Termination without cause: a guide for Ontario employers

Of all human resource functions, terminations are widely recognized as the most difficult to navigate. From remaining compliant, to acting in good faith, there are many pitfalls which can open an employer up to litigation and financial penalties. Here’s how terminations without cause work in Ontario. 

Termination without cause defined

A termination without cause occurs when an employer ends the employment relationship for reasons that are not related to the employee’s misconduct or serious wrongdoing. While the decision may still be based on a valid business reason such as restructuring, changes in operational needs, or performance concerns that do not meet the threshold for just cause, it does not imply any fault on the part of the employee. 

In these cases, the employer is generally required to provide notice or pay in lieu of notice, as outlined in Ontario’s Employment Standards Act (ESA) and, unless the employee has a valid employment contract that limits entitlements to ESA minimums, they may also be entitled to additional compensation under common law. 

In some cases, employees may also be entitled to ESA severance pay, which is separate from termination notice. This applies to employees with 5+ years of service if the employer has a payroll of $2.5 million or more, or in the case of mass terminations. 

Layoffs and termination without cause

Termination without cause should not be confused with temporary layoffs, which are permitted under the ESA under specific conditions. A layoff is technically considered a termination unless it meets the ESA’s definition of a temporary layoff, which has strict time limits. If those limits are exceeded, the layoff becomes a termination, triggering the same employer obligations and employee rights as any other termination without cause. 

Minimum notice, pay in lieu of notice and reasonable notice

In the case of a termination without cause, employers are required to provide the minimum notice or pay in lieu of notice as set out in the Ontario Employment Standards Act (ESA). 

If there is no valid and enforceable employment contract that clearly limits the employee’s entitlements to the ESA minimums, the employee may be entitled to common law reasonable notice, which can be substantially greater. 

ESA minimum notice

If a valid and enforceable employment contract is in place that clearly and lawfully limits termination entitlements to the ESA minimums, Ontario employee entitlements for minimum notice and pay in lieu of notice are dictated by their length of service to the employer, which are as follows:

Employers must also continue all benefits during the ESA notice period, even if pay is provided in lieu. 

Pay in lieu of notice is when a termination without cause takes place and no notice is provided, but the employee is compensated with either a salary continuance, or a lump sum that would include regular wages, commission, bonuses and benefits that the employee would have received while working during this period. 

This must be paid within 7 calendar days of the termination taking place, or the employee’s next scheduled paycheck—whichever comes latest. If the payment is delayed beyond this, the employee could file a valid claim with the Ministry of Labour for unpaid wages. 

Common law reasonable notice 

Reasonable notice under common law is flexible and can be defined by the courts, which often results in notice entitlement being substantially more than ESA minimums. The reasonable notice period will be determined by factors known as the Bardal Factors. These include: 

The character of the employment 

If an employee is in a senior position, they may be entitled to more notice than a junior employee. 

The employee’s length of service 

Employees with longer service are typically entitled to more notice. 

The employee’s age 

Older employees are more likely to struggle to find employment, therefore they would be entitled to more notice. 

The availability of similar employment 

If jobs of a similar nature are rare or scarce, more notice is given. 

The potential for wrongful dismissal 

If adequate notice (either under the ESA or common law) or pay in lieu of notice is not provided, the employer could be found liable for wrongful dismissal. If the termination also involves discrimination based on a protected ground under the Ontario Human Rights Code, a human rights claim may also be brought. 

Human rights and wrongful dismissal claims can both be pursued, but they must be filed separately and in the appropriate forums. However, an individual cannot receive compensation twice for the same harm, a principle known as double recovery, even if both claims arise from the same set of facts. 

A valid claim of wrongful dismissal would likely cause a detriment to the employee’s personal life, and open the door to litigation, significant financial penalties, and damage the reputation of the employer. 

To avoid such situations, ensure you act in good faith and meet contractual obligations, document the termination process carefully, and use clear, enforceable employment contracts that protect your business and employees. 

Need help with your employment contracts or relations? 

If you have questions about your contracts, or would like access to ESA compliant employment contracts, BrightHR is here to help. 

We offer a 24/7 employment relations advice line, to help with every step of the journey—whether you’re establishing new contracts, want to consult on employee entitlements or want to begin a termination process, we’ll help you stay compliant. 

If you want to put your best foot forward with compliant employment contracts, we have provincially compliant, clear and enforceable HR document templates ready to go. 

Book a free demo today to find out how BrightHR can help your business.