediation and Superior Court litigation.
– - Training for HR and managers on documentation, progressive discipline, and ESA compliance.
Our goal is to turn terminations from legal landmines into controlled, defensible processes.
Conclusion
Terminating employment in Ontario requires more than a final meeting and a cheque. Employers must navigate statutory notice, ESA severance, benefit continuation, and potential common-law exposure. By aligning contracts with ESA minimums, calculating entitlements precisely, and managing documentation rigorously, businesses protect both their financial position and corporate reputation. Contact us today for a consultation if you face a complex dismissal or need to audit your termination clauses,
Frequently Asked Questions (FAQs)
- What is the difference between termination pay and severance pay under Ontario’s Employment Standards Act?
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Termination pay compensates the employee for the statutory notice period if the employer chooses not to provide working notice. Severance pay is a separate entitlement that applies only to employees with at least five years of service when the employer has a global payroll exceeding $2.5 million or conducts a mass termination. Severance pay provides an additional payment of one week per year of service, up to a maximum of 26 weeks.
– - Can employers limit termination obligations to ESA minimums in employment contracts?
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Employers can limit termination obligations to ESA minimums if the employment contract is carefully drafted and fully compliant with the ESA. Any language that violates or potentially violates ESA rights, including improperly drafted for-cause or benefit-continuation clauses, can render the entire termination provision void, exposing the employer to significantly longer common-law notice periods.
– - What are an employer’s obligations regarding benefits during the statutory notice period?
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During the statutory notice period, whether it is worked or paid in lieu, the employer must continue all employment benefits, including health, dental, life, and disability insurance. Failure to maintain these benefits may lead to Ministry of Labour orders, civil liability, and the loss of ESA protections in termination clauses.
– - What is required in Ontario for mass terminations?
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For mass terminations involving 50 or more employees at a single location within a four-week period, employers must file a Form 1 with the Ministry of Labour, provide enhanced notice periods based on the number of employees affected, and post the Form 1 notice in a visible location in the workplace. The mass-termination notice period starts only after Form 1 is properly filed.
– - How can employers avoid constructive dismissal claims when modifying employment terms?
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To avoid constructive dismissal claims, employers should obtain written consent from employees before making significant changes to pay, duties, or working conditions. Offering fresh consideration, such as a bonus or other benefit, can help support the enforceability of the changes. Proper documentation of consent and clear communication of the business rationale for changes also reduce legal risk.