Part XV - Termination and severance of employment

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The notice provisions in Part XV of the Employment Standards Act, 2000 ensure that employees are given some minimum amount of advance warning of termination of employment (or pay in lieu of notice or some combination thereof) so that the employee may make new arrangements for work.

The severance pay provisions Part XV of the Act provide some long-service employees with compensation for loss of seniority and job-related benefits and also for their investment of long service when the employment relationship is severed by the employer. The employer's obligations under the notice and severance provisions are entirely separate and distinct from each other and one cannot be used to offset the other.

Section 54 – No termination without notice

Section 54 requires employers to provide advance written notice of termination, in accordance with s. 57 or s. 58, or to provide termination pay in accordance with s. 61 when terminating the employment of an employee. Under the former Employment Standards Act, pay in lieu of notice was characterized as a remedy if notice was not given, not an alternative to notice as it is now.

Eligibility for notice of termination or termination pay

An employee is eligible for notice of termination or termination pay if he or she has been continuously employed for three months or more by his or her employer. A similar eligibility requirement was contained in the former Employment Standards Act. However, the word “continuously” has been added to clarify that the employment relationship must continue for a full three months.

All time spent in an employer-employee relationship will count toward the three-month eligibility requirement. As long as there is no clear termination of the employment relationship, periods of inactive employment (such as lay-off, leave or sick time) must be included as periods of time during which an employee is continuously employed.

The term “period of employment”, which is defined in s. 8(2) of O Reg 288/01 to allow separate periods of employment to be added together and treated as one, does not apply with respect to the three-month eligibility requirement for notice in s. 54. Rather, “period of employment” applies to determine the amount of notice the employee is entitled to under s. 57 once it has been established that the employee has met the three-month eligibility requirement.

In addition, when determining the “period of employment”, reference must also be made to s. 59, which sets out what is included and excluded time. Although s. 59 generally provides that time spent on leave or other inactive employment is included in determining the period of employment, it excludes time spent on lay-off after a deemed termination date.

Therefore, the time spent on lay-off after the deemed termination date (i.e., the time spent on lay-off from the date the lay-off commenced) would not count in determining the “period of employment” and the amount of notice an employee is entitled to. That time would, however, count in determining whether the employee had completed three months of continuous employment in order to be eligible for notice.

For example: An employee was hired January 1. She was laid off February 1. Thirteen weeks after the layoff began (May 1), her employment is deemed to be terminated as of the date the layoff began (February 1) – see ESA Part XV s. 56(5).

Under s. 54, all employment (whether active or inactive) counts towards the three-month continuous employment eligibility requirement. This employee has met the three months' continuous employment eligibility requirement; she was employed for four months (January 1 to May 1) and so is eligible for notice of termination.

The amount of notice (or pay in lieu in this case) she is entitled to is determined by s. 57 and turns on her “period of employment”.

Under s. 57 an employee whose “period of employment” is less than one year is entitled to one week's termination notice.

Under s. 59, “period of employment” does not include periods of layoff after the deemed termination date. This employee's “period of employment” is therefore 1 month (January 1 to February 1). As a result, because she was employed for at least three months and her period of employment is less than one year, she is entitled to one week's termination notice.

Note again that the eligibility requirement is three months of continuous employment and not three months of active service. If an employee started work on July 29 and was still employed for any part of the day on October 28, the employee will have been continuously employed for three months despite having been off sick or on layoff or leave for some time between July 29 and October 28. In this example, if the employer terminated the employee on the 28^th of October (regardless of whether the employee had a scheduled shift on that day or had started or completed his or her shift) the employee would be eligible for notice of termination.

When determining whether an employee meets the three-month continuous employment eligibility requirement there is occasionally some debate as to when employment commenced. Generally, the first day of employment will be considered to be the first day of work. Although an offer of employment may be made and a contract of employment entered into some period of time before the employee starts work, the Program's view is that the employment relationship commences on the date the employee starts work unless there is clear evidence to indicate otherwise.

With respect to the three months of continuous employment requirement, regard should also be had to ss. 9(1), 10(1) and 10(2) of the Employment Standards Act, 2000, which provide as follows:

9(1) If an employer sells a business or a part of a business and the purchaser employs an employee of the seller, the employment of the employee shall be deemed not to have been terminated or severed for the purposes of this Act and his or her employment with the seller shall be deemed to have been employment with the purchaser for the purpose of any subsequent calculation of the employee's length or period of employment.

10(1) This section applies if the building services provider for a building is replaced by a new provider and an employee of the replaced provider is employed by the new provider.

10(2) The employment of the employee shall be deemed not to have been terminated or severed for the purposes of this Act and his or her employment with the replaced provider shall be deemed to have been employment with the new provider for the purpose of any subsequent calculation of the employee's length or period of employment.

Under these provisions, the employment with the seller or the original service provider and the employment with the purchaser or the new service provider is combined for the purposes of calculating the employee's length of employment, and, therefore, when determining eligibility for notice (as well as for the purpose of calculating “period of employment” when determining the amount of notice to which an employee is entitled.)

Example:

If an employee is employed by Company B for two months and Company B sells the business to Company C who employs the employee for a further period of one month, the employee will have met the three month requirement. Company C will then be required to provide the employee with notice of termination of employment or termination pay calculated on the basis of employment with Company B and Company C. For a more detailed explanation of s. 9 and s. 10, please refer to ESA Part IV (Continuity of Employment).

It is important to note that employment is only counted if it is performed in Ontario, or elsewhere as a continuation of the work performed in Ontario. For example, if an employee works for ABC Inc. for two years in Quebec, then is transferred to Ontario, where he or she works for ABC Inc. for two more months, the employee is considered to have only two months of employment with ABC Inc. for purposes of s. 54.

Where the employee performs work outside Ontario that is a continuation of the work performed in Ontario, the time spent outside of the province will be included in calculating the whether the employee has been employed for three months or more.

Written notice of termination

Section 54 requires that the employer provide written notice of termination to an employee who is entitled to notice. Section 4(1) of O Reg 288/01 sets out the manner in which such written notice may be provided – see O Reg 288/01 s. 4(1) for a detailed discussion.

It is the policy of the Program that although s. 54 requires that notice of termination be in writing, if the notice given to the employee is oral, but such notice is greater in length than the required notice under s. 54 (and meets or exceeds the minimum requirements concerning continuation of wages and benefits), it will be considered a greater right or benefit under s. 5(2) of the Act. This policy is supported by the case of Fanaken v Bell, Temple, 1984 CanLII 1856 (ON SC).

Where the employer is alleging that it gave oral notice greater in length than the required minimum written notice, the onus will be on the employer to show that the employee received and understood the oral notice, and that the notice was specific as to the date of termination.

Section 55 – Prescribed employees not entitled

This section provides that prescribed employees are not entitled to notice of termination or termination pay under Part XV of the Employment Standards Act, 2000. The prescribed employees are identified in s. 2 of O Reg 288/01. Refer to O Reg 288/01 for a complete discussion of the prescribed employees.

As with all exemptions from a minimum standard, the onus is on the employer to establish on a balance of probabilities that the exemption applies.

Section 56 – What constitutes termination

What constitutes termination – s. 56(1)

This definition is relevant for Part XV, ss. 54-62 of the Employment Standards Act, 2000 which refer to a termination of the employment relationship for the purposes of an entitlement to notice of termination or pay in lieu, as opposed to ESA Part XV, ss. 63-66 which refer to a severance of the employment relationship for the purposes of an entitlement to severance pay. Sections that deal with notice of termination or termination pay entitlement use “terminates” or “terminated”. Sections that deal with severance pay entitlement use “severs” or “severed”.

The definition of what constitutes a termination in this section is exhaustive. Only those situations specifically described in the definition will be considered to constitute a termination of the employment relationship. The definition has three parts:

1. The employer dismisses the employee or otherwise refuses or is unable to continue employing him or her – s. 56(1)(a)

The term "dismisses" in s. 56(1)(a) means a firing or similar ending of the employment relationship by the employer. It occurs on the initiative of the employer as opposed to the employee. An employer may dismiss an employee expressly, for example, by informing the employee that they are fired. An employer may also dismiss an employee implicitly, for example, by demanding the employee's pass card or by telling the employee to resign or they will be fired.

Clause (a) of the definition will also apply where the employer refuses or is unable to continue employing the employee, even if the situation does not involve an actual firing as such. The clause is very broad in its scope and captures the vast majority of situations in which an employee's employment ceases at the instance of the employer. A discussion of some of the issues that may arise in determining whether or not there has been a dismissal follows:

i. Quit v. fired

One issue that arises is whether the employee resigned, as opposed to having their employment terminated by the employer. It has generally been held that two things must be established in order to conclude that an employee has quit:

A statement by the employee informing the employer of an intention to quit (or, in the absence of any statement, some act from which it may be inferred that the employee intended to quit); and
Some action on the part of the employee to carry out that intention.

In this regard see, for example: Grimsby Packaging Ltd. v Prokopp (July 23, 1991), ESC 2881 (Dissanyake); Rock Glen Fruit Farms Limited v Nordstrom (February 26, 1992), ESC 2988 (Roberts); and Deluxe Taxi (Barrie) Ltd. v Employees (April 18, 1973), ESC 125 (McNish).

In certain types of situations, the employee's conduct has been found to be inconsistent with quitting. For example:

Where the employee says "I quit" in the heat of the moment and quickly withdraws the remark or returns to work shortly after saying it – see Deluxe Taxi (Barrie) Ltd. v Lupo, 2012 CanLII 1120 (ON LRB).
Where the employee says "I quit" without saying when they will leave and continues to perform their duties – see Nunes & Murphy Restaurants Inc. operating as Harvey's 2513 v Kelly, 2016 CanLII 17266 (ON LRB).
Where the employer advises the employee that unless they apologize, they will be fired, and the employee as a result, resigns (discussed under constructive dismissal below) – see Brown v Canadian Tire Corp., 2000 CanLII 2305 (ON LRB) and Canadian Debt Recovery Ltd v Landell, 2010 CanLII 67932 (ON LRB).
Where the employee tells their colleagues that they quit or will quit but does not inform the employer and remains at work and completes their regular duties – see M. Oomen's Glass Ltd v Oomen, 2013 CanLII 76435 (ON LRB).

Certain types of conduct have been found to indicate a resignation. For example:

Where the employee states their intention to quit and then requests their Employment Insurance record of employment form – see Re J. Mac D. Thomson.
Where an employee fails to return to work after giving notice of intention to quit, coupled with cleaning out their desk and leaving keys behind – see Kingsway Lodge and Nursing Home v Cunningham et al (June 26, 1985), ESC 1906 (Brown).
Where the employee emailed their employer to confirm that they were not resigning but did not return to work, despite the employer making it clear that they could return – see Chapman v Martindale Animal Clinic, 2016 CanLII 7070 (ON LRB).

ii. Withdrawing notice of termination or resignation

Notice of termination or resignation of employment, once given, cannot be withdrawn. Whether it is the employer giving notice of termination to the employee or the employee giving notice of resignation to the employer, the cases indicate that the person who gave the notice may not withdraw it unless the other party gives their consent. See Roberts v Creative Hair Design, 2000 CanLII 12795 (ON LRB).The only exception to this is where the termination or resignation announcement is given in the heat of the moment and then withdrawn quickly.

This Program policy reflects the common law. The rationale behind the law and the policy is that the party receiving the notice may have taken certain actions in reliance on it. For example, the employee, after receiving a notice of termination from the employer, may accept a job offer in another city and sell their house. An employer, having received notice of resignation from the employee, may make arrangements to advertise the position or may have actually hired a replacement employee. The cases indicate that it is not necessary to show that the party actually relied on the notice in order to prevent its withdrawal without that party's consent. The possibility of reliance is sufficient. See for example Westburne Central Supply v Green (December 10, 1992), ES 221/92 (Randall).

iii. Employee fired after giving notice of resignation

Is an employee who gives notice of resignation but whose employer responds by terminating their employment entitled to termination pay? The answer is yes, since what the employer did was to terminate the employee's employment before the employee's notice of resignation could take effect. See for example Leon's Furniture Limited/Meubles Leon Ltée v Aelick, 2016 CanLII 77660 (ON LRB). Also see Quebec (Commission des normes du travail) v. Asphalte Desjardins Inc. (2014 SCC 51): although this decision of the Supreme Court of Canada involved Quebec legislation, it affirms the employment law principle that an employment contract is not automatically ended upon receipt of a notice of resignation, that the relationship continues to exist until the date specified in the notice given by the employee, and that an employer that wishes to terminate the contract before the resignation takes effect is required to provide notice of termination/termination pay.

However, the amount of the employee's termination pay entitlement will be based on the shorter of:

The length of the applicable notice period under s. 57 or s. 58; and
The length of time between the date of termination by the employer and the effective date of the employee's notice of resignation (i.e., the point at which the employee would have left in any event had the employee's employment not been terminated by the employer).

For example, an employee with a period of employment of ten years gives notice of resignation on June 2, to be effective June 30. The employer immediately terminates the employee's employment. The employee will be entitled to termination pay based on the shorter of:

The required notice under s. 57 or s. 58, which for this employee is eight weeks; or
The length of time between the termination and the effective date of the employee's notice of resignation, which in this case is four weeks (June 2 to June 30).

Thus, the employee will be entitled to four weeks' termination pay. This is supported by a Divisional Court decision, Re Redpath Industries Ltd. and Ison et al., 1985 CanLII 2192 (ON SC).

Another example is an employee with a period of employment of three years who gives notice of resignation on June 2, to be effective June 30. The employer terminates the employee's employment two weeks into the four-week notice of resignation period. The employee will be entitled to termination pay based on the shorter of:

The required notice under s. 57 or s. 58, which for this employee is three weeks; or
The length of time between the termination and the effective date of the employee’s notice of resignation, which in this case is two weeks (June 16 to June 30).

Thus, the employee will be entitled to two weeks’ termination pay.

However, see O Reg 288/01, s. 2(1) para. 3 for the discussion in regarding the applicability of the wilful misconduct exemption to employees who have resigned and accepted employment with a competitor but prior to commencing work for their new employer put themselves into a serious conflict of interest with their current employer by, for example, disclosing confidential information to the competitor.

iv. Otherwise refuses or is unable to continue employing

The phrase, "otherwise refuses or is unable to continue employing him or her" includes terminations of employment by operation of law such as those that result from bankruptcy (see the decision of the Supreme Court of Canada in Rizzo & Rizzo Shoes Limited (Re), [1998] 1 SCR 27) or frustration of contract. An example of the latter situation would be where the employer is required to cease operations as a result of an order issued under the Environmental Protection Act, RSO 1990, c E.19 ("EPA"). At common law, this might arguably be considered to result in frustration of the employees' employment contracts, but the phrase "unable to continue employing" ensures that the situation is treated as involving a termination by the employer, with the result that the employees whose employment is terminated because the employer was required to cease operations under the EPA are entitled to notice of termination. This is so whether or not the cessation of operations is self-induced by the employer. In other words, it applies to situations where the environmental order issued was not the result of actions or omissions of the employer, as well as to situations where the order was the result of the employer's actions or omissions. The broad language of s. 56(1)(a) of the Employment Standards Act, 2000 eliminated the need for such a provision.

"Otherwise refuses. . . to continue employing" would also cover the situation of an employee employed on a term contract where the employer technically does not dismiss an employee but simply lets the contract expire without renewing it, although this does not necessarily mean that the employee would be entitled to notice or termination pay – see the discussion of the term or task exemption in O Reg 288, s. 2(1), para. 1.

2. The employer constructively dismisses the employee and the employee resigns from his or her employment in response within a reasonable period – s. 56(1)(b)

Section 56(1)(b) provides that a termination occurs where an employer constructively dismisses an employee and the employee resigns their employment within a reasonable period in response to the employer's action.

Note also that during the first declared emergency for (which commenced March 17, 2020 and terminated July 24, 2020), orders were issued under the Emergency Management and Civil Protection Act (EMCPA) that authorized employers to make some specific unilateral changes to specified terms and conditions of employment. Upon the termination of the first declared emergency for on July 24, 2020, those orders ceased to be orders under the EMCPA and instead continued as time-limited orders under the Reopening Ontario (A Flexible Response to ) Act, 2020. The orders, including the period of time to which they relate, can be found by visiting the Reopening Ontario (A Flexible Response to ) Act, 2020 on the Ontario government’s e-Laws website and then selecting the “Revoked/Spent Regulations under this Act” tab.

In technical terms, a constructive dismissal exists where the employer repudiates the employment contract by committing an actual breach or an anticipatory breach of a fundamental term of the contract. If the breach (whether actual or anticipatory) is substantial and adverse to the employee, they can elect to end the contract by resigning but is treated in law as if they had been dismissed by the employer.

As distinguished from an actual breach that imposes an immediate change in the terms of the employment contract, an anticipatory breach is a change to the contract of employment that will come into effect at some future date. Key to a finding of anticipatory breach is that the employer has unequivocally stated that at some future point it will no longer abide by the terms of the contract as it presently exists. An employer will not have committed an anticipatory breach by simply proposing (even in extremely strong terms) the desirability, from its perspective, of making changes or inviting the employee to consider the proposal or to negotiate.

However, an anticipatory breach that would give rise to a constructive dismissal if the employee resigns within a reasonable period of time must be distinguished from a situation where the employer is terminating the employment relationship by giving proper written notice of a change to the employment contract to occur on a future specified date.

In the latter case, if the employer provides notice in writing clearly indicating that the employer will be making a unilateral change to the employment contract at a future specified date and it is clear that the employee must either agree to the future change or the employment relationship will end on the specified date, the employer is considered by the Program to have effectively provided notice of termination in accordance with ESA Part XV, s. 54 with an offer of re-employment on new terms and conditions.

In other words, even though the notice of a change to the contract may not specifically state that it constitutes notice of termination with an offer of new employment on different terms effective on a future, specified date, if it is clear that a refusal to accept the change on that date will end the employment relationship, the written notice of the change may be treated as working notice of termination under the Act. In contrast to a constructive dismissal flowing from an anticipatory breach, which requires the employee to resign within a reasonable period in response to the employer's actions pursuant to s. 56(1)(b), if the employee were to resign in response to a notice of a future change as described above (i.e., one which is effectively considered a notice of termination), they would forfeit any additional rights to notice of termination under the Act. See the discussion on Notice of Termination & Termination Pay Obligations below for more information. For information on the application of these principles where an employee is not vaccinated against, or tested for, COVID-19 in accordance with the employer’s policy, see “ESA Termination and Severance Liabilities Where an Employee is Not Vaccinated Against or Tested For COVID-19”.

As noted above, a notice of a future change to a contract will only be considered a notice of termination where it is clear that the current contract of employment will end on a specified date and that the only option available to the employee as of that date is to accept re-employment on the new, amended contract terms. In this regard, see Wronko v Western Inventory Service Ltd., 2008 ONCA 327 (CanLII), in which the Court of Appeal concluded that the employer's notice of a future change did not constitute effective notice of termination. In that case, the employer had provided notice in September 2002 that the employee's contract, which provided for two years termination pay, would be amended in September 2004 to provide a maximum of 30 weeks termination pay. The notice specifically provided that the employee's agreement to the change was "voluntary and is not a mandatory requirement for your continued employment". Over the course of the next two years, the employee on several occasions advised the employer that he would not accept the change. In September 2004, the date the change was to be implemented, the employer advised the employee that if he did not accept the new terms and conditions of his employment, they no longer had a job for him. Despite the employer's argument that the notice of the change which had been given in 2002 constituted notice of termination, the Court of Appeal found that not to be the case on the facts. The Court found that although the employee had made it clear that he would not accept the proposed change to his contract; the employer had failed to make it clear that the refusal to accept the new terms would result in his termination and re-employment would only be offered upon the new terms. The employer was found to have acquiesced to the employee's position and the terms of the existing contract remained in effect. The Court concluded that the case did not involve a constructive dismissal in that the employee did not treat the employment contract as having been repudiated but rather, the employee's employment was terminated in September 2004 and the employer was then liable for two years of termination pay in accordance with the employment contract.

i. Criteria for constructive dismissal

The following criteria must be met to establish a constructive dismissal as a result of a change to the employment contract:

1. The change is made unilaterally by the employer, i.e., without the employee's agreement.

The meaning of the first criterion is self-evident; the second and third criteria are discussed in more detail below.

2. The change is to a fundamental term or condition of the employee's employment.

In determining whether this criterion of the test is met, an officer must first decide whether the term in question is a fundamental term or condition of employment. Terms and conditions of employment may be implicit or explicit. Implicit terms may be established by past practice or custom or judicial ruling. Explicit terms and conditions of employment might be the subject of an oral or written employment contract or may be contained in oral or written workplace policies. Some examples of terms and conditions of employment that would usually be considered fundamental are as follows:

The core duties and responsibilities of a position;
The status, perquisites and remuneration associated with a position; and
In some cases, the geographic location where the duties of a position are to be performed.

3. The change is substantial and to the employee's disadvantage.

Constructive dismissal will only be established if the change is substantial and adverse to the employee.

What constitutes a substantial change to the employee's disadvantage is a factual determination that will vary with the circumstances of each case. In each case, however, the change must be considered with regard to the particular employee's circumstances, but from the perspective of a reasonable person. The test to be applied is how a reasonable person in the employee's circumstances would view the change.

What follows are some examples of substantial changes to terms and conditions of employment that are generally considered fundamental.

A pay cut of a substantial amount. Generally, pay cuts of up to 10 per cent will not be considered as substantial. However, 10 per cent is not a "magic number" but is just a rough guide. In determining the magnitude of a pay cut, the value of the benefits should be considered. See Ontario Chemists Rx Inc. v Ibrahim, 2007 CanLII 48597 (ON LRB).
A substantial reduction in hours. See Skelton v 1012311 Ontario Ltd., 2004 CanLII 29465 (ON LRB), in which the Board found a reduction of hours from 40 or more per week to 16 hours per week constituted a constructive dismissal.
A breach of the requirement to pay wages on a regular basis. Where the employer has for example, failed to pay the employee's wages on time for several pay periods, the employee may be able to resign and claim constructive dismissal. See Ma v VE Collective Inc, 2014 CanLII 39566 (ON LRB) in which the Board found a constructive dismissal arising from the employer having repeatedly missed paying the employee on her pay day by two or three days and in the last of the two pay days before she resigned, having missed her pay day by seven days.–
Where the delay in payment is lengthy, one such instance, as opposed to repeated ones, may be sufficient to amount to a constructive dismissal. See Di Giuseppe v Hospice Richmond Hill, 2015 CanLII 56255 (ON LRB) where the Board found that by paying the employee two weeks late combined with the uncertainty of whether the employer had the ability to pay the employee in the future constituted constructive dismissal.
A clear demotion, whether or not accompanied by a pay cut, particularly where the employee is stripped of managerial responsibilities or suffers a significant loss of status. See Beck v Hamilton (City), 2007 CanLII 22576 (ON LRB), where the OLRB found that as a result of a reorganization, the terms and conditions of the claimant's position were significantly diminished relative to his peers. He effectively suffered a substantial demotion and a significant diminution in his responsibilities resulting in a constructive dismissal. The Board also noted that the employer's motives were not determinative as a demotion can constitute a constructive dismissal even if there is a legitimate business justification for a reorganization that brings about the demotion and reduction in responsibilities. See also Smith v CPI Corp., 2013 CanLII 14044 (ON LRB).
There is no demotion, but there is a significant change in duties or responsibilities. For example, if a production manager is reassigned to the position of sales manager, a position that requires different skills and abilities even where there is no change in salary, status or perquisites, the substantial change in the nature of the duties may be a basis on which a constructive dismissal can be founded.
A change of shift, particularly from a day shift to the night or graveyard shift, unless the change is pursuant to an express or implied provision in the contract of employment. In some cases, the employer may be able to establish the existence of an implied term on the basis of past practices in similar situations or evidence of the expectations of the parties.
A job transfer to another city or town, where commuting would be impossible or would involve a substantial increase in travel time. For example, commuting may be possible for an employee with a driver's license, but impossible for an employee without one. There is court authority that says an employee's job may be transferred to another location if the right of the employer to make such a transfer is an implied term of the employment contract – see Smith v Viking Helicopter Ltd. (CA), 1989 CanLII 4368 (ON CA). The onus would be on the employer, however, to demonstrate that such an implied term existed. Implied terms to this effect are most likely to be found in cases where the employer is large organization with numerous offices or branches in different cities and the employee is in the managerial category.
In some cases, a lay-off, even one that lasts no longer than the period of a temporary lay-off. This may be surprising to some, since a temporary lay-off is not in itself considered a termination under s. 56(1)(c). However, in Stolze v Addario, 1997 CanLII 764 (ON CA), the Ontario Court of Appeal held that if the terms of the employee's employment contract do not provide, either expressly or by implication, that they can be laid off, a lay-off, even a temporary one, can constitute a constructive dismissal and will be treated as a termination by the employer if the employee responds by quitting. It should be noted that the employee in Stolze v Addariowas a key employee who was paid an annual salary and that the employer had never before laid off any salaried personnel in the 32 years that the employee had been working for the employer. Bearing in mind that a term providing for lay-offs need not be express and that in many cases it may be implied on the basis of past practice, common understandings or custom in the industry or trade concerned, it is likely that few employees could successfully claim constructive dismissal on the basis of a temporary lay-off.

ii. Other breaches giving rise to constructive dismissal

Other breaches of the employment contract that may give rise to a constructive dismissal include forced resignations or sustained harassment or abuse.

A forced resignation occurs where the employer puts the employee to a choice between resigning and some even less palatable alternative, such as where the employer says to the employee, "If you don't resign, I'll fire you." If the employee in fact resigns in response to such a statement, the employee will be considered to have been constructively dismissed by the employer.

If the employer harasses or abuses the employee to an intolerable extent and as a consequence the employee resigns, the employee will be considered as having been constructively dismissed. It is not necessary to show intent on the part of the employer to get rid of the employee in order to find a constructive dismissal. Even in the absence of such intent, there will be a constructive dismissal if the employee resigns in response to the employer's behaviour and that behaviour would be unacceptable to a reasonable person in the employee's circumstances.

In Tiny Town Daycare Inc. v Vlahos, 2015 CanLII 67009 (ON LRB), the Board found that the employer’s treatment of the employee constituted a constructive dismissal and awarded the employee termination pay. The employer subjected the employee to a sexual and gender-related harassment that created a poisoned work environment, which itself was a fundamental breach of the employment relationship. The employer also accused her of defamation, slander and neglect of duty, and threatened to make a complaint that would result in the employee losing her license. The Board held that the employer’s conduct was so reprehensible that the employee felt she had no other alternative than to quit her employment.

Note, however, that unpleasantness, rudeness or misunderstanding of the facts on the part of the employer does not necessarily create the sort of poisoned work environment that can be treated as constructive dismissal by an employee who experiences it – see Mortensen v Convergys CMG Canada Limited Partnership, 2015 CanLII 2630 (ON LRB).

iii. Reasonable period

As noted above, s. 56(1)(b) specifically provides that an employee who alleges constructive dismissal is required to resign from their employment within a "reasonable period". Although the employee must at some point resign to signal their rejection of the unilateral imposition of new terms by the employer, in order for s. 56(1)(b) to apply, the resignation does not have to be immediate. The reasonable period affords the employee time to consider whether to accept the change. It is an opportunity to try out the new arrangement or assess the future impact of an anticipatory breach before deciding whether or not to resign and claim constructive dismissal.

Where the breach has immediate consequences, the reasonable period will begin to run from the point the breach impacts upon the employee. In cases of anticipatory breach, the reasonable period will be considered to start running when the employer announces its intention.

It is Program policy that this reasonable period under s. 56(1)(b) is not necessarily the same length as the notice period under ss. 57 or 58. What constitutes a reasonable period may vary with the circumstances of each case. For example, if the employee is paid a salary of $1000 per week and the employer unilaterally reduces the salary to $700 per week effective immediately, what would constitute a reasonable period would be quite short, as very little time would be needed by the employee to determine whether the change was acceptable because the impact on them would be quite obvious. On the other hand, if the employee was a sales employee paid on a salaried basis and the employer unilaterally changed the employee's remuneration to a commissioned basis and gave the employee a new sales territory at the same time, what constitutes a reasonable period in those circumstances may be quite lengthy, as the employee may need to try out the new arrangement for a considerable time before being in a position to gauge its impact on their earnings.

It should be noted that in order to preserve rights to a remedy under the common law, an employee may be expected to stay on under the changed terms beyond what would be considered a reasonable try out period. An employee who wishes to claim damages at common law for failure to give reasonable notice of termination has to show that they have made reasonable efforts to mitigate or lessen those damages, otherwise their damages will be offset by the amount that they could have reduced them by using reasonable efforts. The courts have said that this might require the employee to stay on under the new arrangement where it does not involve work that is substantially different or demeaning and where the work relationship is not acrimonious – see Mifsud v MacMillan Bathurst Inc., 1989 CanLII 260 (ON CA).

However, in order to claim a remedy for constructive dismissal under the ESA 2000, the employee would have to resign within a reasonable period. That may mean that the employee has to choose between protecting their remedy under the common law and successfully claiming for termination pay on the basis of constructive dismissal under the ESA 2000.

For information specific to what is a “reasonable period” in the context of a constructive dismissal resulting from an employer continuing a temporary reduction or temporary elimination in hours of work or wages for reasons related to COVID-19, past the end of the COVID-19 period, see the discussion at section 7 of O. Reg. 228/20.

iv. Notice of termination & termination pay obligations

An immediate or anticipatory unilateral breach of a fundamental term of the employment contract that has adverse consequences is a constructive dismissal and if it is followed by a resignation within a reasonable period of time, it is a termination of employment under the Act. It follows therefore that the employer will have an obligation to provide notice of termination or termination pay in lieu of notice.

However, as discussed above under s. 56(1)(b), if an employer provides proper notice (see below) of a change to the contract that will be implemented on future date, and it is clear that a failure to accept the new terms and conditions of employment on the specified date will result in the existing employment contract being terminated with an offer of re-employment on the amended terms, there is no constructive dismissal. As a factual matter, it is the employer, not the employee who is terminating the employment contract, so the constructive dismissal analysis, which applies when the employee has resigned but is treated in law as if they had been dismissed, is not relevant.

Program policy is that proper notice must also be:

In writing and specify a date for the contract change;
Addressed to the employee; and
Served either personally or in accordance with ESA Part XXI, s. 95.

Where all these conditions are met, the employer's notice of the contract change will be considered to be working notice of termination for the purposes of discharging the employer's liabilities for notice under the Act. If the working notice provided is something less than what is required under s. 57 or s. 58, the employer will be liable for the difference in termination pay in the event the employee does not accept the offer of the "new" contract. The employer's liability will be reduced according to the amount of notice that was given. Further, should the employee resign before the end of the notice period, they will have no further entitlements to payment for the balance of the notice period or to termination pay in lieu of notice.

3. The employer lays the employee off for a period longer than the period of temporary lay-off – s. 56(1)(c)

The provision states that a lay-off that exceeds the period of a "temporary lay-off" is a termination. Section 56(2) defines a temporary lay-off. Please see ss. 56(2), (3.1) and (3.3) – (3.6) for a detailed discussion of a temporary lay-off, and the point at which a lay-off will exceed a period of temporary lay-off thereby triggering a termination under s. 56(1)(c).

Note that O. Reg. 228/20 (“Infectious Disease Emergency Leave”) provides that during the defined COVID-19 period (March 1, 2020 to July 30, 2022), non-unionized employees whose wages or hours of work were temporarily reduced or temporarily eliminated by their employer for reasons related to COVID-19 were not considered to be laid off under the ESA (except where the layoff is because of a permanent discontinuance of all of the employer’s business at an establishment). For information on a temporary layoff resulting from a reduction/elimination of hours of work or wages for reasons related to COVID-19 please see the discussion at section 6 of O. Reg. 228/20.

As this section provides that a lay-off is a termination only where the period of lay-off exceeds that of a temporary lay-off, it follows that a temporary lay-off is not a termination and that there is therefore no obligation under the Act to give an employee notice of a temporary lay-off. If an employer does provide notice of lay-off and the lay-off ultimately lasts longer than a temporary lay-off and is subsequently deemed to be a termination, the notice of lay-off cannot generally be set-off against the employer's notice of termination obligations.

Ontario Regulation 288/01, s. 4(2) permits notice of indefinite lay-off to fulfil the employer's notice of termination obligations. The ESA 2000 restricts the application of this provision to situations where an employer would be in breach of a collective agreement if it advised employees that their employment was being terminated. This allows an employer bound by such a collective agreement and who anticipates that a lay-off that it is about to implement will end up resulting in termination for the purposes of the Act, to satisfy the Act's notice requirements by giving notice of indefinite lay-off.

It should be noted that while a lay-off that lasts no longer than the period of a temporary lay-off will not be considered a termination under s. 56(1)(c), if the employee's employment contract does not provide, either expressly or by implication (which could be based on past practice, common understandings or custom in the industry or trade concerned) that they may be laid off, a lay-off, even one that would be considered temporary under s. 56(2), may constitute a constructive dismissal; in that case, if the employee responds to the lay-off by quitting within a reasonable period, the situation will be treated as involving a termination by the employer pursuant to s. 56(1)(b). In this regard, see the discussion of the Ontario Court of Appeal decision in Stolze v Addario.

Temporary lay-off – s. 56(2)

56(2) For the purpose of clause (1)(c), a temporary lay-off is,

a lay-off of not more than 13 weeks in any period of 20 consecutive weeks;
a lay-off of more than 13 weeks in any period of 20 consecutive weeks, if the lay-off is less than 35 weeks in any period of 52 consecutive weeks and,
1. the employee continues to receive substantial payments from the employer,
2. the employer continues to make payments for the benefit of the employee under a legitimate retirement or pension plan or a legitimate group or employee insurance plan,
3. the employee receives supplementary unemployment benefits,
4. the employee is employed elsewhere during the lay-off and would be entitled to receive supplementary unemployment benefits if that were not so,
5. the employer recalls the employee within the time approved by the Director, or
6. in the case of an employee who is not represented by a trade union, the employer recalls the employee within the time set out in an agreement between the employer and the employee; or
in the case of an employee represented by a trade union, a lay-off longer than a lay-off described in clause (b) where the employer recalls the employee within the time set out in an agreement between the employer and the trade union.

This section defines a "temporary lay-off" for the purpose of s. 56(1)(c), which provides that a termination occurs when an employee is laid off for a period longer than a temporary lay-off. This section must be read in conjunction with s. 56(3.1)-(3.6), which sets out what constitutes a week of lay-off for the purpose of this section.

This section must also be read in conjunction with s. 56(5), which provides that once a termination is triggered by a lay-off that exceeds the period of a temporary lay-off, the termination is deemed to have occurred on the very first day of the lay-off.

1. A lay-off of not more than 13 weeks in any period of 20 consecutive weeks – s. 56(2)(a)

Subject to s. 56(2)(b) and s. 56(2)(c), an employee is considered to be on a temporary lay-off if the employee is on lay-off for no more than 13 weeks within any period of 20 consecutive weeks.

For example, an employee who is laid off for ten weeks, recalled to work for eight weeks and then laid off again for another ten weeks will be temporarily laid off under s. 56(2)(a) because the longest the lay-off lasted in any period of 20 consecutive weeks was 12 weeks. As a result, the employee’s employment would not have been deemed to have been terminated and they would not be entitled to notice of termination or termination pay.

The period of 20 consecutive weeks is a rolling window so that if the employee is laid off for more than 13 weeks in any consecutive 20-week period, the lay-off ceases to be temporary. Neither the employer nor the employee can pick and choose which 20 weeks to use when determining whether the 13-week threshold has been reached. Rather, the threshold is reached and a termination occurs on the first occasion that the layoff exceeds 13 weeks of lay-off in any period of 20 consecutive weeks.

A week of lay-off is defined in s. 56(3.1) with respect to employees with a regular work week and in s. 56(3.3) and s. 56(3.5) with respect to employees who do not have a regular work week.

However, the fact that an employee has a regular work week (i.e., they usually work the same number of hours each week) does not necessarily mean that they usually work the same days each week. Because of this, the point at which the lay-off of an employee with a regular work week will be considered to have exceeded the period of a temporary lay-off so as to trigger a termination may differ according to whether the employee usually works the same days each week or whether the employee instead works different days from week to week.

Similarly, the fact that an employee does not have a regular work week (i.e., they do not work the same number of hours in each week) does not necessarily mean that the employee does not work the same days in each week. Again, the point at which the lay-off of an employee who does not have a regular work week will be considered to have exceeded a period of temporary lay-off so as to trigger a termination will depend on whether the employee usually works the same days each week or works different days each week.

Note that for the purposes of the under 35 weeks in 52 rule, termination is triggered at the point the employee has been on lay-off for a full 35 weeks; thus, the question of when the lay-off exceeds 35 weeks does not arise.

i. Termination triggered by lay-off where employee usually works the same days each week

For purposes of s. 56(2)(a), known as the 13 weeks in 20 rule, the Program's position is that where an employee usually works the same days each week, the lay-off will exceed 13 weeks at the first moment of the first day in the 14^th week on which the employee would normally have been scheduled to work and on which they do not work. Under s. 56(2)(b), the under 35 weeks in 52 rule, termination is triggered at the point the employee has been on lay-off for a full 35 weeks; accordingly, the question of when the lay-off exceeds 35 weeks does not arise.

Consider an employee who usually works Monday through Friday and who is temporarily laid off as defined in s. 56(2)(a). The employee is initially laid off for ten weeks, goes back to work for four weeks (no longer on layoff) and is then laid off again for another three weeks. The employee has at that point been on a temporary lay-off for a full 13 weeks within a 17- week period. If the employee is subsequently on lay-off on any day that would normally be a work day (i.e., a Monday, Tuesday, Wednesday, Thursday or Friday) within the next three weeks, the lay-off will have exceeded a period of temporary lay-off and a termination will be triggered under s. 56(1)(c).

Note that there would not have to be a full week of lay-off in those next three weeks in order to trigger a termination; the employee has already been on lay-off for a full 13 weeks within the last 17 weeks and so even one second more of lay-off occurring in the next three weeks means that they will have been laid off for more than 13 weeks in a 20-week period.

Although a termination is triggered at this point, the termination is deemed to have occurred on the very first day of the lay-off. In the case of an employee who usually works the same days each week, the first day of layoff can be identified as the first day in the first week of lay-off on which the employee would normally work and on which they did not work. See the discussion of s. 56(5) below regarding deemed termination date.

ii. Termination triggered by lay-off where employee does not usually work the same days each week

For purposes of s. 56(2)(a), known as the 13 weeks in 20 rule, the Program's position is that where an employee does not usually work the same days each week, the lay-off cannot be considered to have exceeded 13 weeks until the end of the 14^th week of lay-off. In contrast to the situation of an employee who usually works the same days each week, in the case of an employee who does not usually work the same days each week, no particular day within a week that is a week of lay-off can be identified as a day on which the employee continues to be on lay-off. If the employee sometimes works on Tuesdays but often does not work on Tuesdays, the fact that they do not work on a particular Tuesday does not necessarily mean that they are on lay-off that day. In the result, in order to determine that the lay-off has in fact exceeded 13 weeks, we must wait until the end of the 14^th week of lay-off before we can know that the employee has been on lay-off for more than 13 weeks. Under s. 56(2)(b), the under 35 weeks in 52 rule, termination is triggered at the point the employee has been on lay-off for a full 35 weeks; accordingly, the question of when the lay-off exceeds 35 weeks does not arise.

Although a termination is triggered at the end of the 14^th week of layoff, the termination is deemed to have occurred on the very first day of the lay-off. In the case of an employee who does not usually work the same days each week, just as there is no particular day in the 14^th week of lay-off that we can say is a day on which the employee continues to be on lay-off, likewise there is no particular day in the first week of lay-off that we can say was a day on which the employee was on lay-off. Given this, and given the need to be able to ascertain a deemed termination date, the position of the Program is that the first day of the lay-off (and hence the deemed termination date) for an employee who does not usually work the same days each week is the first day of the first week of lay-off. Since the week of lay-off corresponds to the work week, this means that if the employee's work week is Sunday to Saturday, the first day of the lay-off will be the Sunday. See the discussion in s. 56(5) regarding deemed termination date.

Note that where a termination is triggered because of a layoff that exceeds 13 weeks in a period of 20, the employee is entitled under the Act to their termination pay forthwith, even where the contract or collective agreement provides recall rights. In the case of termination pay, the provisions in the Act requiring an election between retention of recall rights (with the employee's entitlement paid into trust) and giving up recall rights (and receiving the entitlement forthwith) apply only if the termination pay entitlement arises because of a layoff of 35 weeks or more – seeESA Part XV, s. 67(1).

As a consequence, when a termination is triggered because of a lay-off that exceeds 13 weeks in a period of 20 consecutive weeks, an employee is entitled under the Act to be paid their termination pay in accordance with ESA Part V, s. 11(5). Nothing in the Act requires that such an employee choose between receiving termination pay forthwith and retaining their recall rights.

2. A lay-off of more than 13 weeks in any period of 20 consecutive weeks if the lay-off is less than 35 weeks in any period of 52 consecutive weeks – s. 56(2)(b)

Section 56(2)(b) sets out the six circumstances in which a lay-off of more than 13 weeks in any consecutive 20-week period but less than 35 weeks in any period of 52 consecutive weeks is still considered to be a temporary lay-off:

The employee continues to receive substantial payments from the employer,
The employer continues to make payments for the benefit of the employee under a legitimate retirement or pension plan or a legitimate group or employee insurance plan,
The employee receives supplementary unemployment benefits,
The employee is employed elsewhere during the lay-off and would be entitled to receive supplementary unemployment benefits if that were not so,
The employer recalls the employee within the time approved by the Director, or
In the case of an employee who is not represented by a trade union, the employer recalls the employee within the time set out in an agreement between the employer and the employee.

It should be noted that the period of 52 consecutive weeks is a rolling window. Neither the employer nor the employee can pick and choose which 52 weeks to use when determining whether the 35-week threshold has been reached. Rather, the threshold is reached and a termination occurs on the first occasion of there being 35 weeks of lay-off in a period of 52 consecutive weeks. As the termination is triggered at the point the employee has been on lay-off for a full 35 weeks; the question of when the lay-off exceeds 35 weeks does not arise.

In addition, the word "any" in s. 56(2)(b) means, in the case of an employee who accepts a recall, that time spent on lay-off prior to the recall is taken into account in determining whether a post-recall lay-off has triggered a termination (or severance). In other words, both the time spent on lay-off prior to the recall and the time spent on lay-off where the employee is laid off again following the recall is counted in determining whether the employee has been laid off for at least 35 weeks in any 52-week period.

See the Court of Appeal decision in United Steel v National Steel Car Limited, 2013 ONCA 401 (CanLII) and ESA Part XV, 63(1) for a discussion of this case.

The six circumstances in which a lay-off of more than 13 weeks in any period of 20 consecutive weeks but less than 35 weeks in any period of 52 consecutive weeks is still considered to be a temporary lay-off are:

i. The employee continues to receive substantial payments from the employer.

Section 56(2)(b)(i) provides that a lay-off of more than 13 weeks in any 20 consecutive week period but less than 35 weeks in any period of 52 consecutive weeks is still considered to be a temporary lay-off if the employer continues to provide the employee with substantial payments during the period of lay-off.

It is Program policy that the term "continues" indicates that the employer must make ongoing payments to the employee during the entire period of temporary lay-off, including the first 13 weeks of lay-off, in order for this clause to apply. If the employer stops making the payments at any time, the lay-off will cease to be a temporary lay-off under this clause.

The use of the plural as opposed to the singular form of the word "payment" reinforces that the employer must make multiple and continuous payments to the employee during the entire period of temporary lay-off.

Section 56(2)(b)(i) has not been interpreted by a referee, adjudicator, OLRB or court, so employment standards officers may wish to contact the Employment Practices Branch for assistance in the event they are required to consider the application of this provision.

ii. The employer continues to make payments for the benefit of the employee under a legitimate retirement or pension plan or a legitimate group or employee insurance plan.

Section 56(2)(b)(ii) provides that a lay-off of more than 13 weeks in any 20 consecutive weeks but less than 35 weeks in any period of 52 consecutive weeks is still considered to be a temporary lay-off if the employer continues to make payments under a legitimate retirement or pension plan or a legitimate group or employee insurance plan during the period of lay-off.

Where the employer's pension or benefit plan contributions are based on a percentage of the employee's wages, the contributions would continue to be made on the basis of the wages the employee was earning prior to the lay-off.

It is Program policy that the words "continues" and "legitimate" indicate that the employer must make ongoing payments for the entire period of the temporary lay-off (including the first 13 weeks) and the employer's payments must be made pursuant to plan provisions that were in existence before the commencement of the lay-off, unless the employee has specifically agreed to an amendment to the plan or the amendment was necessitated by a legitimate cause such as a legislative change.

If, for example, a plan provides that the coverage will end after 26 weeks of lay-off, the employer will not be able to continue to make payments to a legitimate plan after the 26^th week and, therefore, the employee will cease to be on a temporary lay-off when the employer stops making the payments. Note however, that with respect to a group or employee insurance plan comprised of multiple plans (e.g., a package consisting of life insurance, extended health accidental death and a long term disability plan) the discontinuance of one of those plans may, in certain circumstances, not trigger the end of a temporary lay-off. See the discussion of such package plans below.

If the employer, with employee agreement, renegotiated the terms of the plan after the commencement of the lay-off to extend the coverage from 26 weeks to 35 weeks, the employee would continue to be on a temporary layoff for up to 35 weeks after the lay-off began. However, if the terms of the plan were renegotiated without employee agreement, the employee would cease to be on a temporary lay-off at the point the employer began making payments pursuant to the new extended plan. This is because the employer is not continuing to make payments pursuant to the plan, so much as starting to make new payments not previously required. Also, it might be inferred that the employer has taken such action in an attempt to extend the temporary layoff past 13 weeks and therefore the requirement that the plan be legitimate is not met. In this regard see Stanton Pipes Ltd. v Turk et al (February 5, 1986), ESC 2035 (Egan).

Another point in regard to these payments is that they must relate to the period of employment after the lay-off began. If, for example, pension plan contributions made during the period of lay-off are in respect of service accrued prior to the commencement of the lay-off, those contributions will not be considered as payments within the meaning of this section.

It is Program policy that there is no requirement that an employer who offers both an insurance plan or plans and a pension plan must continue payments under both the insurance plan or plans AND the pension plan. The employer could continue payments under just the pension plan or just the insurance plan or plans. However, if the employer offers a pension plan and more than one type of insurance plan, and it does not continue payments under the pension plan, it is Program policy that s. 2(b)(ii) will generally not apply unless payments are continued under ALL the insurance plans. Likewise if the employer does not offer a pension plan but does offer more than one type of insurance plan, s. 2(b)(ii) will generally not apply unless payments are continued under ALL the insurance plans. Thus, if the employer continues only part of the insurance coverage (e.g., just life insurance while dropping health insurance) this clause, generally speaking, will not apply.

However, where an employer continues to provide the insurance plan package but through no fault of the employer and for otherwise legitimate reasons part of that coverage (e.g., disability insurance) is subsequently discontinued, the temporary lay-off will continue despite the discontinuance of such coverage. For example, consider an employer who provides a group insurance plan package that includes disability benefits. It may be that an insurer will not provide coverage for disability after a certain point in the layoff and that the terms of the policy specifically state this. In that situation, if disability insurance payments are not continued beyond the point at which coverage under the plan ends, but the employer has other insurance plans under which payments continue to be made, it is the Program's view that the situation will still be covered by s. 2(b)(ii). This assumes that the length-of-coverage provision in the plan was not specifically negotiated by the employer in anticipation of or in response to the lay-off and that the employer could not, prior to the lay-off, have arranged for disability insurance with a different insurer who was willing to offer lengthier coverage. Note, however, that if there are no other insurance plans, the cessation of coverage under the disability plan will mean that s. 2(b)(ii) no longer applies.

The issue has arisen as to what happens in a situation where the plan provides that both the employer and the employee make contributions to the plan, e.g., employer 50 per cent and employee 50 per cent, and the employee is requested to make their share of the contribution and refuses. In such situations, the insurer will not normally accept a partial premium (i.e., only the employer's payment) as sufficient to maintain the plan and may suspend or cancel the plan. In such a situation, should the employee be able to consider themselves as terminated after 13 weeks of lay-off even though that is the result of the employee's failure to pay half the insurance premium? The Program’s policy is that if the employee does this and the employer is prevented as a result from continuing its payments under the plan because the insurer has suspended or cancelled the plan, this clause will apply and the lay-off will still be considered to be temporary past the 13-week point. In this situation however, it is Program policy that the employer should do everything reasonably possible to ensure continued coverage for the employee, such as taking advantage of any grace periods and contacting the employee to ensure the employee's failure to pay was not due to an oversight.

iii. The employee receives supplementary unemployment benefits.

Section 56(2)(b)(iii) provides that a lay-off of more than 13 weeks in any 20 consecutive week period but less than 35 weeks in any period of 52 consecutive weeks is still considered to be a temporary lay-off if the employee is in receipt of supplementary unemployment benefits.

Supplementary unemployment benefit plan means an arrangement, other than an arrangement in the nature of a superannuation or pension fund or plan or an employees profit sharing plan, under which payments are made by an employer to a trustee in trust exclusively for the payment of periodic amounts to employees or former employees of the employer who are or may be laid off for any temporary or indefinite period.

If the employer's SUBS plan does not meet the definition in the ITA, with the result that the payments would not be considered supplementary unemployment benefits under s. 56(2)(b)(iii), the payments the employer makes may instead satisfy the conditions in s. 56(2)(b)(i), if the plan is bona fide and the payments continue to be made through the period of lay-off.

iv. The employee is employed elsewhere during the lay-off and would be entitled to receive supplementary unemployment benefits if that were not so.

Section 56(2)(b)(iv) provides that a lay-off of more than 13 weeks in any 20 consecutive week period but less than 35 weeks in any period of 52 consecutive weeks is still considered to be a temporary lay-off if the employee is employed elsewhere during the lay-off and would have received SUBS had they not been so employed.

v. The employer recalls the employee within the time approved by the Director.

Section 56(2)(b)(v) provides that a lay-off of more than 13 weeks in any 20 consecutive week period but less than 35 weeks in any period of 52 consecutive weeks is still considered to be a temporary lay-off if the employer recalls the employee within the time approved by the Director of Employment Standards. There is no requirement that the employee be in receipt (or entitled to) any of the payments described in ss. 56(2)(b)(i)-(iv) during the lay-off.

Some of the factors the Director or their delegate (see Delegation of Powers) may consider in determining whether to provide approval are:

The reason for the lay-off;
The length of the lay-off;
The financial situation of the employer;
The view of the union (if there is one).

Note that this list is not intended to be exhaustive.

vi. In the case of an employee who is not represented by a trade union, the employer recalls the employee within the time set out in an agreement between the employer and the employee.

Section 56(2)(b)(vi) provides that a lay-off of more than 13 weeks in any 20 consecutive week period but less than 35 weeks in any period of 52 consecutive weeks is still considered to be a temporary lay-off if the employer recalls the employee within the time set out in an agreement between the employer and the employee. This provision only applies to an employee who is not represented by a trade union. The agreement must be in writing in accordance with ESA Part I, s. 1(3). Note also ESA Part I, s. 1(3.1) which addresses agreements in electronic form.

There is no requirement that the Director of Employment Standards approve the agreement. There is also no requirement that the employee be in receipt (or entitled to) any of the payments described in ss. 56(2)(b)(i)-(iv) during the lay-off.

3. In the case of an employee represented by a trade union, a lay-off longer than a lay-off described in clause (b) where the employer recalls the employee within the time set out in an agreement between the employer and the trade union – s. 56(2)(c)

Section 56(2)(c) provides that a temporary lay-off can last for a period that is longer than the period described in s. 56(2)(b) if the employee is represented by a union and the employer recalls the employee within the time set out in an agreement between the employer and the union. However, in National Automobile, Aerospace Transportation and General Workers Union of Canada (C.A.W. – Canada) Local No. 27 v London Machinery Inc., 2006 CanLII 8711 (ON CA), the Ontario Court of Appeal held that in order for s. 56(2)(c) to apply, the employee must be recalled before the lay-off has reached a total of 35 weeks in a 52 week period.

There is no requirement that the Director of Employment Standards have approved the agreement in order for it to be effective. Further, there is no requirement that any of the conditions set out in ss. 56(2)(b)(i) to (iv) have been met.

Definition – s. 56(3)

Section 56(3) defines "excluded week" as a week during which the employee did not work for one or more days because the employee is not able or available to work, is subject to disciplinary suspension or is not provided with work because of a strike or lock-out occurring at their place of employment or elsewhere.

Lay-off, regular work week – s. 56(3.1)

Subsection 56(3.1) defines what constitutes a week of lay-off in the case of employees who work a regular work week for the purpose of determining whether a period of temporary lay-off (as defined in s. 56(2)) is exceeded, thereby triggering a termination as per s. 56(1)(c). The point at which a temporary lay-off ceases to be temporary and triggers a termination is discussed in detail in s. 56(2) above.

Subsection 56(3.1) refers to regular rate and regular work week, which are defined terms in s. 1 as follows:

Refer to ESA Part I, s. 1 for a detailed discussion of these terms.

For an employee who has a regular work week, a "week of lay-off" is a week, other than an excluded week, in which the employee receives less than 50 per cent of the wages they would earn at their regular rate for a regular work week. This means that an employee may be deemed to be on a lay-off for purposes of s. 56 even though they are still doing some work.

In determining what seven-day period should be looked at for the purpose of determining whether there has been a week of lay-off, reference should be made to the same seven-day period as would make up the employee's work week, i.e., a recurring period of seven consecutive days selected by the employer for the purpose of scheduling work, or, where the employer has not selected such a period, a recurring period of seven days beginning on Sunday and ending on Saturday.

It should be borne in mind that a week of lay-off does not include an excluded week, as defined in s. 56(3). In other words, where:

1. The employee is not able to work.

Any week in which an employee is not able to work because they are, for example, off on sick leave, workers' compensation, or is otherwise unable to work for medical reasons will not be a week of layoff.

2. The employee is not available to work.

Any week in which an employee is unavailable for work (for example, because they are in jail, or on a Part XIV leave) will not be a week of lay-off.

Where an employee has found work with another employer during the lay-off, the employee may, depending on the facts, still be considered to be available for work with the employer that laid them off, regardless of whether the new employment is of a temporary or a permanent nature. Any week during which the employee is employed by another employer would be considered a week of lay-off as regards the employer who had laid them off provided that the employee would, if recalled by the employer during that week, be able to immediately return to work for that employer or at least be able to return to work on the same day as the recall.

3. The employee is subject to disciplinary suspension.

Any week in which an employee is on disciplinary suspension is not a week of lay-off. It is important to ensure, though, that the disciplinary suspension is bona fide and is within the employer's express or implied authority under the contract of employment.

4. Because of a strike or lock-out.

Any week in which an employee is not provided with work by the employer due to a strike or lock-out at the employee's place of employment, or elsewhere, is not a week of lay-off.

It is important to note that the strike or lock-out need not be at the employee's place of employment. For example, if there is a strike or lock-out at a supplier, and the employer is a manufacturer dependent upon the supplier for its parts, that employer may be forced to close down until the strike or lock-out is over or a new supplier can be found. In that case the employees of the manufacturer are not considered to be on a lay-off during the temporary closure that occurs as a result.

It is the Program's position that if an employee's employer is not providing work because it is the one doing the locking out, the lock-out must be a lock-out that is legal under the Labour Relations Act, 1995, SO 1995, c 1, Sch 1, in order for an affected week to be considered an excluded week. In those circumstances, the employer's failure to provide work flows from the right to lock out the employees under the Labour Relations Act, 1995 and the employer should not suffer any adverse consequences for exercising that right.

On the other hand, if the lock-out is by the employee's employer and is illegal, the Program's position is that a week in which the employees are illegally locked out is a week of lay-off and not an excluded week. However, a week of strike, whether illegal or legal, will be considered by the Program to be an excluded week (i.e., not a week of layoff) because the employer does not in those circumstances have any control over whether work is provided.

In regard to termination and strike or lock-outs, note that O Reg 288/01, s. 2(1) para 8 establishes an exemption from the notice obligations under the Act where an employee has been terminated during or as a result of a strike or lock-out at their place of employment.

Effect of excluded week – s. 56(3.2)

This subsection provides that an excluded week is included in counting the periods of 20 and 52 consecutive weeks used to determine whether a layoff is a temporary lay-off, as defined in s. 56(2).

Lay-off, no regular work week – ss. 56(3.3)-56(3.6)

56(3.3) For the purposes of clauses (1)(c) and (2)(a), an employee who does not have a regular work week is laid off for a period longer than the period of a temporary lay-off if for more than 13 weeks in any period of 20 consecutive weeks he or she earns less than one-half the average amount he or she earned per week in the period of 12 consecutive weeks that preceded the 20-week period.

56(3.4) For the purposes of subsection (3.3),

an excluded week shall not be counted as part of the 13 or more weeks but shall be counted as part of the 20-week period; and
if the 12-week period contains an excluded week, the average amount earned shall be calculated based on the earnings in weeks that were not excluded weeks and the number of weeks that were not excluded.

56(3.5) For the purposes of clauses (1)(c) and 2(b), an employee who does not have a regular work week is laid off for a period longer than the period of a temporary lay-off if for 35 or more weeks in any period of 52 consecutive week she or she earns less than one-half the average amount he or she earned per week in the period of 12 consecutive weeks that preceded the 52-week period.

56(3.6) For the purposes of subsection (3.5),

an excluded week shall not be counted as part of the 35 or more weeks but shall be counted as part of the 52-week period; and
if the 12-week period contains an excluded week, the average amount earned shall be calculated based on the earnings in weeks that were not excluded weeks and the number of weeks that were not excluded.

Subsections 56(3.3) to (3.6) effectively define what constitutes a week of lay-off with respect to an employee who does not have a regular work week for the purposes of determining whether a period of temporary lay-off, as defined in s. 56(2), is exceeded, thereby triggering a termination as per s. 56(1)(c). Note that the point at which a temporary lay-off ceases to be temporary and triggers a termination in accordance with s. 56(2) is discussed in detail in s. 56(2) above.

In applying these provisions, the Program takes the position that a week of lay-off is identified by reference to the seven-day period in which the employer schedules work (the work week) for employees who do not have a regular work week. Note that the definition of work week in ESA Part I, s. 1 states that if the employer has not selected a seven-day period for the purposes of scheduling work, the work week is considered to be Sunday to Saturday.

Subsection 56(3.3) provides that an employee who does not have regular work weeks will have been laid off for more than the period of a temporary lay-off (i.e., their employment will be terminated) if for more than 13 weeks in a period of 20 consecutive weeks the employee earns less than one-half the average amount they had been earning per week in the 12 consecutive weeks preceding the first week of lay-off in the 20-week period.

Likewise, s. 56(3.5) provides that an employee who does not have regular work weeks will have been laid off for more than the period of a temporary lay-off (i.e., their employment will be terminated) if for at least 35 weeks in a period of 52 consecutive weeks the employee earns less than one-half the average amount they had been earning in the 12 consecutive weeks preceding the first week of lay-off in the 52-week period.

In other words, for an employee who does not have a regular work week, the first week of a lay-off will be the first work week in which the employee earns less than 50 per cent of the average earned per week over the 12-week period preceding the 20- or 52-week period.

Note however that s. 56(3.4)(b) and s. 56(3.6)(b) provide that if the 12-week period referred to in either s. 56(3.3) or s. 56(3.5) contains an excluded week, the average amount earned is to be calculated based on the earnings in weeks that were not excluded weeks divided by the number of weeks that were not excluded weeks.

Subsections 56(3.4)(a) and 56(3.6)(a) provide that excluded weeks are not counted as weeks of lay-off for the purpose of determining whether the employee has been laid off for a period than a temporary lay-off (i.e., for more than 13 weeks in a period of 20 consecutive weeks or for at least 35 weeks in a period of 52 consecutive weeks) under s. 56(1)(c), s. 56(2)(a) and s. 56(2)(b). However, excluded weeks do count as part of the 20-week and 52-week period referred to in s. 56(2)(a) and s. 56(2)(b).

Temporary lay-off not termination – s. 56(4)

Section 56(4) permits employers to place employees, unionized or otherwise, on a temporary lay-off without having to provide the employee with a date of recall.

This section clarifies that the employment of employees who are laid off without a recall date is not terminated, provided that the period of temporary lay-off does not exceed that of a temporary lay-off as defined in s. 56(2).

Section 56(4) reverses Program policy under the former Employment Standards Act, which was adopted in response to a decision of the Court of Appeal in Stolze v Addario. The Court had found that because a "notice of indefinite lay-off" was deemed to be a notice of termination under s. 8(3) of O Reg 327 under the former Employment Standards Act, a lay-off without a recall date was, in effect, an immediate termination. Under the ESA 2000, a notice of indefinite lay-off will be considered to be a notice of termination only where an employer who is bound by a collective agreement is precluded by that agreement from giving an employee notice of termination despite the employer's intention to lay the employee off for a period longer than a temporary lay-off. See the detailed discussion at O Reg 288/01, s. 4(2).

Deemed termination date – s. 56(5)

Section 56(5) provides that where the lay-off ceases to be temporary, the employee's employment will be deemed to be terminated as of the first day of the lay-off, not the date on which the lay-of ceased to be temporary. In other words, once a lay-off exceeds a period of temporary lay-off as defined in s. 56(2) and a termination is triggered, it is necessary to identify the first day of the lay-off as this will be the deemed termination date in accordance with s. 56(5). See the discussion in s. 56(2), which defines a temporary lay-off and discusses at what point a temporary lay-off is exceeded and thus when a termination is triggered.

In the case of an employee who usually works the same days each week, the Program's position is that the first day of the lay-off is the first day in the first week of lay-off on which the employee would normally work and on which they did not work.

Consider for example an employee whose employer schedules work on a Monday through Sunday basis and who regularly works Monday through Friday.

On Monday March 1 the employee works his regularly scheduled shift but is told that he is being laid off as of Tuesday, March 2. The first week of lay-off is the week of March 1 to March 7.
The employee continues to be on a lay-off for a full 13 weeks to May 30 and continues to be on lay-off the next day, which is Monday, May 31.
A termination is therefore triggered at the start of the employee's regular shift on Monday May 31.

Pursuant to s. 56(5), the employee is deemed to have been terminated back on Tuesday, March 2.

In the case of an employee who does not usually work the same days each week, no particular day in the first week of lay-off can be said to be the first day on which the employee was laid off as a factual matter. The position of the Program, however, is that where it is necessary to identify some day as the first day of the lay-off and hence the deemed termination date, the only sensible approach is to consider it to be the first day of the first week of layoff. Bearing in mind that a week of lay-off should correspond to the work week, if the work week is from Sunday to Saturday, the first day of the lay-off will be considered to be the Sunday of the first week of lay-off, and that day will be the deemed termination date. See the discussion at ss. 56(3.1), (3.3) to (3.6) on what constitutes a week of lay-off with respect to an employee who does not have a regular work week for the purposes of determining whether a period of temporary lay-off.

As a consequence of a combination of this deeming provision and s. 59(2), the amount of the entitlement to pay in lieu of notice for individual terminations (that is, where the mass notice entitlements are not triggered) under ESA Part XV, s. 61 is based on the period of employment as it stood on the day the lay-off began.

Note that this is so even though the employee worked some days after the lay-off commenced. For example, consider an employee whose work week is from Sunday to Saturday and who normally works five days a week, Monday to Friday:

Example 1:

Week beginning Sunday, January 9:

Employee commenced a lay-off on Monday and was laid off for four weeks;
Returned to work for six weeks;
Laid off for nine weeks;
Returned to work for a week, then laid off again.

Example 2:

Week beginning Sunday, May 22:

Once the lay-off continues into this week (i.e., into the first instant of the first day of the week which would normally be a work day) the employee has been laid off for more than 13 weeks in a 20-week period. As a result, employment is deemed to have been terminated as of January 10, the first day of lay-off.

The period of employment for the purposes of calculating this employee's notice/pay in lieu entitlement will be considered to have ended on January 10 even though the employee did some work after that date.

Note, however, that the entire period of lay-off will be included in determining the employee's length of employment for the purposes of determining whether the employee has been continuously employed for three months or more in order to qualify for notice or termination pay under ESA Part XV, s. 54.

As s. 56(1)(c) provides that a termination only occurs where the period of lay-off exceeds that of a temporary lay-off, it follows that a temporary layoff is not a termination and that there is no obligation under the Act to give an employee notice of a temporary lay-off. If an employer does provide notice of lay-off and the lay-off is subsequently deemed to be a termination, the notice of lay-off cannot be set-off against the employer's notice of termination obligations, except where O Reg 288/01, s. 4(2) applies.

Section 57 – Employer notice period

57 The notice of termination under section 54 shall be given,

at least one week before the termination, if the employee's period of employment is less than one year;
at least two weeks before the termination, if the employee's period of employment is one year or more and fewer than three years;
at least three weeks before the termination, if the employee's period of employment is three years or more and fewer than four years;
at least four weeks before the termination, if the employee's period of employment is four years or more and fewer than five years;
at least five weeks before the termination, if the employee's period of employment is five years or more and fewer than six years;
at least six weeks before the termination, if the employee's period of employment is six years or more and fewer than seven years;
at least seven weeks before the termination, if the employee's period of employment is seven years or more and fewer than eight years;
at least eight weeks before the termination, if the employee's period of employment is eight years or more.

This section is similar to part of the corresponding provision (s. 57(1)) of the former Employment Standards Act.

Section 57 establishes the length of notice of termination that an employee is entitled to under s. 54. This section also establishes the notice period for the purpose of s. 60 (requirements during notice) and s. 61 (calculation of termination pay in lieu of notice). This section must be read in conjunction with s. 59 of the Employment Standards Act, 2000 and s. 8 of O Reg 288/01, which set out what time must be included in the period of employment, and the start and end date of the period of employment, respectively, for the purposes of calculating the employee's entitlement.

Section 59(1) of the Act provides that time on leave, lay-off and other inactive employment (e.g., vacation, sick time) is included in determining the period of employment for purposes of calculating the amount of the employee's notice entitlement. However, under s. 59(2) time spent on lay-off after the deemed termination date (i.e., from the day after the date the lay-off commenced is not included). For a detailed discussion refer to ESA Part XV, s. 59.

Period of employment is defined in s. 8(1) of O Reg 288/01 as the period beginning the day the employment most recently commenced and ending the day notice of termination was provided (if it was provided in accordance with Part XV) or the day the employee's employment is terminated (if notice was not given in accordance with Part XV). Two successive periods of employment that are not more than 13 weeks apart are to be added together and treated as a single period of employment under s. 8(2) of O Reg 288/01. For a detailed discussion refer to O Reg 288/01, s. 8.

Section 4(1) of O Reg 288/01 sets out the manner in which the notice must be given. Please see O Reg 288/01, s. 4.

Section 58 – Notice, 50 or more employees

Notice, 50 or more employees – s. 58(1)

Section 58(1) provides for longer periods of notice in so-called "mass termination" situations than is provided in s. 57. The section must be read in conjunction with s. 3(4) of O Reg 288/01, which sets out an exception (i.e., the 10% rule) to the application of s. 58. See O Reg 288/01, s. 3(4) for a discussion.

The prescribed period of notice that must be given once s. 58 is triggered is set out in s. 3(1) of O Reg 288/01. The prescribed manner in which the notice must be given is set out in s. 4 of O Reg 288/01. Refer to O Reg 288/01 for a discussion of those provisions.

A mass termination under s. 58 is considered to have occurred when all of the following conditions are met:

The employment of 50 or more employees is terminated;
The terminations occur at the employer's establishment; and
The terminations occur within a four-week period.

Each condition is discussed below.

1. The employment of 50 or more employees is terminated

This condition is met when 50 or more employees have their employment terminated. The "50 or more" threshold is based on the number of employees whose employment is terminated in the same four-week period and not on the number of employees who are given notice of termination in the same four-week period as was the case under the corresponding provision of the former Employment Standards Act.

Questions sometimes arise as to whether employees whose employment is terminated but who are not themselves entitled to notice (for example, because they have been employed for less than three months or because they are exempt under s. 2 of O Reg 288/01) are included in the count for purposes of determining whether the "50 or more" threshold has been met. It is Program policy that all employees to whom the Employment Standards Act, 2000 applies (which does not include those individuals set out in ss. 3(2), (3) and (5) of the Act) and whose employment is terminated are included the count. Note, however, that employees of temporary agencies are employees of the agency, and would only be counted for the purpose of determining whether the agency has hit the 50-employee threshold – they would not be counted for the purpose of determining whether the agency client in whose workplace the agency employee was placed has hit the 50-employee threshold.

2. The terminations occur at the employer's establishment

This condition requires that the terminations all occur at the same "establishment". "Establishment" is defined in s. 1 of the Act as a location where the employer carries on business. Separate locations are considered to be one establishment if they are located in the same municipality. Locations in different municipalities are considered to be one establishment if one or more employees at a location in one municipality have bumping rights to a location in a different municipality.

For example, if XYZ Company has four plants in Toronto, and a plant in Barrie to which the employees in Toronto may bump, then the establishment as defined in the Act will consist of the four Toronto plants as well as the Barrie plant. The "establishment" will include unionized as well as non-unionized employees at the locations in question, even if the latter group does not have bumping rights.

Please refer to ESA Part I, s. 1 for further discussion of the term "establishment".

3. The terminations occur within the same four-week period

This condition requires that the terminations all occur within the same four-week period.

The four-week period is a "rolling window". The employer cannot, however, pick and choose which four-week period to use when determining whether the 50-termination threshold has been reached. Rather, the threshold is reached and a mass termination occurs on the first occasion of there being 50 or more employees terminated in any four-week period. Where terminations are triggered by a lay-off that exceeds a period of temporary lay-off, the deemed termination date (the first day of lay-off) is considered to be the termination date for the purposes of determining whether 50 or more employees have been terminated within the same four-week period. See the discussion at ESA Part XV, s. 56.

Information – s. 58(2)

This section provides that an employer who is required to give notice under s. 58(1) (i.e., where there is a mass termination) shall provide prescribed information to the Director of Employment Standards in a form approved by the Director. It further requires the employer to post in the employer's establishment on the first day of the notice period the prescribed information in the form approved by the Director. It should be noted that the posting of the form does not relieve the employer of the obligation to provide individual written notice to each employee where such individual notice is required (see s. 4 of O Reg 288/01); note also, however, that s. 5 of O Reg 288/01 provides that individual notice is not required in certain circumstances where employees have bumping rights. See the discussion of these provisions in O Reg 288/01.

Section 3(2) of O Reg 288/01 prescribes the information that is to be provided and posted (see O Reg 288/01). The form that has been approved by the Director for this purpose is the "Form 1". The Form 1 may be downloaded from the Ministry of Labour, Training and Skills Development's website.

Section 58(5) of the Act sets out where and for how long the employer must post the Form 1 – see subsection (5) below for a discussion). Note that where an employer pays termination pay in lieu of providing mass notice that the employer will still be required to provide a Form 1 to the Director but will not be required to post it. See the discussion of s. 61(2) of the Act in ESA Part XV, s. 61.

As with individual notice of termination, nothing precludes an employer from providing a greater right or benefit with respect to mass notice (whether orally or in writing). However, the employer would not thereby be relieved of the obligation to file a Form 1 and post the information by the first day of the statutory portion of the notice period. In addition, that part of the notice period that would be the statutory notice period – i.e., that part equal to the notice required under Part XV and ending on the termination date (see definition of "statutory notice period" at ESA Part I, s. 1) would not start running until a Form 1 was received by the Director, pursuant to s. 58(4).

One question that arises is what level of detail must be provided in the Form 1 before it is considered to fulfil the s. 58(2) requirement. The employer need not complete Form 1 in exhaustive detail. However, the employer must provide an answer to all the questions. For example, it is sufficient to answer the question regarding the economic circumstances surrounding the terminations with "business slowdown".

Content – s. 58(3)

This section is substantially the same as the corresponding provision (s. 57(5)) of the former Employment Standards Act.

This section sets out the types of information that may by regulation be required to be provided to the Director and posted in the employer's establishment pursuant to s. 58(2). Section 3(2) of O Reg 288/01 is the provision that prescribes the specific information that is to be provided and posted – see the discussion at O Reg 288/01.

When notice effective – s. 58(4)

This section states that notice of mass termination shall not start running until the Director of Employment Standards receives the completed Form 1. Section 3(3) of O Reg 288/01 sets out how the form is to be delivered. Refer to O Reg 288/01 for a discussion of that section.

The financial consequences to an employer who does not deliver the Form 1 prior to or at the time of giving notice to employees under s. 58(1) may be significant. For example, an employer is required to give 16 weeks' mass notice to 550 employees. It does so, but does not deliver the Form 1 until 8 weeks later. The employer in this case will be liable for eight weeks' pay in lieu of notice to 550 employees. Assuming a 40-hour work week paid at minimum wage, this would amount to approximately $2 million dollars. Accordingly, employers should be advised to take care in ensuring that the Form 1 is properly delivered in accordance with s. 3(3) of O Reg 288/01.

Posting – s. 58(5)

Section 58(5) provides that the employer shall post the Form 1 in at least one conspicuous place in the employer's establishment where it is likely to come to the attention of the affected employees.

This section also requires the employer to keep the Form 1 posted throughout the required notice period. This period corresponds to the "statutory notice period" – see Part I, s. 1 for a discussion of the definition. The fact that an employer failed to post or keep posted a copy of the Form 1 will not prevent the notice period from running so long as the form was received by the Director of Employment Standards – see St. Laurent and Nacci v Kelsey Hayes Canada (March 10, 1997), ESC 95-02B (Muir).

Employee notice – s. 58(6)

This section, when read together with s. 58(7), is substantially the same as the corresponding provision (s. 57(15)) of the former Employment Standards Act.

Section 58(6) requires an employee who has received notice of mass termination under s. 58(1) to give one or two weeks' written notice to the employer (depending on the employee's period of employment) if the employee wishes to resign before the mass notice period expires. This requirement is subject to the exception set out in s. 58(7). See subsection (7) below for a discussion.

The purpose of this provision is to enable an employer that is, for example, closing down a plant, to know from week to week what its work force will be so that it can close the facility in an orderly manner.

Exception – s. 58(7)

This section, when read together with s. 58(6), is substantially the same as the corresponding provision (s. 57(15)) of the former Employment Standards Act.

Section 58(7) creates an exception to the requirement in s. 58(6) that employees who have received notice of mass termination must give notice to the employer of their intention to resign before the mass notice period expires (see subsection (6) above for a discussion). The exception applies where the employer has constructively dismissed the employee, or has breached a term of the employment contract, whether or not that breach constitutes a constructive dismissal. See ESA Part XV, s. 56(1) for a detailed discussion of the concept of constructive dismissal.

Section 59 – Period of employment: Included, excluded time

Period of employment: Included, excluded time – s. 59(1)

Section 59(1) states that time spent by an employee on leave (e.g., the Part XIV statutory pregnancy, parental, family medical, family caregiver, critically ill child care, crime-related child death or disappearance, organ donor, personal emergency, declared emergency, and reservist leaves, and any other type of leave of absence such as educational leave) or other inactive employment (e.g., temporary lay-off, vacation, sick time) is included when determining an employee's period of employment. This is relevant for purposes of calculating the amount of the employee's notice entitlement (see s. 57).

This section must be read in conjunction with s. 59(2), which provides that time spent on lay-off after the deemed termination date (i.e., from the day after the date the lay-off commenced) is not included when determining an employee's period of employment.

This provision must also be read in conjunction with s. 8 of O Reg 288/01. Section 8(1) defines “period of employment” as the period beginning the day the employment most recently commenced and ending the day notice of termination was provided (if it was provided in accordance with Part XV) or the day the employee's employment is terminated (if notice was not given in accordance with Part XV). Section 8(2) provides that two successive periods of employment that are not more than 13 weeks apart are to be added together and treated as a single period of employment. Refer to section O Reg 288/01 for a detailed discussion of s. 8 of O Reg 288/01.

Period of employment – s. 59(2)

Section 59(2) provides that in circumstances where a "temporary lay-off becomes a termination, none of the period of lay-off after the "deemed termination date" (which is, pursuant to s. 56(5), the first day of lay-off) is included in the employee's “period of employment”.

The “period of employment” determines the amount of notice the employee is entitled to under s. 57 of the Employment Standards Act, 2000. However, it is important to note that eligibility for notice does not depend on “period of employment” but rather is determined by whether the employee has three months of "continuous employment" as per s. 54 of the Act.

As a consequence, time spent on layoff after a deemed termination will not be included in the period of employment for the purposes of determining the amount of notice the employee is entitled to, whereas the time spent on layoff after the deemed termination date will count towards the completion of the three months eligibility requirement for notice under s. 54 of the Act.

For example: An employee was hired January 1. She was laid off one month later on February 1. Thirteen weeks after the layoff began on May 1, her employment is deemed to be terminated as of the date the layoff began on February 1 – see s. 56(5).

Under s. 54, all employment (whether active or inactive) counts towards the three month continuous employment eligibility requirement. This employee has met the three months continuous employment requirement; she was employed for four months from January 1 to May 1 and so is eligible for notice of termination.

The amount of notice (or pay in lieu in this case) she is entitled to is determined by s. 57 and turns on her “period of employment”.

Under s. 57 an employee whose “period of employment” is less than one year is entitled to one week's termination notice.

Under s. 59, “period of employment” does not include periods of layoff after the deemed termination date. This employee's “period of employment” is therefore one month (January 1 to February 1). Accordingly, she will be entitled to one week's pay in lieu of notice.

Section 60 – Requirements during notice period

Requirements during notice period – s. 60(1)

Section 60(1) sets out the employer's obligations with respect to maintaining terms and conditions of employment and payment of wages and benefit plan contributions during the statutory notice period where notice of termination is given. The obligations set out in this section apply only to the statutory notice period. Where an employer gives notice that is greater in length than the statutory notice, these obligations will not apply to the part of the notice period that precedes the statutory notice period. The statutory notice period is defined in ESA Part I, s. 1 as the period equal to the employee's entitlements under the ESA 2000 that ends on the termination date specified in the notice (i.e., the last part of the notice period). For example, where the employer gives 12 weeks' notice, and the notice entitlement is eight weeks, the above-noted obligations would apply only to the last eight weeks of the 12 weeks of notice. Refer to ESA Part I, s. 1 for further discussion of statutory notice periods.

It should also be noted that under O Reg 288/01, s. 7, an employer is not permitted to schedule an employee's vacation during the statutory notice period, unless the employee, after having received the notice agrees to take their vacation during the notice period. Even if the vacation had been scheduled prior to the employer's decision to give notice of termination, the employee's consent would have to be obtained, after the employee received the notice.

Finally, if an employee resigns during the statutory notice period or is terminated in circumstances that would exempt the employee from notice of termination under O Reg 288/01, s. 2, the employer will cease to have any obligations under this section at the point that the employment relationship ends.

No reduction of wage rate or alteration of any other term or condition of employment

Under s. 60(1)(a), an employer is prohibited from reducing the employee's wage rate or altering any other term or condition of employment during the statutory notice period.

This section prevents an employer from modifying the employee's duties during the notice period (which would include laying the employee off), unless the modifications were permitted pursuant to a term or condition of employment. If the employee had been performing the allegedly "new" duties for some time prior to receiving the notice to the degree that the new duties form part of the employment terms or conditions, there would not be a violation of this provision.

For example, in Royal Oak Mines Inc. v Battochio (October 30, 1992), ES 189/92 (Muir), a case decided under the former Employment Standards Act, an employer gave notice of termination to an employee working in northern Ontario, but required them to work out the notice period at the employer's mine in the Northwest Territories. The referee found that prior to receiving the notice of termination, the employee had travelled back and forth between Ontario and Northwest Territories on a regular basis in connection with their job duties. On that basis, the referee concluded that the employer had not altered the underlying terms of employment in requiring the employee to work out their notice in the Northwest Territories location.

Pay the employee the wages they are entitled to receive

Under s. 60(1)(b), an employer is required to pay during each week of the statutory notice period, the greater of the wages the employee is entitled to receive (i.e., what was actually earned in each week) and the employee's regular wages for a regular work week. It is the Program's position that because these wages are earned (either actually or notionally) during the notice period, they will also attract vacation pay. If the employee's contract of employment provides for vacation pay to be calculated at a greater rate than the minimum standard, the contract rate will apply.

Where the employee does not have a regular work week, s. 60(2) sets out a method for calculating the entitlement under s. 60(1)(b) by averaging the wages earned in the weeks worked within the 12-week period preceding the date notice was given.

One question that may arise is what are the regular wages for a regular work week when the employee suffered a pay cut or, conversely, a pay increase a short time prior to being given notice? For example, what would the regular wages for a regular work week be for the purposes of the notice period if, a short time prior to the notice being given, the employer had cut the employee's hours by 20 per cent because of a shortage of work that ultimately led to the employee's termination?

Where an employee's hours or pay rate is changed (whether an increase or a decrease) a short time prior to the notice being given, an issue may arise as to whether the resulting change in the employee's earnings changes what would otherwise constitute their regular wages for a regular work week for the purposes of s. 60(1)(b) or whether the pre-change regular wages for a regular work week should be used. This is a question of fact, which can only be answered on a case-by-case basis. Although a change that occurs just prior to termination may look suspicious, the critical factor is not when the change occurred but whether or not the change was bona fide and intended to be permanent. See the following decisions under the former Employment Standards Act: Ingersoll Rand : Proto Canada, Division of Ingersoll-Rand Canada Inc. v United Automobile, Aerospace and Agricultural Implement Workers of America et al (May 12, 1983), ESC 1421 (Roberts) and Mothers Inc., Little Caesars of Canada and Little Caesars International Inc. v Fraser et al (September 11, 1991), ESC 2907 (Barton).

Another question that may arise concerns work sharing programs under the federal employment insurance legislation, under which employees' hours are reduced and the resulting reduction in pay is topped up by employment insurance benefits. As work sharing programs are intended to be temporary, the Program does not consider the reduction in wages paid by the employer to affect what would otherwise constitute the employee's regular wages for a regular work week.

It is the Program's position that s. 60(1)(b) means that an employee is to be paid during the notice period whether or not they performed work, and that payments pursuant to a pension, sickness or disability plan or worker's compensation legislation cannot be used to offset the employer's obligations with respect to notice of termination or pay in lieu of notice. Section 60(1)(b) requires the employer to pay no less than the amount that would equal an employee's regular wages during the whole of the notice period. The provision does not require the employee to earn any wages during this notice period. See Loeb Packaging Ltd. v Lacroix, 2016 CanLII 32625 (ON LRB), in which the Board upheld the Program's interpretation of s. 60(1)(b).

In addition, because payments such as pension benefits, employment insurance benefits, short-term disability benefits and worker's compensation benefits are not wages under ESA Part I, s. 1, and therefore could not be considered to represent any portion of the regular wages for a regular work week to which the employee is entitled, they could not be used to offset the employer's obligation under s. 60(1)(b). Therefore, the employer is required to pay the greater of the wages actually earned and the employee's regular wages for each week of the notice period, whether the employee was on contractual short-term disability leave, or any other type of leave, such as education leave, or any statutory leave under ESA Part XIV, and whether or not they were in receipt of any benefits, employment insurance benefits or worker's compensation payments.

However, note that if an employee took paid personal emergency leave between January 1, 2018 and December 31, 2018 during the statutory notice period, the employee had an entitlement to personal emergency leave pay as per the provisions that were in force at the time (ESA Part XIV, ss. 50(9), (10) and (11)). This is because personal emergency leave pay was included in the definition of wages (but not regular wages). The personal emergency leave pay would be counted in the wages the employee was entitled to receive in assessing whether the employee received their regular wages for a regular work week.

However, the employer will not be required to continue to pay wages to an employee during any portion of what would have been the notice period that follows the employee's resignation or a termination by the employer for conduct that constitutes wilful neglect of duty, wilful misconduct or disobedience that was not condoned by the employer. For example, if an employee is not on a contractual or statutory leave of absence during the notice period and the employee simply refuses to come in to work during the notice period, the employee would be guilty of wilful neglect of duty and would not be entitled to notice of termination (or pay in lieu of notice) provided that the employer had not previously condoned such behaviour.

Continue to make benefit plan contributions

Under s. 60(1)(c), an employer is required to continue to remit all of the contributions necessary in order to maintain all of the employee benefit plans for the entire notice period. Under this provision, the employer is obliged to continue remitting the employer's share of the contributions to the employee's benefit plans as well as the employee's share (if any) in order to maintain the benefit plans to the end of the notice period.

Assuming the employer had the necessary written authorization, the employer would simply deduct the employee's share of the benefit plan contributions from the wages paid during the notice period and would then remit both the employer and employee share to the insurer to ensure coverage was maintained throughout the notice period.

If the employer does not remit its share of the benefit plan contributions as required by this section, s. 60(3) deems the contributions to be wages (which are otherwise not defined as such under ESA Part I, s. 1) for the purposes of ESA Part XXII, s. 103, which provides the power to issue an order to pay wages against the employer. However, it is important to note that such an order to pay is limited to the amount of the employer's share of the unpaid benefit plan contributions.

If coverage was not maintained during the notice period and the employee incurred costs as result, the order to pay against the employer would not compensate the employee for the value of the benefits that the employee would have enjoyed had the coverage been maintained because such benefits are not wages under ESA Part I, s. 1, although the employee may be able to pursue a civil action to recover those amounts.

Where no regular work week – s. 60(2)

Section 60(2) sets out a method for calculating the employee's pay during each week of the notice period for the purposes of s. 60(1)(b), when the employee does not have a regular work week and where the employee earns wages on a basis other than time (e.g., employees who earn commissions or are paid on a piece rate basis).

Under s. 60(2), the regular wages earned by the employee in the 12-week period preceding the day on which notice of termination was given, are averaged over the weeks worked within the 12-week period. See ESA Part I, s. 1 for a discussion of the term regular wages. This formula is similar to that used for calculating pay in lieu of notice (for employees who do not have a regular work week or who are paid on a basis other than time) where the employee does not receive notice of termination or receives less than the required statutory notice. In ESA Part XV, s. 61(1.1), the wages are averaged over the weeks worked within the 12-week period immediately preceding the date of termination rather than the date notice of termination was given.

It is important to note that s. 60(2) refers to the average amount of regular wages earned in the weeks in which the employee has worked. If the employee has not worked certain weeks during the 12-week period, those weeks are not included in the calculation. For example, if the employee was on a contractual short-term disability leave for one of the 12 weeks prior to being provided with notice, his or her entitlement would be determined by averaging the regular wages earned over the 11 weeks during which he or she worked. Weeks where the employee was on a leave under ESA Part XIV, contractual leave or other approved leave, vacation, or lay-off is considered as weeks not worked.

The question arises, however, as to how to calculate the minimum weekly entitlement for the notice period if the employee did not work any of the weeks within the designated 12-week period because, for instance, the employee was on a contractual short-term disability leave for the entire designated 12-week period. Because s. 60(2) does not provide a mechanism to calculate the average wages in such a situation, Program policy is that the employer must continue to look back in blocks of 12 weeks, until a 12-week period can be found in which the employee has weeks worked and then average the wages earned over that 12-week period.

For example, an employee was on pregnancy and parental leave for 52 weeks and immediately on her return to work was given notice of termination. The employer looks back in 12-week blocks until it finds a 12-week block that contains at least one week worked by the employee. In this case, the employer looks for:

0 to 12 weeks prior to notice being given – no weeks worked
12 to 24 weeks prior to notice being given – no weeks worked
24 to 36 weeks prior to notice being given – no weeks worked
36 to 48 weeks prior to notice being given – no weeks worked
48 to 60 weeks prior to notice being given – eight weeks worked

The 12-week block to be used will be the period of time that was 48 through 60 weeks prior to the date notice was given. The employee worked eight weeks during that time, so her regular wages for a regular work week will be the average of her regular wages over those eight weeks.

Benefit plan contributions – s. 60(3)

Section 60(3) deems the benefit plan contributions that the employer should have made during the statutory notice period, pursuant to s. 60(1)(c), to be wages for purposes of s. 103, which permits an order to pay wages to be issued to an employer. See also the discussion in ESA Part XV, s. 62(2) regarding benefit plan contributions where the employer has paid termination pay in lieu of giving notice.

It is important to note that this section does not deem the benefits (as opposed to the contributions) to be wages for purposes of ESA Part XXII, s. 103. As a result, an employment standards officer could not issue an order to pay wages for the value of the benefits that the employee would have received had the employer complied with its obligation to continue the contributions during the required period of notice. However, an employee may have a civil remedy with respect to the value of the lost benefits if the employer fails to make the contributions necessary to maintain the benefits during the notice period. See the discussion of s. 60(4) below.

Same – s. 60(4)

Section 60(4) clarifies that s. 60(3) does not prohibit an employee from pursuing a civil remedy with respect to any benefits that they may have otherwise been entitled to under a benefit plan that would have been continued during a period of notice under ESA Part XV, s. 57 or s. 58. See also the discussion at ESA Part XV, s. 62(3) regarding benefit plan contributions where the employer has paid termination pay in lieu of giving notice.

For example, an employee's entitlement to a benefit under a plan may be lost because the employer failed to make the contributions necessary to maintain the benefit plans during the notice period. In this situation, s. 60(3) only provides a remedy for the employer's unpaid contributions as wages. It does not provide a remedy to recover the value of the benefits the employee might have been entitled to under a benefit plan that was discontinued contrary to s. 60(1). Section 60(4) makes it clear that the remedy under s. 60(3) does not in any way restrict an employee's right to seek a remedy elsewhere with respect to the value of the lost benefits.

Section 61 – Pay instead of notice

Pay instead of notice – s. 61(1)

This section specifically permits an employer to pay termination pay in lieu of the notice the employee would have been entitled to receive under ESA Part XV, s. 57 or s. 58.

An employer may terminate an employee's employment under this section if the employer:

Pays a lump sum payment equal to the amount the employee would have received had the notice been given in accordance with ESA Part XV, s. 60; and
Continues to make all the contributions necessary in order to maintain all of the employee benefit plans for the entire notice period. The contributions that may be necessary also include contributions from the employee, if any.

As noted in the discussion at ESA Part XV, s. 60(1)(b), an employee who is given notice of termination while on sick or other leave, is entitled to be paid their regular wages during the notice period if the contract of employment is not frustrated or impossible of performance and the employee is not otherwise exempt. This same principle applies to employees who are terminated instead with termination pay under s. 61 as this section requires the calculation to be based on the amount the employee would have received had the employee been given notice in accordance with s. 60.

Where the employer does not give the employee the full notice of termination required under ESA Part XV, s. 57, and continues the employee's regular wages during that partial notice, it is Program policy that such payments reduce the employer's obligations with respect to the pay in lieu owing under s. 61. For example, consider the situation where the employee is entitled to eight weeks' notice of termination under s. 57. The employer provides them with four weeks' notice of termination and continues his or her regular wages during the four weeks. It is the Program's position that the employee is entitled only to an additional four weeks' pay in lieu rather than a full eight weeks.

Sometimes situations will arise in which the employee is terminated without statutory notice, and then the next day obtains new employment at the same or better pay than they received before. Employers will sometimes argue in such a situation that the employee should not receive pay in lieu of notice under s. 61 because the termination did not put the employee "out of pocket". The answer to this is that the legislation does not permit the employer to reduce the pay in lieu obligation under s. 61 by any earnings that the employee is able to earn from a new employer. The termination pay is not compensation for damages and therefore not subject to mitigation. It is a fixed payment that must be made where the employer does not give notice in accordance with ESA Part XV, s. 57. See for example, McDonnell Douglas Canada Ltd. v Topham (April 22, 1993), ES 93-74 (Randall), a case under the former Employment Standards Act. This also applies where the employee has been terminated with pay in lieu of notice but is hired back by the employer at some point during what would have been the statutory notice period. Once the employment relationship is terminated, crystallizing the termination pay entitlement, the employer may not reduce the termination pay by any subsequent earnings.

The question may arise as to whether a Cost of Living Allowance ("COLA") should be included in the termination pay. In Falconbridge Nickel Mines Limited v Sudbury Mine, Mill and Smelter Workers' Union, Local 598 (July 13, 1981), ESC 1021 (Egan), a decision under the former Employment Standards Act, the referee held that the calculation of the regular non-overtime rate for purposes of s. 57(14) of the former Employment Standards Act should not include the COLA component on the basis that the collective agreement only provided for the COLA increase to be added to the straight time rate when the employee was actually working (as opposed to when they were entitled to pay under the collective agreement but not actually working, e.g., jury duty). However, the Divisional Court in an unreported decision and the Court of Appeal in Re Falconbridge Nickel Mines Ltd. and Egan et al., 1983 CanLII 1931 (ON CA) held the contrary. Thus it is Program policy that the regular rate for the purposes of determining the entitlement to termination pay under s. 61(1) (where the employee has not worked through a notice period) should be adjusted upwards to reflect COLA awards just as it would where the employee had been given notice of termination in accordance with ESA Part XV, s. 57.

Vacation pay is to be paid on an employee's termination pay. In this regard, see Inco Ltd. v. U.S. W.A., a case under the former Employment Standards Act. For example, an employee whose vacation pay entitlement is four per cent and is entitled to $1,000 pay in termination pay would be entitled to a further amount of $40 as vacation pay. If the employee's contract of employment provides for vacation pay to be calculated at a greater rate, e.g., eight per cent, then the vacation pay should be calculated accordingly. If the employer provides, however, a greater amount of termination pay than required under this section vacation pay will only be payable on the statutory portion of the termination pay paid in lieu of notice.

No regular work week – s. 61(1.1)

Subsection 61(1) provides for payment of termination pay in a lump sum where an employer terminates the employment of an employee without giving notice or giving less notice than is required under ESA Part XV, ss. 57 or 58. Section 61(1.1) sets out a method for calculating termination pay where the employee does not have a regular work week or is paid on a basis other than time. A similar formula is set out in ESA Part XV, s. 60(2) for calculating the entitlement to pay during the notice period for such employees where notice has been given in accordance with s. 57 or s. 58. However, s. 61(1.1) averages the earnings over the weeks worked in the 12 weeks immediately preceding the date the employee is terminated whereas in s. 60(2) the averaging is done over the 12-week period preceding the date the notice was given. See ESA Part XV, s. 60(2) for the complete discussion.

The question may arise as to how to calculate the termination pay entitlement if the employee did not work any of the weeks within the 12-week period preceding the termination date. For example, where the employer decides to terminate the employment of an employee who has been off sick or on a leave of absence for 12 weeks or more, the formula set out in this section would, on its face, result in a termination pay entitlement of $0. However, the Program's position is that such a result is in implicit conflict with the requirement that an employee whose employment is terminated without notice must be given termination pay. It is therefore Program policy that the employer must continue to look back in blocks of 12 weeks, until a 12-week period can be found in which the employee has weeks worked and then average the wages earned over that 12-week period. See also the discussion at ESA Part XV, s. 60.

Information to Director – s. 61(2)

61(2) An employer who terminates the employment of employees under this section and would otherwise be required to provide notices of termination under section 58 shall comply with clause 58(2)(a).

Section 61(2) provides that an employer who pays termination pay rather than giving notice in a mass termination context, is required to provide the Form 1 to the Director of Employment Standards, although the employer is not required to post the Form 1 as per ESA Part XV, s. 58(2)(b).

Section 62 – Deemed active employment

Deemed active employment – s. 62(1)

Section 62(1) deems the employee to be actively employed during the period of notice under ESA Part XV, s. 57 or s. 58 that should have been, but was not given by the employer, for purposes of entitlement to benefits. This is because some group insurance policies require that the employee be actively employed in order to have coverage under the policy. In the event the insurer denied benefits to an employee on the basis that they were not actively employed, even though s. 62(1) would deem them to be actively employed, the employee's remedy, if any, would be a civil one.

Benefit plan contributions – s. 62(2)

Section 62(2) deems the benefit plan contributions that the employer should have made pursuant to ESA Part XV, s. 61(1)(b) to be wages for purposes of ESA Part XXII, s. 103, which permits employment standards officers to issue orders to pay wages against employers. Therefore, an order to pay may be issued in regard to such contributions. Note that such contributions are deemed wages for the purposes of s. 103 only. They are accordingly deemed to be wages for the purposes of recovery of such monies by way of an order to pay but not for any other purpose, including ESA Part XI, s. 35.2 so they will not attract vacation pay. See also the discussion at ESA Part XV, s. 60 regarding benefit plan contributions where the employer has given notice of termination.

It is important to note that this section does not deem the benefits (as opposed to the contributions) to be wages for purposes of s. 103. Therefore, an officer cannot issue an order to pay wages for the value of the benefits that the employee would have received had the employer complied with its obligation to continue the contributions during the required period of notice. However, an employee may have a civil remedy with respect to the value of the lost benefits if the employer fails to make the contributions necessary to maintain the benefits during what would have been the statutory notice period. See the discussion of s. 62(3) below.

Benefit plan contributions – s. 62(3)

Section 62(3) clarifies that s. 62(2) does not prohibit an employee from pursuing a civil remedy with respect to any benefits that they may have otherwise been entitled to under a benefit plan that would have been continued during what would otherwise been a period of notice under ESA Part XV, s. 57 or s. 58. See also the discussion at ESA Part XV, s. 60 regarding benefit plan contributions where the employer has given notice of termination.

For example, an employee's entitlement to a benefit under a plan may be lost because the employer failed to make the contributions necessary to maintain the benefit plans during what would otherwise have been the statutory notice period. In this situation, s. 62(2) only provides a remedy for the employer's unpaid contributions as wages. It does not provide a remedy to recover the value of the benefits the employee might have been entitled to under a benefit plan that was discontinued contrary to ESA Part XV, s. 61(1)(b). Section 62(3) makes it clear that the remedy under s. 62(2) does not in any way restrict an employee's right to seek a remedy elsewhere with respect to the value of the lost benefits.

Section 63 – What constitutes severance

What constitutes severance – s. 63(1)

This section defines when a "severance of employment" has occurred for the purpose of an employee’s entitlement to severance pay. For purposes of determining whether there is an entitlement to notice of termination or termination pay, see ESA Part XV, s. 56, which defines what constitutes a termination of employment.

The definition in this section is exhaustive. Only situations that are specifically described in the definition will be considered to constitute a severing of the employment relationship. Those situations are as follows:

1. The employer dismisses the employee or otherwise refuses or is unable to continue employing the employee - s. 63(1)(a)

Section 63(1)(a) provides that a severance occurs when an employer dismisses or refuses to continue or is unable to continue employing an employee. The term "dismisses" essentially refers to what is commonly known as a "firing". For a detailed discussion of dismisses refer to ESA Part XV, s. 56(1).

This part of the definition also includes the situation where the employer refuses or is unable to continue employing the employee. This phrase captures some situations that would not technically qualify as a dismissal or firing, such as where the employer does not continue the employment of an employee who was on a term contract once the term expires.

The question sometimes arises as to whether an employee is entitled to severance pay where the employee first gives notice of resignation and then the employer terminates the employee prior to the date when the employee would have resigned. For example, the employee gives notice to the employer on March 1 that the employee will resign on May 1. On March 15, the employer tells the employee that the employment relationship is over, effective that day. A literal reading of the legislation might suggest that the employee is entitled to severance pay on the basis that the employer severed the employment of the employee and that the employee's resignation never became effective. However, if the legislation is interpreted purposively, the opposite conclusion should be reached. As the employee would have resigned in any event, it was the employee, not the employer, who precipitated the ending of the employment relationship. Accordingly, the employee is not entitled to severance pay. This is supported by Canada Trust Realty Inc. v Employee (March 12, 1992), ESC 3013 (Novick), a decision under the former Employment Standards Act.

2. The employer constructively dismisses the employee and the employee resigns from his or her employment in response within a reasonable period – s. 63(1)(b)

Section 63(1)(b) is identical in meaning to s. 56(1)(b), the corresponding section in the termination of employment provisions. Constructive dismissal exists where an employee in fact resigns, but in law is treated as if they were dismissed by the employer. Constructive dismissal can arise from a number of situations, including forced resignation (e.g., where the employer says, "Quit or else I'll fire you"), harassment and abuse, failure to meet payroll, and where the employer unilaterally and substantially changes a fundamental or essential term or condition of an employee's employment without the consent of the employee.

In order for a constructive dismissal to be considered a severance, the employee must resign in response to the constructive dismissal within a reasonable period.

Refer to ESA Part XV, s. 56(1) for a detailed discussion of constructive dismissal.

For information specific to what is a “reasonable period” in the context of a constructive dismissal resulting from an employer continuing a temporary reduction or temporary elimination in hours of work or wages for reasons related to COVID-19 past the end of the COVID-19 period, see the discussion at section 7 of O. Reg. 228/20.

3. The employer lays the employee off for 35 weeks or more in any period of 52 consecutive weeks – s. 63(1)(c)

Section 63(1)(c) applies if the employee is on a lay-off that equals or exceeds 35 weeks in any period of 52 consecutive weeks. A "week of lay-off is defined in s. 63(2) – refer to the discussion below for a detailed discussion of that term. Note that if the lay-off is as a result of a permanent discontinuance of all of the employer's business at an establishment, then s. 63(1)(d) will apply, rather than s. 63(1)(c). Refer to the discussion of s. 63(1)(d) below.

The 35 weeks of lay-off need not be consecutive, although they must all occur within a period of 52 consecutive weeks. For example, if the employee is laid off for 20 weeks, returns to work for 17 weeks, and then is laid off again for a further 15 weeks, the employee's employment will be deemed to be severed under s. 63(1)(c) because the employee was laid off for a total of 35 weeks in a period of 52 consecutive weeks.

The 52-week period is a "rolling window". However, neither the employer nor the employee can pick and choose which 52 weeks to use when determining whether the 35-week threshold has been reached. Rather, the threshold is reached and the employment is severed on the first occasion of there being 35 weeks of lay-off in a 52-week period. Consider the following case:

Employee is laid off for 20 weeks: January 1, 2016 – May 20, 2016
Employee is laid off for a further 15 weeks: June 26, 2016 - October 9, 2016
Employee is laid off again for 20 weeks: February 5, 2017 - June 24, 2017

The employee had first been laid off for a total of 35 weeks in a 52-week period as of October 9, 2016. The employee had also been laid off for a total of 35 weeks in the 52-week period ending June 24, 2017.

If the employee had filed a claim in November of 2017, on the basis that the severance pay became due following the severance of their employment on October 9, 2016, the employer could not defeat the employee's claim as being premature by choosing to have the 52-week period run from June 26, 2016, such that the employee had not yet been laid off for a total of 35 weeks within the 52-week period that started running on that date.

It should be noted that in Hagt v E.S. Fox Limited (October 20, 1997), 3833-96-ES (ON LRB), a decision under the former Employment Standards Act, the Ontario Labour Relations Board ruled that an employee could choose which 52-week period to base his claim on. There, the employee had been subjected to a series of lay-offs and recalls and, similar to the case of the employee in the hypothetical example above, there were two 52-week periods in which the total number of weeks of lay-off exceeded 35, one of which (the earlier) would make his claim out-of-time and the other of which would put his claim within the limitation period.

The Board's decision was overturned by a 2-1 majority in an unreported decision of the Divisional Court, with the dissenting judge agreeing with his colleagues that the decision was incorrect but asserting that it should nevertheless be upheld because it was not unreasonable. The Court of Appeal in E.S. Fox Limited v Hagt, 2000 CanLII 26962 (ON CA) reversed the Divisional Court, declaring that it agreed with the dissenting judge in the court below that the decision was not unreasonable. In light of the precise grounds offered by the dissenting Divisional Court judge and the Court of Appeal, the Program is of the view that it is not bound to follow Hagt v E.S. Fox Limited, and since the Program is of the view that there are no compelling policy reasons to hold that an employee or an employer can choose which 52-week period to use, Program policy was and remains that an employee becomes entitled to severance pay at the first point at which there have been a total of 35 weeks of lay-off in a 52-week period.

Weeks of layoff prior to a recall are included in the count

Because a severance occurs when the employer lays the employee off for 35 weeks or more in any period of 52 consecutive weeks, there is no basis to exclude any weeks of lay-off just because they may have occurred prior to an employee accepting a recall.

See for example, the Court of Appeal decision in United Steel v National Steel Car Limited, 2013 ONCA 401 (CanLII). In that case, an employee was laid off in May of 2008. In January 2009, once the lay-off had gone on for 35 weeks, it was deemed to have become a severance of employment. At that point, the employee elected to retain his recall rights.

The lay-off continued until March 16, 2010, 22 months after the layoff began, when the employee accepted a recall. He was laid off again on April 19, 2010 after only five weeks of work and a few days later he renounced his recall rights and asked for his severance pay. At that point in time, the total time spent by the employee on lay-off in the preceding 52 weeks was in excess of 35 weeks.

The employer refused to pay the employee. The employee grieved, and the matter went before an arbitrator who held that the employee had no entitlement. In the arbitrator’s view, it was implicit in the Act’s recall rights provisions that an employee who had initially elected to retain his recall rights and who later accepted a recall could not have any of the time spent on lay-off prior to the recall taken into account in determining whether there was a subsequent severance.. Under this approach, which disregards the word "any" in s. 63(1)(c), the employee would have had to have spent another 35 weeks on lay-off after the recall in order to be entitled to severance pay.

On judicial review of the arbitrator’s decision, a majority of the Divisional Court in United Steel v National Steel Car Limited, [2012] ONSC 1941 (October 31, 2012) upheld the arbitrator’s decision; however, that Court’s decision was overturned at the Court of Appeal. The Court of Appeal, in adopting the judgment of the dissenting Divisional Court judge, ruled that the recall rights provisions have no bearing on what constitutes a severance within the meaning of s. 63 (or on what constitutes a termination within the meaning of s. 56), and that there is no basis to exclude any weeks of lay-off when determining whether a subsequent severance (or termination) occurred just because they may have occurred prior to an employee accepting a recall.

4. The employer lays the employee off because of a permanent discontinuance of all of the employer's business at an establishment – s. 63(1)(d)

Section 63(1)(d) provides that an employee's employment is severed where the employer lays off the employee due to a permanent discontinuance of all of the employer's business at an establishment. Where this provision applies, the employee’s employment is deemed to be severed at the moment the lay-off begins.

For s. 63(1)(d) to apply, the employee must be laid off because of a "permanent discontinuance" of all of the employer's business at an establishment. There is a discussion of the phrase permanent discontinuance in O Reg 288/01, s. 3(4) in the context of the 10 per cent rule and mass notice of termination. The same principles apply, except that the employer's intention with respect to the issue of whether there is a permanent discontinuance may not be as significant in the context of a severance as it is in a mass termination, where the employer is required to give advance notice of the event. In addition, there have been some referee and court decisions on what constitutes a permanent discontinuance for purposes of severance pay. In Agincourt Motor Hotel Limited v Flannigan et al (August 19, 1982), ESC 1272 (Davis), a decision under the former Employment Standards Act, the referee held (who was upheld by the court on judicial review) that a sale of a business constitutes a permanent discontinuance of the business of the vendor employer for purposes of s. 58 of the former Employment Standards Act. On the other hand, a contracting out of business previously done "in-house" by an employer (which is generally not considered to be a sale under s. 9 of the Act) will not constitute a permanent discontinuance in that it is open to the employer, at the end of the contract, not to renew it and to have the operations revert back to the employer. In this regard, see Otis Elevator Company Limited v United Steelworkers of America et al (November 5, 1985), ESC 1978 (Davis), a decision under the former Employment Standards Act.

For s. 63(1)(d) to apply, the permanent discontinuance must be of all of the employer’s business at an "establishment". Establishment is defined in ESA Part I, s. 1 as follows:

An establishment is therefore a location where an employer carries on business. If the employer has more than one location in the same municipality, or a number of locations where seniority rights extend, then these locations will together constitute an establishment.

For example, the employer has three plants in the same municipality. The three plants comprise one establishment. The employer lays off some employees because it is closing down two of those plants. The lay-off will not constitute a severance under s. 63(1)(d), because the employer is not discontinuing all of its business at the establishment. Note, however, that the lay-off may still constitute a severance under s. 63(1)(c) if it equals or exceeds 35 weeks in a 52 consecutive week period. For a detailed discussion of the definition of establishment please see ESA Part I, s. 1.

5. The employer gives the employee notice of termination in accordance with section 57 or 58, the employee gives the employer written notice at least two weeks before resigning and the employee's notice of resignation is to take effect during the statutory notice period - s. 63(1)(e)

Section 63(1)(e) provides that where an employee provides at least two weeks' written notice of resignation after having received notice of termination and the resignation is to take effect during the statutory notice period, this constitutes a severance of the employee’s employment. This provision allows employees who have been notified that their employment will end to end the employment relationship earlier than the employer intended without having to forfeit their severance pay entitlement.

The employee must satisfy two requirements in order to avoid forfeiting the right to:

The employee provides the employer with at least two weeks' written notice of resignation; and
The employee's resignation takes effect during the statutory notice period.

Statutory notice period is defined in ESA Part I, s. 1 as follows:

"Statutory notice period" means,

Refer to ESA Part I, s.1 for a detailed discussion of "statutory notice period".

Section 63(1)(e) must be read in conjunction with s. 63(3), which deems the employee’s employment to be severed on the day the employer's notice of termination would have taken effect had the resignation not occurred.

Example:

January 1 –Ten-year employee receives 12 weeks' notice of individual termination (to take effect March 26).
January 16 – Employee gives two weeks' written notice of resignation (to take effect January 30.
January 29 – Statutory notice period begins.
January 30 – Employee's notice of resignation becomes effective.
March 26 – Deemed severance date.

In this example, the employee is entitled under the Act to eight weeks' notice, so the statutory notice period is the last eight weeks of the 12-week notice period given by the employer. The employee gave two weeks' notice of resignation to the employer and that notice took effect during the statutory notice period. Therefore, this constitutes a severance of employment under s. 63(1)(e).

Since s. 63(3) deems the employee's employment to be severed on the day the employer's notice of termination would have taken effect had the resignation not occurred, in our example, that date, for the dual purpose of determining whether the employee has met the five-year eligibility threshold for severance pay, and for determining the date the employee’s entitlement to severance pay arose, is March 26.

Note that s. 65(3) provides that the period between the day the employee's resignation took effect and the day the employee's notice of termination would have taken effect is not included for the purpose of calculating the amount of severance pay. Refer to ESA Part XV, s. 65 for further discussion.

Section 63(1)(e) says that a severance occurs where the employer gives the employee notice of termination "in accordance with s. 57 or s. 58." One question that arises is whether s. 63(1)(e) can apply, thereby allowing an employee who has been notified that their employment will end to resign without forfeiting a severance pay entitlement where the employer has not given the required amount of notice under s. 57 or s. 58. It is Program policy that if the notice given by the employer under s. 57 or s. 58 is deficient, this will not preclude an employee from preserving their entitlement to severance pay so long as they provide at least two weeks’ written notice, which is to take effect during that period of statutory notice given by the employer. For example, if the employee was entitled to eight weeks’ notice under s. 57 but was given only four weeks' working notice, the employee would be able to retain the right to severance pay by providing two weeks' notice of resignation. To take the opposite view would result in employees being penalized (because they could not resign and retain their severance pay entitlement) because their employer failed to comply with the Act.

Definition – s. 63(2)

Section 63(2) defines "excluded week" as a week during which the employee did not work for one or more days because the employee is not able or available to work, is subject to disciplinary suspension or is not provided with work because of a strike or lock-out occurring at their place of employment or elsewhere. See the discussion of these circumstances in s. 63(2.1) below.

Lay-off, regular work week – s. 63(2.1)

Sections 63(2.1) to 63(2.4) define a "week of lay-off", but only for the purposes of s. 63(1) (i.e., for the purposes of determining whether the employee’s employment has been severed). This means that a week of lay-off may be defined differently for other parts of the Act. Specifically, a week of lay-off is defined differently in s. 56(3) to s. 56(3.6) for the purposes of notice of termination.

Section 63(2.1) provides that a week of lay-off where an employee has a regular work week is a week in which the employee receives less than 25 per cent of the wages they would earn at their regular rate in a regular work week. However, a week of lay-off will not include an excluded week as defined in s. 63(2).

This definition is similar to the definition of week of lay-off in s. 56(3.1) for employees with a regular work week in the notice of termination context, except that the notice of termination definition is based on a threshold of "less than one-half" of what the employee would earn in a regular work week at his or her regular rate.

Section 63(2.1) refers to "regular rate" and "regular work week", which are defined terms in s. 1 as follows:

Refer to ESA Part I, s. 1 for a detailed discussion of these terms.

For an employee who has a regular work week, a week of lay-off is a week in which they receive less than 25 per cent of the wages they would earn at their regular rate for a regular work week, unless the week is one in which any of the following four circumstances are present:

1. The employee is not able to work

An employee who, for example, is unable to work because of sickness or an injury will not be considered to be on a week of lay-off.

2. The employee is not available for work

An employee who, for example, is unavailable for work because they were exercising a right to a statutory leave or on jury duty will not be considered to be on a week of lay-off.

Where an employee on a lay-off has found work with another employer during the lay-off, the employee is not considered not available to work (i.e., they are considered to be available for work with the employer that laid them off, so that time is considered to be weeks of lay-off). This is so whether the new employment is of a temporary or a permanent nature. This is also so with respect to the reasonable period of time an employee takes to return to work after being recalled. The employee would be considered "not available to work" only if the employee is unwilling to return to work for the employer who laid them off within a reasonable time.

3. The employee is subject to disciplinary suspension

An employee who is on disciplinary suspension is not on a week of lay-off. It is important to ensure, though, that the disciplinary suspension is bona fide and is pursuant to established company rules and procedures or a contract of employment.

4. Because of a strike or lock-out

Where the employee is not provided with work by the employer due to a strike or lock-out at the employee's place of employment, or elsewhere, the employee is not on a week of lay-off.

It is important to emphasize that the strike or lock-out need not be at the employee’s place of employment. For example, if there is a strike or lock-out at a supplier, then the manufacturer that depends upon the supplier for its parts may be forced to close down until the strike or lock-out is over or a new supplier can be found. In this case the employees of the manufacturer are deemed not to be on a lay-off during the temporary closure that occurs as a result.

It is the Program's position that in order to characterize a week of lockout as an excluded week, the lock-out by the employer must be a legal one under the Labour Relations Act, 1995, SO 1995, c 1, Sch A ("LRA 1995"). In those circumstances, the employer's failure to provide work flows from the right to lock out the employees under the LRA 1995 and the employer should not suffer any adverse consequences under the ESA for exercising that right.

On the other hand, if the lock-out is illegal, the failure to provide work is not permissible under LRA 1995. As a consequence, the Program's position is that a week in which employees are illegally locked out is a week of lay-off. However, a week of strike, whether illegal or legal, will be considered by the Program to be an excluded week (i.e., not a week of lay-off) because the employer does not in those circumstances have any control over whether work is provided.

Effect of excluded week – s. 63(2.2)

This subsection provides that an "excluded week" is included in counting the period of 52 weeks referred to in s. 63(1)(c).

Lay-off, No regular work week – s. 63(2.3); Effect of excluded week – s. 63(2.4)

Where employees who do not have regular work weeks, for the purposes of the rule in s. 63(1)(c) that deems an employee’s employment to have been severed if they are laid off for 35 weeks or more in any period of 52 consecutive weeks, s. 63(2.3) provides that a week of lay-off is a week in which the employee earns less than one-quarter the average weekly wages that they earned in the 12-week period preceding the commencement of the 52-week period.

Clause 63(2.4)(b) provides that if the 12-week period contains an excluded week, the average amount earned is to be calculated based on the earnings in weeks that were not excluded weeks divided by the number of weeks that were not excluded weeks.

Clause 63(2.4)(a) provides that excluded weeks are not counted as weeks of lay-off for the purposes of determining whether an employee who does not have a regular work week has been laid off for 35 or more weeks under s. 63(1)(c) and s. 63(2.3). However, excluded weeks do count as part of the 52-week period.

Resignation – s. 63(3)

Section 63(3) provides that where an employee's employment is severed under s. 63(1)(e) (i.e., an employee who has been given notice of termination in accordance with s. 57 or s. 58 has resigned by giving two weeks' written notice that will take effect within the statutory notice period), the employee’s employment shall be deemed to be severed on the day that the employer’s notice of termination would have taken effect had the employee not resigned. This is relevant for determining whether the employee has met the five-year eligibility threshold for severance pay. Section 63(3) must be read together with s. 65(3), which provides that the period between the date the employee's resignation took effect and the date the employer's notice of termination would have taken effect is not included in the calculation of the amount of the employee's severance pay.

Example:

January 3 – Ten-year employee receives 12 weeks' notice of individual termination, effective March 28.
January 28 – Employee gives two weeks' written notice of resignation, effective February 11.
January 31 – Statutory notice period begins.
February 11 – Employee's notice of resignation becomes effective.
March 28 – Employee's deemed severance date

In this example, the employee has resigned within the statutory notice period in accordance with s. 63(1)(e), so the resignation is considered to be a severance of the employment relationship under s. 63(1). The date the employee's employment is deemed to be severed for the purpose of determining whether the employee has met the five-year eligibility threshold for severance pay, and also for determining the date the employee's entitlement to severance pay arose is March 28, not February 11.

Section 64 – Entitlement to severance pay

Entitlement to severance pay – s. 64(1)

This section sets out the requirements that must be met for an employee to qualify for severance pay. An employee who is not otherwise exempt from the severance provisions of the ESA 2000 qualifies for severance pay when their employment is severed and they:

Have five or more years of employment with the employer; and
Were employed by an employer who:
- Has a global payroll of at least $2.5 million, or
- Severed the employment of 50 or more employees in a six-month period because of a permanent discontinuance of all or part of the business at an establishment.

The requirements are discussed below.

i. Five or more years of employment

An employee must have been employed for at least five years at the time of the severance. It should be noted that only employment in Ontario (or work outside of Ontario that is a continuation of work in Ontario) is considered in determining eligibility for and the calculation of severance pay. For example, if an employee works for ABC Inc. in England for five years and then is transferred to Ontario and has their employment severed two years later, the employee will be considered to have only two years of employment for the purposes of the ESA 2000, including the severance provisions.

Time that will be included in the calculation of the five-year qualifying period is set out in ESA Part XV, s. 65(2) as follows:

Under s. 65(2), all periods of employment (whether active or inactive) are added together for the purposes of determining both eligibility for and the amount of severance pay to which the employee is entitled. Examples of periods of inactive employment that must be included are time spent on layoff, vacation, and leave of absences such as educational, or any leave under Part XIV. However, it is Program policy that time spent on lay-off after the lay-off becomes a severance under ESA Part XV, s. 63(1)(c) (i.e., it equals or exceeds 35 weeks in a period of 52 consecutive weeks) and the time subsequently spent waiting for a recall to work is not counted as employment for the purposes of either eligibility for severance under s. 64(1) or the calculation of the amount of severance pay in s. 65(1).

Multiple periods of employment with the same employer must be added together for the purposes of both eligibility for, and the calculation of, severance pay, regardless of the amount of time between the periods of employment or the reason any of the periods of employment came to an end (e.g., whether the employment ended at the employer's behest or the employee resigned). For a detailed discussion of the time included in determining eligibility for, and the calculation of, severance pay see ESA Part XV, s. 65.

Where an employee's employment is severed under ESA Part XV, s. 63(1)(e) and the employer gives notice of termination and the employee provides two weeks' written notice of resignation that takes effect in the statutory notice period, the date of severance is deemed under ESA Part XV, s. 63(3) to be the date the employer's notice would have taken effect. Therefore, when determining the length of employment for the purposes of the five-year qualifying period, the period of time between the date of resignation and the date the employer's notice would have taken effect (the deemed severance date) is included. However, when it comes to calculating the amount of severance pay, ESA Part XV, s. 65(3) provides that the period between the date the resignation takes effect and the date the termination would have taken effect is not to be used.

Where an employee's employment is severed without the required written notice under ESA Part XV, s. 57 or s. 58, ESA Part XV, s. 65(4) specifically requires that the period of notice that should have been provided be included in calculating the amount of severance pay. It is Program policy that this period must also be included for the purpose of determining whether the five-year threshold for eligibility for severance pay has been met; otherwise, the employee's severance pay entitlement would be calculated as zero, which would be contrary to the direction in s. 65(4) that it be calculated as if the employee had continued to be employed for the period of notice that should have been given.

ii. $2.5 million payroll test or severance of 50 or more due to closure

Where an employee has five or more years of employment with the employer at the time the severance occurred and either of the two requirements set out in s. 64(1)(a) or (b) is met, the employee will be entitled to severance pay.

$2.5 million payroll test

If the employment of an employee who has been employed for five years or more is severed by an employer with a global payroll of $2.5 million or more, the employee will be entitled to severance pay. The $2.5 million dollar payroll test in s. 64(1)(b) is the condition that triggers most severance pay entitlements and is therefore considered first. If this condition is met there is no need to consider the test in s. 64(1)(a). (Note that it was long-standing Program policy that the $2.5 million threshold was based solely on an employer’s payroll in Ontario. The Ontario Superior Court considered this position in the decision of Hawkes v. Max Aicher (North America) Limited , 2021 ONSC 4290, and found that it was unreasonable. The Program consequently changed its policy and the $2.5 million threshold is now based on the employer’s global payroll.)

Section 64(2) defines payroll as follows:

See the detailed discussion of the definition of payroll below.

Severance of 50 or more due to closure

If an employer does not have a global payroll of at least $2.5 million, an employee will still be entitled to severance pay if the employment of 50 or more employees is severed within a six-month period because of a permanent discontinuance of all or part of the employer's business at an establishment.

Prior to 1987, when the severance pay provisions in the former Employment Standards Act were amended to extend severance pay to employees of employers with a $2.5 million payroll or more, employees had to satisfy substantially the same test as is set out in s. 64(1)(a). As a result, most of the cases involving this test arose prior to 1987, especially since, due to wage increases over the years, many employers severing the employment of 50 or more employees in a six-month period will satisfy the payroll test. However, there may be some instances in which an employer who does not meet the payroll threshold will sever the employment of 50 or more employees in a six-month period.

Some of the issues regarding this test in the pre-1987 cases under the former Employment Standards Act may still be relevant today. For example, there is the issue of whether or not the six-month period has to be immediately prior to the permanent discontinuance or whether it can be any six-month period as long as the severances are caused by the discontinuance. The Program policy on this issue is that the six-month period need not be immediately prior to the permanent discontinuance, and that any six-month period can be used as long as the severances were caused by the permanent discontinuance.

Another issue regarding this test is the count issue, i.e., did 50 or more employees have their employment severed? The question here is whether or not exempt employees should be included even though they themselves are not entitled to severance pay.

In Dominion Stores Ltd. v. Butcher et al (ON SC), a decision under the former Employment Standards Act, the Divisional Court upheld a decision that these employees should be included in the count. This case upheld as reasonable the referee's decision in Dominion Stores Ltd. v Butcher et al (February 17, 1987), ESC 2215 (Brown) that stated that exempt, elect-to-work employees should be included in the count for purposes of severance pay. There is, however, another Divisional Court decision that upheld as reasonable a referee's decision that said the exact opposite, United Steelworkers of America, Local 14097 v. Franks (Div. Ct.), 1990 CanLII 6666 (ON SC), a decision under the former Employment Standards Act. This decision was appealed to the Ontario Court of Appeal, which held in United Steelworkers of America, Local 14097 v Franks, 1994 CanLII 8708 (ON CA) that the proper standard of review of referees' decisions was reasonableness, rather than the stricter correctness test, and therefore declined to comment on whether or not the referee was correct in law. Thus, the Court of Appeal's decision did not necessitate a change to the Program policy that exempt employees are to be included in the count for purposes of s. 64(1)(a).

A further issue concerning the determination of the count is whether or not employees should be included in the count if they are employees who, having been given notice of termination by the employer, resign before that notice of termination becomes effective. For example, the employees are given, on March 1, eight weeks' notice of termination to be effective on April 25. One of those employees, having found other employment, gives two weeks' notice and resigns on March 15, in accordance with ESA Part XV, s. 63(1)(e). Should that employee be included in the count for purposes of determining whether or not the threshold of 50 severances in s. 64(1)(a) has been met? An examination of s. 64(1)(a), read in conjunction with s. 63(1)(e), would indicate that such an employee must be included. It is the number of employees whose employment is severed by an employer that must be included in the count under s. 64(1)(a) and the employment of an employee who resigns in the above manner is considered to have been severed by their employer under s. 63(1)(e). In contrast, an employee who resigns and does not meet the requirements of s. 63(1)(e) would not be included in the count.

Permanent discontinuance

Other issues regarding s. 64(1)(a) involve what constitutes a permanent discontinuance and also what constitutes "part of the business of the employer". For a detailed discussion of those terms refer O Reg 288/01, s. 3(4) in the context of the 10 per cent rule and mass notice of termination. The same principles apply, except that the employer's intention with respect to the issue of whether there is a permanent discontinuance may not be as significant in the context of a severance as it is in the context of a mass termination, where the employer is required to give advance notice of the event. In addition, there have been some referee and court decisions on what constitutes a permanent discontinuance for purposes of severance pay.

In Agincourt Motor Hotel Limited v Flannigan et al (August 19, 1982), ESC 1272 (Davis), a decision under the former Employment Standards Act, the referee held (who was upheld by the court on judicial review) that a sale of a business constitutes a permanent discontinuance of the business of the vendor employer for purposes of s. 58 of the former Employment Standards Act. On the other hand, a contracting out of business previously done "in-house" by an employer, which is generally not considered to be a sale under ESA Part IV, s. 9, will not constitute a permanent discontinuance in that it is open to the employer, at the end of the contract, not to renew it and to have the operations revert back to the employer. In this regard, see Otis Elevator Company Limited v United Steelworkers of America et al (November 5, 1985), ESC 1978 (Davis), a decision under the former Employment Standards Act.

Payroll – s. 64(2)

The definition of payroll is used to determine whether an employer meets the $2.5 million payroll threshold set out in s. 64(1)(b). The employer is considered to meet the threshold if either the calculation in s. 64(2)(a) or (b) produces a sum of $2.5 million or more.

Where associated or related businesses can be treated as one employer under ESA Part III, s. 4, the payrolls of each individual business are added together to determine whether the $2.5 million payroll threshold is met. This applies whether or not the section 4 associated or related businesses fall within Ontario jurisdiction.

al Distribution Network Canada Ltd., 2018 CanLII 107738 (ON LRB).)

The definition of payroll requires an examination of the wages earned by employees during three distinct periods preceding a severance. The three periods are:

Wages earned in a specified four-week period (multiplied by 13)
Wages earned for the last complete fiscal year, and
Wages earned for the second-last complete fiscal year.

The employer is considered to have a payroll of $2.5 million or more if the calculation for any one of these three periods results in an amount of $2.5 million or more.

For example, an employer might have had a $2.5 million payroll in the second-last completed fiscal year preceding a severance. Despite the fact that the payroll for the last completed fiscal year is less than $2.5 million, the employer would meet the $2.5 million payroll threshold in s. 64.

Similarly, an employer may not have had a $2.5 million payroll in the last or second last fiscal year, but if the projected payroll for the current year based on the calculation in s. 64(2)(a) exceeds $2.5 million the employer would meet the $2.5 million payroll threshold.

Wages are defined in ESA Part I, s. 1:

Exceptions – s. 64(3)

This section provides that prescribed employees are not entitled to severance pay under s. 64. The prescribed employees are identified in O. Reg. 288/01, s. 9. Refer to O. Reg. 288/01 for a complete discussion of the prescribed employees.

As with all exemptions from a minimum standard, the onus is on the employer to establish on a balance of probabilities that the exemption applies.

Location deemed an establishment – s. 64(4)

Section 64(4) applies where the employer has a global payroll of less than $2.5 million and so what is at issue is whether or not the employer has severed the employment of 50 or more employees in six months or less because of a permanent discontinuance of all or part of the business of an employer at the establishment.

ESA Part I, s. 1 defines an establishment as a single location or in certain circumstances two or more locations. Despite this definition, s. 64(4) deems a single location that is part of an establishment under the s. 1 definition to be an establishment for the purpose of determining whether an employer is liable to pay severance pay under s. 64(1)(a).

This section addresses a situation where, for example, the employer has two or more locations in the same municipality, and hence together they comprise one establishment as that term is defined in ESA Part I, s. 1. If the employer moves all or part of its production from location A to location B, there is a permanent discontinuance at location A, but, applying the s. 1 definition, there is no such discontinuance at the establishment as a whole. In this situation, s. 64(4) deems location A to be a separate establishment for the purposes of severance pay if the employment of 50 or more employees is severed in six months or less because of the permanent discontinuance at location A.

Section 65 – Calculating severance pay

Calculating severance pay – s. 65(1)

This section determines the amount of severance pay to which a qualified employee is entitled. It provides that an employee will be entitled to an amount equal to the employee's regular wages for a regular work week multiplied by the sum of the employee's completed years, and completed months not included in a completed year divided by 12. However, this section must be read in conjunction with s. 65(5), which sets out a maximum amount of severance pay an employee is entitled to under s. 65(1). It caps the entitlement at an amount equal to the employee's regular wages for a regular work week for 26 weeks.

For example, if the employee has 10 years, and 6 ¾ months of employment and the employee's regular wages for a regular work week is $1,000, the employee's severance pay will be $10,500. The calculation is as follows:

Regular wages for a regular work week: $1,000
Number of completed years of employment: 10
Number of completed months divided by 12: 6/12 = 0.5
Add the number from #2 to the number from #3: 10 + 0.5 = 10.5
Multiply regular wages for a regular work week by number arrived at in #4: $1,000 x 10.5 = $10,500

Regular wages and regular work week are defined in ESA Part I, s. 1 as follows:

Also see ESA Part XV, s. 60(1)(b) for a discussion of Program policy regarding the interpretation of the phrase "regular wages for a regular work week" when there have been changes to an employee's pay and/or hours of work shortly before the employment relationship is terminated. This policy also applies to the calculation of severance pay.

Section 65(6) sets out how to determine "the employee's regular wages for a regular work week" for employees who do not have a regular work week or are paid on a basis other than time. See s. 65(6) below for a detailed discussion.

Length of employment

The determination of an employee's length of employment for the purposes of calculating the amount of severance pay under s. 65(1) is not necessarily identical to the determination of whether the employee has met the five-year threshold to qualify for a severance entitlement. See the discussion ESA Part XV, s. 64(1) with respect to employment that is considered in determining eligibility for severance pay.

It should be noted that only employment in Ontario (or work outside of Ontario that is a continuation of work in Ontario) is considered in determining eligibility for and the calculation of severance pay. For example, if an employee works for ABC Inc. in England for five years and then is transferred to Ontario and has their employment severed two years later, the employee will be considered to have only two years of employment for the purposes of the Employment Standards Act, 2000, including the severance provisions.

However, it is Program policy that time spent on lay-off after the lay-off becomes a severance under ESA Part XV, s. 63(1)(c) (i.e., it equals or exceeds 35 weeks in a period of 52 consecutive weeks) and the time subsequently spent waiting for a recall to work is not counted as employment for the purposes of either eligibility for severance under s. 64(1) or the calculation of the amount of severance pay under s. 65(1).

Multiple periods of employment with the same employer must be added together for the purposes of both eligibility for, and the calculation of the amount of, severance pay, regardless of the amount of time between the periods of employment or the reason any of the periods of employment came to an end (e.g., whether the employee quit or had their employment severed at the employer's behest). See s. 65(2) below for a detailed discussion on the time included in determining eligibility for and the calculation of the amount of severance pay.

Where the employment of an employee is severed under ESA Part XV, s. 63(1)(e) (i.e., the employer provides notice of termination and the employee provides two weeks' written notice of resignation that takes effect in the statutory notice period), the date of severance is deemed under ESA Part XV, s. 63(3) to be the date the employer's notice would have taken effect. Therefore, when determining the length of employment for the purposes of determining eligibility to severance pay (i.e., for purposes of the five-year qualifying period), the period of time between the date of resignation and the date the employer's notice would have taken effect (the deemed severance date) is included.

However, when it comes to calculating the amount of severance pay, s. 65(3) provides that the period between when the resignation takes effect and when the termination would have taken effect is not to be used. See s. 65(3) below for further discussion.

Where an employee's employment is severed without the required written notice under ESA Part XV, ss. 57 or 58, s. 65(4) specifically requires that the period of notice that should have been provided be included in calculating the amount of severance pay. It is Program policy that this period must also be included for the purpose of determining whether the five-year threshold for eligibility for severance pay has been met; otherwise, the employee's severance pay entitlement would be calculated as zero, which would be contrary to the direction in s. 65(4) that it be calculated as if the employee had continued to be employed for the period of notice that should have been given. See s. 65(4) below for a detailed discussion.

Severance pay for seasonal employees

One question that arises is how to calculate severance pay for seasonal employees. In Standard Commercial Tobacco Co. of Canada Ltd. v Canadian Union of Operating Engineers and General Workers, [1988] 31 OAC 74 (Ont Div Ct), the Ontario Divisional Court upheld the decision of referee Brown in Standard Commercial Tobacco Co. of Canada Ltd. v Canadian Union of Operating Engineers and General Workers (March 18, 1987), ESC 2225 (Brown), a decision made under the former Employment Standards Act, which considered the situation of seasonal employees in the tobacco industry who were laid off at the end of each season with recall rights under the terms of the collective agreement, and then recalled at the beginning of the next season of work. The employment relationship continued during the period of lay-off. The referee held that in such a situation, the employees' number of years of employment should be determined by including the active seasons as well as the non-active seasons in which the employees were on lay-off. However, the referee went on to say that, in determining what the employees' wages were for a regular non-overtime work week, for purposes of severance pay, the officer should take the number of hours worked by the employee in the year in which they are entitled to severance pay, and then divide that figure by 52 weeks.

For example, if a seasonal employee is entitled to severance pay in 2012 and during that year they worked 1560 hours at $20 an hour, the employee's wages for a regular non-overtime work week would be 1560 divided by 52 = 30 times the hourly rate of $20 which comes to $600. This would be the result according to the Standard case, even though the employee's non-overtime wages while they were working were higher, e.g., $1000 a week. Standard Commercial Tobacco Co. of Canada Ltd. v Canadian Union of Operating Engineers and General Workers thus has the effect of prorating the seasonal employee's actual wages for purposes of severance pay because the employee does not work the entire year.

Although the Divisional Court in upholding the referee's decision did not consider this particular point, the Program has adopted the referee's method of calculating severance pay for seasonal employees in situations that closely match the situation in Standard Commercial Tobacco Co. of Canada Ltd. v Canadian Union of Operating Engineers and General Workers. For example, the workers in the case were employees who had an established seasonal work cycle from year to year and whose employment relationship did not end at the end of each season. Thus the method that effectively prorates the employee's regular wages for a regular work week should be applied in similar situations where the employees have a very specific regular pattern of seasonal work and whose employment relationships are not severed at the end of each season. This method should not be used in situations where the seasonal employees do not have a regular yearly cycle, i.e., where the season varies in length from year to year or whose employment relationships are severed at the end of each season.

No vacation pay on severance pay

It should also be noted that, although it is the policy of the Program that the statutory minimum of four or six per cent for vacation pay as determined in accordance with ESA Part XI, s. 35.2 (or, where there is a greater right or benefit respecting vacation pay, that greater amount) should be levied on the employee's termination pay, it is also the policy of the Program that the employee's severance pay, on the other hand, will not attract vacation pay. For example, if the employee's employment is terminated and severed and the employee is owed $4,000 termination pay and $5,000 severance pay, vacation pay (in this example the statutory entitlement is four per cent) will be levied on the termination pay but not the severance pay, so the total owing will be $9,160. If the employee's contract of employment provides for vacation pay to be calculated at a greater amount than the employee's statutory entitlement under s. 35.2, the amount (paid in respect of termination pay only) will be increased accordingly. For a discussion of the rationale for levying vacation pay on termination pay refer to ESA Part XV, s. 61(1).

Non-continuous employment – s. 65(2)

This provision defines the time that is to be included in determining an employee's length of employment for the purpose of determining if an employee qualifies for severance and, if they do, the time that is included to determine the amount of severance pay to which the employee is entitled. All time spent in the employer's employ, whether continuous or not, whether active or not, shall be included. It should be noted, however, that only employment in Ontario or work outside of Ontario that is a continuation of work in Ontario is considered in determining eligibility for and the calculation of the amount of severance pay.

For example, if an employee works for ABC Inc. in England for five years and then is transferred to Ontario and has their employment severed two years later, the employee will be considered to have only two years of employment for the purposes of the Act, including eligibility for and the calculation of the amount of severance pay under ESA Part XV, s. 64(1) and s. 65(1). See Singer v Tullett & Tokyo Forex (Canada) Ltd. (July 26, 1996), ESC 96-167 (Novick), a decision under the former Employment Standards Act.

Whether or not active

Examples of periods of inactive employment that must be included are time spent on lay-off, vacation and leaves of absence such as educational leave or leaves under Part XIV. The only exception to this is where the lay-off becomes a severance under ESA Part XV, s. 63(1)(c) (i.e., a lay-off that lasts 35 weeks in any period of 52 consecutive weeks) and the employee retains the right to be recalled. The time spent waiting to be recalled beyond the point of the severance will not be counted as employment for purposes of ESA Part XV, s. 64(1) or s. 65(1).

In Brock Telecom (Northern Telecom Canada Limited) and Microtel Limited v Communications and Electrical Workers of Canada Union, Local 526 (August 5, 1991), ESC 2893 (Haefling), a decision under the former Employment Standards Act, the referee held that all of the time spent on layoff with recall rights, even if beyond the 35-week point, should be included in length of employment. However, this case does not represent Program policy and should not be followed, as it would result in the inclusion of time in the calculation of the length of employment that accrued after the employment relationship was explicitly considered to have been severed under the ESA 2000.

Note that the provision that states that a lay-off becomes a severance when the lay-off has lasted 35 weeks in any period of 52 consecutive weeks (the 35 week rule) in ESA Part XV, s. 63(1)(c) only applies to lay-offs that commenced on or after June 15, 1987. The reference to the requirement that the lay-off commence on or after June 15, 1987, appeared in the legislation when it became law in 1987, but was removed when the statute was re-issued in the Revised Statutes of Ontario 1990. The removal of the reference to June 15, 1987, did not mean that the 35 week rule can be applied to lay-offs commencing prior to June 15, 1987, however, since the Statute Revision Commissioners preparing the RSO 1990 did not have the mandate to change the meaning or content of the statute, but only to perform a "clean-up" and renumber the statutes. Likewise, the absence of the reference to lay-offs commencing on or after June 15, 1987, in the Employment Standards Act, 2000 does not mean that the 35 week rule can be applied retroactively. Therefore, if a lay-off commenced prior to June 15,1987, the entire length of the lay-off (whether it exceeds 35 weeks or not) is included in length of employment for purposes of determining eligibility for and the calculation of the amount of severance pay.

Example 1:

Employee is hired September 2, 2000
Employee is laid off January 1, 2008
35 weeks of lay-off expire and severance pay paid into trust September 2, 2008
Employee is recalled and severance pay returned to employer September 2, 2009
Employee is laid off January 1, 2013
35 weeks of lay-off expire and severance pay paid into trust September 2, 2013
Employee renounces recall rights and receives severance pay June 1, 2014

In this case, the employee's length of employment for purposes of severance pay would be the period from September 2, 2000, to September 2, 2008, plus the period from September 2, 2009, to September 2, 2013, for a total of 12 years of employment. (Although the employee retained the right to recall between September 2, 2008, and September 2, 2009, and again between September 2, 2013, and June 1, 2014, this time is not included because the lay-off in both cases became a severance under s. 63(1)(c).) Thus the employee in this example would be entitled to 12 weeks of severance pay.

Example 2:

Employee is hired September 2, 1980
Employee is laid off with recall rights January 1, 1987
Employee is recalled to work January 1, 1989
35 weeks of lay-off expire and severance pay paid to Director in trust September 2, 2014
Employee renounces recall rights and receives severance pay June 1, 2015

In this example, the entire length of the first lay-off would be included, but only the first 35 weeks of the second lay-off would be included in calculating length of employment for purposes of s. 64(1) and s. 65(1). Thus, in this example, the employee's length of employment for purposes of s. 64(1) and s. 65(1) would be from September 2, 1980, to September 2, 2014, i.e., 34 years.

Whether continuous or not

Multiple periods of employment with the same employer must be added together regardless of the amount of time between the periods of employment or the reason any of the periods of employment came to an end (e.g., whether the employee resigned or had their employment severed at the employer's behest). Situations sometimes arise where an employee works on and off for an employer over time. The employee returns to work with this same employer and then the employment is subsequently severed. How is the calculation of the employee's length of service made in this type of situation? The employee's length of service is calculated by adding together all stretches of employment, regardless of how long the gap(s) between periods of employment was or why the employment relationship had previously ended. This is so even if the earlier employment was with a different company that was subsequently purchased by the current employer. See National Electrical Carbon Canada/Morganite Canada Corporation o/a Thermal Ceramics v Reader (July 23, 1998), 0744-97-ES (Sargeant), a decision under the former Employment Standards Act.

Where the employee's first stretch of employment ended in a resignation rather than a dismissal, the two stretches of employment must be added together to determine the employee's length of employment for purposes of calculating the amount of severance pay. This is supported by two unreported Divisional Court cases, Re Oakridge Ford Sales (1981) Ltd. and Re Standard Tube Canada Inc., both issued under the former Employment Standards Act. It should be noted that, prior to those court cases, there was at least one referee's decision to the contrary on that particular point – for example, see Canada Trust Co. v Holmes (June 13, 1990), ESC 2710 (Brown), a decision under the former Employment Standards Act. However that decision is contrary to the two court cases above and should not be followed.

In a case where the employee had already received severance pay in regards to a previous stretch of employment, the amount of severance pay already paid may be deducted from the severance pay owing pursuant to paragraph 3 of s. 65(8). For more information on deductions from severance pay, refer to s. 65(8) below.

The issue arises whether an employee who is employed on a series of fixed-term contracts or is a seasonal employee is entitled to severance pay. Whether the terms are consecutive or broken, s. 65(2) requires that all this time shall be included in determining whether the employee is eligible for severance pay under s. 64(1) and in calculating the amount of their severance pay under s. 65(1). Therefore, if the employee's length of employment meets or exceeds the five-year requirement set out in s. 64(1), they will be entitled to severance pay in accordance with their length of employment as determined under s. 65(1).

Exception – s. 65(2.1)

This subsection was added by the Good Government Act, 2009, SO 2009, c 33,and applies to employees whose employment is severed on or after November 6, 2009. Under this subsection, if an employee is receiving an actuarially unreduced pension benefit and then has their employment severed, time employed with the employer for which they received service credits that were used to calculate the pension benefit, will not be included in determining whether the employee is eligible for severance meeting the five year threshold as per ESA Part XV, s. 64(1) or for the purposes of calculating the amount of the severance entitlement under s. 65(1).

This subsection applies, for example, to situations where an employee had previously retired on an actuarially unreduced pension and is subsequently rehired by the employer and then later still has their employment severed (on or after November 6, 2009).

This provision is not to be confused with the exemption from severance in O Reg 288/01, s. 9(1) paragraph 3 that applies to an employee who, on having their employment severed, retires and receives an actuarially unreduced pension benefit. See the discussion regarding this exemption at O Reg 288/01, s. 9(1) para. 3.

Section 65(2.1) is not an exemption from severance. It applies to exclude time for which the employee has received service credits in the calculation of their actuarially unreduced pension for the purposes of determining eligibility for and quantum of severance pay.

Example 1

Employee A is employed by Company A for 25 years. Their employment is then severed but they are able to and does then retire with an actuarially unreduced pension benefit that reflects any service credits that they would have been expected to have earned in the normal course had their employment not been severed. Assume 25 years' worth of service credits in this example. O Reg 288/01, s. 9(1) paragraph 3 applies to exempt employee A from severance pay.

Employee A is subsequently rehired by Company A and works seven more years for the company. Their employment is again severed. Because they were in receipt of an actuarially unreduced pension benefit BEFORE being severed this second time, the exemption in O Reg 288/01, s. 9(1) paragraph 3 has no application. Employee A is not exempt from severance entitlements.

However, because the service credits for the previous 25 years of employment had been included when calculating their actuarially unreduced pension benefit, they are not, as per s. 65(2.1) included when determining whether they meet the five year eligibility threshold under ESA Part XV, s. 64(1) or for calculating the quantum of his severance pay as per s. 65(1). Only their most recent seven years of employment will be considered. Assuming the employer has a payroll of $2.5 million or more, this employee will be entitled to severance pay (having met the five year eligibility threshold) and the quantum will be calculated as seven weeks of severance pay.

Example 2

Employee B worked for company B for 30 years and retired with an actuarially unreduced pension benefit based on 30 years' worth of service credits. There was no severance pay payable at this time because their employment was not severed by their employer.

Employee B was subsequently rehired by company B and worked for an additional three years. Their employment was then severed. Because they were in receipt of an actuarially unreduced pension benefit BEFORE being severed, O Reg 288/01, s. 9(1) paragraph 3 does not apply to exempt them from severance entitlements.

However, as the service credits for the previous 30 years employment had been included when calculating their actuarially unreduced pension benefit, they are not, as per s. 65(2.1), included when determining eligibility for severance under ESA Part XV, s. 64(1) or calculating quantum of severance pay under s. 65(1). They are considered to have only three years of employment with company B for the purposes of determining severance entitlements and therefore does not meet the five year threshold for eligibility.

Where employee resigns – s. 65(3)

Section 65(3) creates an exception to s. 65(2) with respect to employment included in the calculation of severance pay. This exception applies when an employee resigns during a statutory notice period in accordance with ESA Part XV, s. 63(1)(e).

Under ESA Part XV, s. 63(1)(e) and s. 63(3), an employee who has been given notice of termination in accordance with ESA Part XV, s. 57 or s. 58 and who provides two weeks' notice of resignation that takes effect during the statutory notice period, is deemed to be severed on the date the employer's notice would have taken effect. Further, s. 65(2) provides that the period of employment up to the date of the deemed severance (i.e., the date the employer's notice would have taken effect) is included in determining eligibility for severance pay (i.e., the five-year employment threshold) as well as the calculation of the amount of severance pay.

However, s. 65(3) provides that the period of time between the date the employee's notice of resignation takes effect and the date the employer's notice of termination would have taken effect (the deemed date of severance) does not count in the calculation of the amount of severance pay owing (although this period continues to count with respect to determining eligibility for severance pay).

For example, an employee was provided with eight weeks' written notice of termination that would end on March 28. The employee provides two weeks' written notice of resignation on February 1 (the effective date of which falls within the statutory notice period). For the purpose of calculating the amount of severance pay owing, the employee's length of employment is counted only up to February 14, the employee's last day of work. No account is taken of the period between February 15 and March 28 for the purposes of calculating the amount of severance pay, even though March 28 is deemed to be the severance date by ESA Part XV, s. 63(3).

However, under s. 65(2), the length of employment for the purpose of determining eligibility for severance pay includes the inactive time up to the deemed severance date. In the above example, the employee's employment is deemed severed on March 28. Therefore, account is taken of the period between February 15 and March 28 for the purpose of determining whether the employee is eligible for severance pay.

In summary, in determining eligibility for severance pay, the period after the resignation takes effect is included under ESA Part XV, s. 63(3) and s. 65(2). In calculating the amount of severance pay, the period after the resignation takes effect is excluded as per s. 65(3).

Termination without notice – s. 65(4)

This section provides that where notice of termination required to be given under ESA Part XV, s. 57 or s. 58 is not provided, the period of the notice that should have been provided is to be included in the employee's length of employment for purposes of calculating the amount of severance pay under s. 65(1).

For example, where an employee, who was terminated on February 1 should have been provided with eight weeks' written notice of termination, the employee's length of employment for the purpose of calculating the amount of severance pay will include the period up to March 28.

It is Program policy that this period must also be included for the purpose of determining whether the five-year threshold for eligibility for severance pay has been met; otherwise, the employee's severance pay entitlement would be calculated as zero, which would be contrary to the s. 65(4) direction that it be calculated as if the employee had continued to be employed for the period of notice that should have been given.

Limit – s. 65(5)

This section sets out a maximum amount of severance pay an employee may be entitled to under s. 65(1). It caps the entitlement at an amount equal to the employee's regular wages for a regular work week for 26 weeks.

See also s. 65(1) above for a discussion of Program policy regarding the phrase "regular wages for a regular work week" in the context of severance pay calculations.

Where no regular work week – s. 65(6)

This section outlines how to determine an employee's regular wages for a regular work week where the employee does not have a "regular work week" or is paid on a basis other than time.

Regular wages and regular work week are defined in ESA Part I, s. 1 as follows:

Section 65(6) provides for an averaging of the employee's regular wages received over the 12 weeks worked immediately preceding the day the employee's employment was severed or, where the employee's employment was deemed severed as a result of being on a lay-off, the day the lay-off began.

The formula requires that only the weeks in which the employee worked be included. Therefore, if the employee has not worked at all during certain weeks in the designated 12-week period, then those weeks are not included in the calculation. For example, if the employee was on a contractual short-term disability leave for one of the 12 weeks and did not work at all during that week, his/her regular wages would be determined by averaging the regular wages earned over the 11 weeks in which he or she worked. Weeks where the employee was away from work all week on a leave under Part XIV, contractual leave, other approved leave, vacation or lay-off are considered weeks not worked. As noted above, where the employment was severed as a result of a lay-off under ESA Part XV, ss. 63(1)(c) or (d), the 12-week period precedes the date on which the lay-off began.

The question arises as to how to complete the calculation where the employee who does not have a regular work week or is paid on a basis other than time was, for example, on a contractual short-term disability leave or other leave for the entire designated 12-week period. Because s. 65(6) does not provide a mechanism to calculate the average wages in that situation, Program policy is that the employer must continue to look back in blocks of 12 weeks, until a 12-week period can be found in which the employee has at least one week worked and then average the wages earned over the number of weeks worked in that 12-week period.

For example, an employee was on pregnancy and parental leave for 52 weeks prior to her employment being severed. Note that a combined pregnancy and parental leave may be longer than 52 weeks, up to a maximum entitlement of 78 weeks. The employer looks back in 12-week blocks until it finds a 12-week block that contains some weeks worked by the employee. In this case, the employer looks:

0-12 weeks prior to the severance – no weeks worked
12-24 weeks prior to the severance – no weeks worked
24-36 weeks prior to the severance – no weeks worked
36-48 weeks prior to the severance – no weeks worked
48-60 weeks prior to the severance – eight weeks worked.

The 12-week block to be used will be the period of time that was 48 through 60 weeks prior to the severance. The employee worked eight weeks during that time, so her regular wages for a regular work week will be the average of her regular wages over those eight weeks.

In addition to other amounts – s. 65(7)

This section provides that severance pay is payable in addition to any other payment owing under the Act. For example, if an employee was dismissed without notice after 10 years of employment, they would be entitled to eight weeks' termination pay under ESA Part XV, s. 61(1) and 10 weeks of severance pay under ESA Part XV, s. 64(1). This section provides that the eight weeks of termination pay (an amount the employee is entitled to under the Act) is payable in addition to the 10 weeks of severance pay, preventing one from being set-off against the other. Further, this section provides that severance pay is payable in addition to any payments owing under a contract of employment.

This section is subject to s. 65(8), which permits certain set-offs/deductions from severance pay.

Set-off, deduction – s. 65(8)

Section 65(8) outlines the set-offs and deductions that may be made when calculating an employee's severance pay. Three types of set-offs/deductions are permitted: supplementary unemployment benefits, contractual amounts for the loss of employment and severance pay previously paid under the former Employment Standards Act or the ESA 2000.

Deductions for supplementary unemployment benefits

Paragraph 1 of s. 65(8) provides that supplementary unemployment benefits ("SUBs") that an employee receives after the employment is severed and before the severance becomes payable may be set-off/deducted when calculating severance pay.

SUBs are amounts that an employer pays to an employee to top up the employee's employment insurance benefits. For example, if the employee is receiving $300 a week under the Employment Insurance Act, the SUBs plan that the insurer has set up might entitle the employee to a further $100 a week while they are unemployed. The term "supplementary unemployment benefit" is not defined in the Act. However, it is defined in the federal Income Tax Act, RSC 1985, c 1 (5^th Supp). It is still possible for a plan that does not meet the definition in the Income Tax Act to be considered a SUBs plan for purposes of s. 65(8). If the plan is a bona fide plan and is for the purpose of topping up the employee's employment insurance benefits then the SUBs will be deductible.

Example:

January 6 – Employee is laid off
January 20 – SUBs commence
September 6 – Employee's employment deemed severed under ESA Part XV, s. 63 and severance pay is paid in trust
November 1 – Employee renounces recall rights and severance pay paid to employee; SUBs end

In this situation, the first question is whether the employer can deduct from the severance pay the SUBs that were paid to the employee between January 20 and September 6. The answer is no, since s. 65(8) refers to SUBs received after the employment is severed but before the severance pay becomes payable. In the above-noted example only the SUBs received by the employee between September 6, the date the severance occurs, and November 1, the date the severance pay becomes payable, can be deducted from the severance pay owing to the employee.

Deductions for contractual payments

Paragraph 2 in this section provides that an amount paid to an employee for the loss of employment under a contract of employment where the payment is based on length of employment, length of service or seniority may be set-off/deducted from severance pay. For example, an employee whose employment is severed after 25 years of service receives payment of two weeks per year to a maximum of 20 weeks under a contract of employment. Under s. 65(1), the employee is entitled to 25 weeks of severance pay. In this case, s. 65(8) provides that the employer may set-off/deduct the 20 weeks paid to the employee from the severance pay.

Furthermore, if the employer, pursuant to a provision of an employment contract, gives a greater amount of termination pay than is required under the Act, the employer may set-off/deduct the excess termination pay from the severance pay entitlement.

Where the employer agrees to provide salary continuance after termination, and the agreement specifically states that severance pay is included in the amounts paid, ESA Part V, s. 11(5) will not invalidate the agreement.

Deductions for previously paid severance pay

Paragraph 3 of s. 65(8) provides that an employer may deduct the amount of severance pay paid previously under the Act, a predecessor of the Act or a contractual provision of an employment contract. Under paragraph 3 it is the actual amount of severance pay paid previously that may be set-off/deducted.

Example:

January 1, 2002 – Employee hired at a salary of $1,000.00 per week
January 1, 2008 – Employee dismissed and paid $6,000 severance pay (6 years x $1,000)
January 1, 2010 – Employee rehired at a salary of $2,000 per week
January 1, 2015 – Employee dismissed

The question arises as to how the employee's severance pay should be calculated for purposes of the 2015 dismissal. In this example, the employee would be considered to have 11 years of employment with the employer (six years during the first period and five years during the second). Based on the employee's length of employment of 11 years and their current salary of $2,000 per week, the employee would be entitled to severance pay in the amount of $22,000 before taking into account any severance pay previously paid. Paragraph 3 allows an employer to take into account the severance pay previously paid by setting-off/deducting the amount paid from the current entitlement. Therefore, the employee is entitled to $22,000 – $6,000 = $16,000 following the 2015 dismissal.

The question sometimes arises as to what happens where the employee is bound by a severance pay settlement with respect to an earlier dismissal, either because the union has entered into such a settlement with the employer or because the employee has entered into such a settlement himself or herself. In this situation, the employer is limited to deducting the actual amount of severance pay that was paid as the settlement. Using the example discussed above, if a settlement of $3,000 had been reached with respect to the first dismissal, the employer would be entitled to set-off/deduct only $3,000 from the $22,000 total, resulting in the employee receiving $19,000 of severance pay following the 2015 dismissal.

The situation may also arise where the amount of the settlement exceeds the amount of severance pay that was required under the statute in force at the time the employment was severed. In this situation, the employer is permitted to deduct the actual amount of the settlement that was for severance pay. Using the example discussed above but with a settlement of $10,000 in respect of the first dismissal, the employer would be entitled to set-off/deduct $10,000 from the $22,000 total, resulting in the employee receiving $12,000 of severance pay following the 2015 dismissal.

Section 66 – Instalments

Instalments – s. 66(1)

Section 66(1) provides that an employer may pay severance pay in instalments directly to an employee where the employee and employer agree (in writing – see s. 1(3) of the Act) or with the approval of the Director of Employment Standards. See Delegation of Powers for a listing of the persons to whom this power of the Director has been delegated.

Note that where an employer and an employee have agreed to an instalment plan to pay an employee severance pay under this section, the provisions in s. 67 of the Employment Standards Act, 2000 regarding the election to retain recall rights or to be paid severance pay forthwith do not apply (see s. 67(2)). Therefore, an employee who agrees to an instalment plan is not required to make an election with respect to the payment of severance pay or retention of recall rights. Consequently, the employee preserves recall rights because he or she is not required to make an election and the employer is not required to pay any unpaid severance pay into trust. Note, however, that s. 67 will continue to apply with respect to an election for the payment of termination pay forthwith or the retention of recall rights.

However, if an employer pays severance pay by instalment to an employee under a plan approved by the Director (as opposed to under an agreement between the employer and employee), s. 67 will continue to apply with respect to the election to be paid severance pay forthwith or to retain recall rights. In this situation, the employee will retain the right to be recalled, unless he or she expressly elects to be paid the severance pay under s. 67(3). Further, in the absence of such an election, the employer will be required to either pay the severance instalments to the Director in trust under s. 67(6) or, if the employee is represented by a trade union, pay the severance instalments in trust as agreed by the union and the employer or to the Director in trust in the absence of such an agreement under s. 67(7). It is important to note that the employer will be required to meet its obligations as set out in ss. 67(6) or (7) unless the employee has expressly elected to accept the severance pay. Hence, an employer may wish to obtain this election from its employees prior to making any severance pay payments.

Some of the factors that the Director may consider in determining whether to approve the instalment plan may include:

The possibility that the company would be forced into bankruptcy or receivership if the instalment plan were not granted.
The possibility that the employer would not be able to meet all of the instalment payments in a timely fashion.
The views of the union, if any, and the employees concerning the proposed instalment plan.
Whether there are related companies that may have the funds to pay the severance pay without resorting to an instalment plan.
Whether the proposal contains a provision for the payment of interest.
The reasons the parties were unable to reach an agreement on their own.

Restriction – s. 66(2)

Section 66(2) places a maximum payment period of three years for an instalment plan.

Default – s. 66(3)

Section 66(3) provides that where an employer fails to make an instalment payment, the remaining severance pay becomes payable immediately.

The question may arise as to what happens to the employee's recall rights where the employer defaults on the plan:

1. Instalment plan based on employer-employee agreement

Where the instalment plan for the payment of severance pay is based on an agreement between the employer and employee, the provisions regarding the employee's election between being paid severance pay or retaining the right to be recalled do not apply (s. 67(2)). Thus the employee maintains recalls rights (unless he or she had already made an election to be paid termination pay forthwith and is deemed to have abandoned recall rights) as well as the entitlement to be paid severance pay in instalments. If the employer defaults on the instalment plan, all outstanding severance pay becomes payable immediately to the employee. The employee's right to be recalled would remain unaffected.

2. Director-approved instalment plan

Under a Director-approved instalment plan, the s. 67 provisions on the employee's election between recall rights and being paid severance pay do apply. Where the employee fails to make an election or chooses not be paid the severance pay, he or she would retain recall rights. Where the employee elects to be paid the severance pay, pursuant to s. 67(5), the employee is deemed to have abandoned his/her right to recall. However, it is Program policy that the employee could escape from this election, on the basis that it would be either an express or implied condition of the election that the employer completes all of the instalments. If this were not the case, situations of obvious unfairness would arise. For example, consider the following situation: the employee elects to give up recall rights and take severance, a short time later the employer defaults on the instalments, goes into bankruptcy, and some time later a purchaser buys the business and hires back all those employees with recall rights. In that situation, not to allow the employee to consider his or her election void would be to deprive him or her of both severance pay and recall rights, which is not the intent of the section. However, this proposition has not yet been tested before the Ontario Labour Relations Board, an arbitrator or a court. To provide more certain protection against these types of situations it is advisable that instalment plans contain a specific condition that any election to forfeit any recall rights be void if all the severance instalments are not paid by the employer pursuant to the plan.

Section 67 – Where election may be made

Where election may be made – s. 67(1)

Section 67(1) sets out the circumstances in which the provisions regarding the election of recall rights apply. This section is subject to s. 67(2) of the Employment Standards Act, 2000, discussed in subsection (2) below.

Section 67(1) states that s. 67 will apply where an employee has the right to be recalled for employment under a contract of employment (which includes a collective agreement) and either a) or b) below applies:

1. Termination pay is due under section 61 because of a lay-off of 35 weeks or more – s. 67(1)(a)

Employees who are entitled to termination pay because of a temporary lay-off that equals or exceeds 35 weeks in a period of 52 consecutive weeks (s. 56(2)(b) or s. 56(2)(c)) are subject to s. 67. In that case, the employer of such an employee is also subject to s. 67.

This section does not apply if the termination pay comes due for reasons other than as a result of a lay-off that equals or exceeds 35 weeks in a period of 52 consecutive weeks. Therefore, it will not apply where, for example, there is a termination because of a lay-off that exceeds 13 weeks in a 20-week consecutive period (s. 56(2)(a)). In that case, the employee is not required under the Act to make an election in order to receive termination pay after 13 weeks of lay-off and will not be deemed under the Act to have abandoned the right to be recalled in accepting that payment. If the employee is entitled to severance pay, however, he or she will be required to make an election with respect to the payment of the severance pay and the retention of recall rights. It should also be noted that a collective agreement or contract of employment may provide for the loss of recall rights as a consequence of an employee's acceptance of termination pay that comes due other than as a result of a lay-off that equals or exceeds 35 weeks in a period of 52 consecutive weeks.

2. Severance pay is due – s. 67(1)(b)

Subject to s. 67(2), employees who are entitled to severance pay under s. 64(1) of the Act are subject to the provisions of s. 67. The employee's employer is likewise subject to the provisions of s. 67.

Typically, a right of recall will be contained in a collective agreement. However, s. 67(1) is not limited to situations where the right of recall is contained in a collective agreement. It is possible that a non-unionized employee might have a right of recall in the terms and conditions of his or her employment. However, these instances will be somewhat unusual. It will have to be demonstrated clearly that the right of recall in a non-unionized situation was formalized as part of the employment contract and not merely ad hoc, in order for the recall rights to be within the meaning of s. 67(1).

Exception – s. 67(2)

Section 67(2) provides that, despite s. 67(1)(b), the provisions of s. 67 will not apply with respect to the severance entitlement where an employer and an employee have agreed to pay an employee severance pay in instalments under s. 66. See ESA Part XV, s. 66 for a detailed discussion of severance instalment plans under s. 66 of the Act. As such, an employee who agrees to accept severance pay by instalment will not be required to make an election as between the payment of his or her severance pay and retaining the right to recall, and the employer will not be required to pay the severance pay into trust.

However, s. 67 will apply where an instalment plan is in place because the Director has approved the payment of severance pay by instalments (as opposed to it being in place as a result of employee agreement). Accordingly, in that case, the employee must elect either to be paid the severance pay (by instalment) or retain his or her recall rights. If that employee also has the right to termination pay because of a lay-off of 35 weeks or more, the same election must be made with respect to both the termination pay and severance pay entitlements – see s. 67(4). Note that if that employee does not make an election, or elects not to be paid the termination and severance pay, the employee will not be deemed to have abandoned the right to be recalled under s. 67(5) even though the employer pays the employee severance pay by instalment under a plan approved by the Director, since the employee has not expressly elected to be paid the severance pay under s. 67(3).

Nature of election – s. 67(3)

This section is similar to the corresponding provisions (ss. 57(19) and 58(10)) of the former Employment Standards Act.

This section provides that an employee may choose to have termination pay or severance pay paid to them immediately, or instead may choose to retain the right to be recalled.

In Moore Packaging Corp. v Canadian Paperworkers Union, Local 1150 (1993), 34 LAC (4^th) 293 (Ont Arb Bd), a decision under the former Employment Standards Act, the arbitrator held that an employee must make an express election prior to receipt of the severance pay if he or she is to be deemed to have elected "to be paid the severance pay forthwith". The decision states that if there is no such express prior election and the employer sends the severance pay to the employee, the employee's subsequent cashing of the cheque may not, by itself, constitute an election to receive the severance pay forthwith within the meaning of the section. This is on the basis that the employee, in cashing such a cheque, may not have had the specific intent to elect to choose between severance pay and recall rights. From an employer's perspective, it would make sense, therefore, to attempt to ensure that the employee was given the opportunity to specifically choose between severance pay and recall rights sometime prior to the date for payment, and also to ensure that the employee fully understood the consequences of his or her choice vis-à-vis recall rights, prior to making such a choice.

Note, however, that this provision does not apply with respect to the employee's severance pay entitlement if the employee and employer have agreed to (as opposed to the Director approving) the payment of severance pay by instalment under s. 66 of the Act. In that event, s. 67(2) provides that the provisions of s. 67 (including s. 67(3)) do not apply with respect to the severance pay entitlement.

Consistency – s. 67(4)

This section is similar in part to the corresponding provisions (ss. 57(20) and 58(11)) of the former Employment Standards Act.

Section 67(4) provides that if an employee is entitled to termination pay on or after 35 weeks of lay-off in a period of 52 consecutive weeks and to severance pay, the employee must make the same election with respect to both. Note, however, that this requirement does not apply if the employee and employer have agreed to (as opposed to the Director approving) the payment of severance pay by instalment under s. 66 of the Act. In that event, s. 67(2) provides that the provisions of s. 67 (including s. 67(4)) do not apply with respect to the severance pay entitlement.

Deemed abandonment – s. 67(5)

This section is similar in part to the corresponding provisions (ss. 57(20) and 58(11)) of the former Employment Standards Act.

Section 67(5) provides that where an employee elects to be paid termination pay that became due because of a lay-off of 35 weeks in a period of 52 consecutive weeks, or severance pay, he or she will be deemed to have abandoned his or her right to be recalled.

Note, however, that this provision does not apply if the employee and employer have agreed to (as opposed to the Director approving) the payment of severance pay by instalment under s. 66 of the Act. In that event, s. 67(2) provides that the provisions of s. 67 (including s. 67(5)) do not apply with respect to the severance pay entitlement.

Employee not represented by trade union – s. 67(6)

This section is similar in part to the corresponding provisions (ss. 57(21) and 58(12)) of the former Employment Standards Act.

Section 67(6) provides that where an employee who is not represented by a trade union is entitled to termination pay because of a lay-off of 35 weeks in a period of 52 consecutive weeks and/or severance pay, and elects to retain the right to be recalled or makes no election, the employer must pay the termination and/or severance pay to the Director in trust.

Section 67(6) only applies where the employee is not represented by a trade union. For trust arrangements for employees who are represented by a trade union, refer to s. 67(7).

It should also be noted that the requirement to pay termination pay and severance pay to the Director in Trust does not apply if the employee and employer have agreed to (as opposed to the Director approving) the payment of severance pay by instalment under s. 66 of the Act. In that event, s. 67(2) provides that the provisions of s. 67 (including s. 67(6)) do not apply with respect to the severance pay entitlement.

Provision for the pay out of monies held in trust is made in ss. 67(8) and (9). Refer to the discussion in subsections (8) and (9) below.

Employee represented by trade union – s. 67(7)

This section is similar in part to the corresponding provisions (ss. 57(21) and 58(12)) of the former Employment Standards Act. The requirement that the employer and union attempt to negotiate a trust arrangement was introduced by the ESA 2000.

Section 67(7) provides that where an employee who is represented by a trade union is entitled to termination pay because of a lay-off of 35 weeks in a period of 52 consecutive weeks and/or severance pay and elects to retain the right to be recalled, or fails to make an election, the employer and the trade union must attempt to negotiate, in good faith, an arrangement for holding the termination and/or severance pay in trust. Where the parties agree to an arrangement, the monies must be held in accordance with the arrangement. Where the parties cannot agree on an arrangement and the trade union advises the Director and the employer in writing that efforts have failed, the employer must pay the termination and/or severance pay to the Director in trust.

Where the parties either do not attempt to negotiate an agreement in good faith or the union does not notify the Director and the employer in writing that no agreement could be reached, there will not be an obligation for the employer to pay the monies to the Director and there will not be an obligation for the Director to hold the monies in trust.

It should be noted that this section only applies where an employee is represented by a trade union. For trust arrangements for employees who are not represented by a trade union, refer to s. 67(6).

Provision for the pay out of monies held in trust is made in ss. 67(8) and (9). Refer to the discussion in subsections (8) and (9) below.

Where employee accepts recall – s. 67(8)

Section 67(8) provides that where the employee accepts a recall to work, the monies held in trust must be paid out to the employer and the employee is deemed to have abandoned the right to termination and severance pay.

Subsection 67(8) deals only with the issue of what happens to the termination and severance pay that was paid into trust when an employee accepts a recall; neither it, nor any other provision in s. 67, has any bearing on what constitutes a termination within the meaning of s. 56 or what constitutes a severance within the meaning of s. 63. See the Court of Appeal decision in United Steel v National Steel Car Limited, 2013 ONCA 401 (CanLII), where the Court rejected the employer's argument that s. 67 means that an employee who accepts a recall cannot have any of the time spent on lay-off prior to the recall taken into account in determining whether there was a subsequent termination or severance. See ESA Part XV, s. 63(1) for further discussion of this case.

1. Employee refuses to return to work

Sometimes situations will arise in which the employer recalls an employee who had elected to retain recall rights under s. 67 and the employee refuses to return to work. Because the employee's refusal occurs after the point at which the employee became entitled to termination pay or severance pay, the employee's refusal to accept the recall cannot disentitle him or her to that termination pay or severance pay. Specifically, none of the exemptions in ss. 2(1) or 9(1) of O Reg 288/01 apply to exempt such an employee from termination or severance pay to which he or she is already entitled. While paragraph 7 of s. 2(1) of O Reg 288/01 provides that an employee on a temporary lay-off is exempt from the termination provisions if he or she does not return to work when recalled, it does not apply to a refusal to return to work that occurs after the point at which the right to termination pay has crystallized. Further, there is no exemption from severance pay in O Reg 288/01 that corresponds to paragraph 7 of s. 2(1) of the regulation. Accordingly, an employee who has been recalled after his or her termination or severance entitlements have crystallized may refuse to return to work and then renounce his or her recall rights, in which case he or she will be entitled to receive any termination or severance pay held in trust in accordance with s. 67(9) – see the discussion below. Alternatively, an employee could refuse the recall but choose to retain the recall rights (if he or she did not lose them under the terms of the contract or collective agreement for having refused to return to work when recalled), in which case the money would continue to be held in trust. If the employee's refusal resulted in the automatic termination of recall rights under the terms of the contract or collective agreement, then the result would be the same as if the recall rights had expired, i.e., the money would be paid out of trust to the employee.

2. Period of employment calculation when termination after recall

Situations may also arise in which a long service employee who had been laid off for 35 weeks in a period of 52 consecutive weeks elects to retain recall rights and then, after more than 13 weeks elapse, accepts a recall, only to have the employer terminate the employee's employment two weeks later. How is the employee's length of service calculated for purposes of notice of termination in this case? Because of the “period of employment” rule in s. 8 of O Reg 288/01, only the last two weeks of employment would be considered in calculating the employee's period of employment. As a result, the employee would be entitled to one week's notice or one week's termination pay. While the employee's period of employment is only two weeks, the employee was "continuously employed for three months or more" within the meaning of s. 54 and so is entitled to notice or termination pay in accordance with s. 57(a).

Recall rights expired or renounced – s. 67(9)

This section is similar in part to the corresponding provisions (ss. 57(21) and 58(12)) of the former Employment Standards Act.

Section 67(9) provides that where the employee renounces the right to be recalled or the rights expire, the monies held in trust must be paid out to the employee and the employee is deemed to have abandoned the right to be recalled.

Although the section does not identify a specific person as being responsible for making this payment, it is implied that the person who holds the monies in trust is required to make the payment. It may be the Director or another person pursuant to the employer-trade union arrangement who holds the monies in trust.

Definitions - s. 67.1

67.1 In this Part, and for the purposes of Part XVIII (Reprisal), section 74.12, Part XXI (Who Enforces this Act and What They Can Do), Part XXII (Complaints and Enforcement), Part XXIII (Reviews by the Board), Part XXIV (Collection), Part XXV (Offences and Prosecutions), Part XXVI (Miscellaneous Evidentiary Provisions) and Part XXVII (Regulations) insofar as matters concerning this Part are concerned,

“employee” means an employee as defined in subsection 1 (1) and includes an applicant for employment;

“employer” means an employer as defined in subsection 1 (1) and includes a prospective employer;

“non-compete agreement” means an agreement, or any part of an agreement, between an employer and an employee that prohibits the employee from engaging in any business, work, occupation, profession, project or other activity that is in competition with the employer’s business after the employment relationship between the employee and the employer ends.

Section 67.1 provides enhanced definitions of "employee" and "employer”, and a definition of "non-compete agreement”, which apply for the purposes of Part XV.1 and the following provisions of the Employment Standards Act, 2000 insofar as matters concerning this Part are concerned:

Part XVII: Reprisal
Section 74.12: Reprisal by Client
Part XXI: Who Enforces this Act and What They Can Do
Part XXII: Complaints and Enforcement
Part XXIII: Reviews by the Board
Part XXIV: Collection
Part XXV: Offences and Prosecutions
Part XXVI: Miscellaneous Evidentiary Provisions
Part XXVII: Regulations

Employee

“employee” means an employee as defined in subsection 1 (1) and includes an applicant for employment;

The definition of "employee" in s. 67.1 expands the definition provided in s. 1(1) of the Act. Section 1(1) defines "employee" as follows:

1(1) "employee" includes,
1. a person, including an officer of a corporation, who performs work for an employer for wages,
2. a person who supplies services to an employer for wages,
3. a person who receives training from a person who is an employer, if the skill in which the person is being trained is a skill used by the employer’s employees, or
4. a person who is a homeworker,

and includes a person who was an employee.

For matters concerning the Non-Compete Agreements Part of the Act, the definition of "employee" is expanded to include an applicant for employment.

Employer

“employer” means an employer as defined in subsection 1 (1) and includes a prospective employer;

The definition of "employer" in s. 67.1 expands the definition in s. 1(1) of the Act. Section 1(1) defines "employer" as follows:

Non-compete agreement

Subsection 67.2(1) prohibits employers, with certain exceptions, from entering into employment contracts or other agreements that are, or that include, a “non-compete agreement”.

“Non-compete agreement” is defined to mean an agreement, or any part of an agreement, between an employer and an employee (which includes a prospective employer and an applicant for employment as per the other definitions in s. 67.1), that prohibits the employee from engaging in any business, work, occupation, profession, project or other activity that is in competition with the employer’s business after the employment relationship between the employee and the employer ends.

“Prohibits”

An agreement, or part of an agreement, is a “non-compete agreement” only if it “prohibits” the employee from engaging in any business, work, occupation, profession, project or other activity that is in competition with the employer’s business after the end of the employment relationship.

It is Program policy that an agreement, or part of an agreement, is a “non-compete agreement” only if it explicitly prohibits the employee from competing.

For example, an employer and an employee enter into an agreement, or part of an agreement, that requires the employee to pay the employer substantial fees to reimburse the employer for training or other costs if the employee quits. That agreement (or part of an agreement) does not explicitly prohibit the employee from competing and as such is not a “non-compete agreement”.

As another example, an agreement, or part of an agreement, that prohibits employees from soliciting the employer’s customers is not a “non-compete agreement”. (See below for more information on “non-solicit” clauses.) It is Program policy that a non-solicit clause will not be considered to be a “non-compete agreement” even if for practical purposes the circumstances (e.g. industry or geography) are such that the non-solicit clause renders it impossible for an employee to start a competing business or to work for a competitor.

For example, an employee is employed to sell a very specialized medical instrument where every potential purchaser of the product is a client of the current employer. The employee and employer entered into a non-solicit agreement that prohibits the employee from contacting any firm that was a customer of the employer at any time during the employee’s employment with the employer for two years after the end of the employment relationship. It is Program policy that this agreement is not a “non-compete agreement” because it does not explicitly prohibit the employee from engaging in any business (work, etc.) that is in competition with the employer’s business, even though for practical purposes the non-solicit clause renders it impossible for the employee to start the employee’s own business that would compete with the employer. (An employee who believes a non-solicit clause is unreasonable may choose to challenge its enforceability in the courts.)

Whether or Not Prohibition is Reasonable is Irrelevant

Disputes between employers and employees about the enforceability of non-compete agreements have historically been adjudicated by the courts, which generally have ruled that such agreements are not enforceable unless they are reasonable and in the public interest. An agreement, or part of an agreement, that fits the s. 67.1 definition of “non-compete agreement” will be considered to be a non-compete agreement whether or not it is reasonable or in the public interest.

Whether or Not Prohibition is Time Limited is Irrelevant

An agreement, or part of an agreement, that prohibits an employee from engaging in any business (work, etc.) that competes with the employer after the end of the employment relationship may be a “non-compete agreement” whether or not the prohibition is time-limited.

For example, an agreement that prohibits the employee from engaging in work that is in competition with the employer’s business for six months after the employment relationship ends is a “non-compete agreement”. An agreement that has no expiry date on the prohibition is also a “non-compete agreement”.

Whether or Not Prohibition is Geographically Restricted is Irrelevant

For example, an agreement that prohibits the employee from engaging in work that is in competition with the employer’s business after the employment relationships ends within 100 km of the employer’s workplace is a “non-compete agreement”. An agreement that has no geographic restriction on the prohibition is also a “non-compete agreement”.

Non-Compete vs Non-Solicit and Non-Disclosure

Non-compete, non-solicit and non-disclosure clauses or agreements are three main types of what are called restrictive covenant clauses in employment contracts. A restrictive covenant prevents someone from doing something or from using property in a certain way.

A non-solicit (or non-solicitation) clause or agreement is a provision in an employment contract that prohibits an employee from soliciting – i.e. actively pursuing, sometimes referred to as “poaching” - clients, customers, vendors, business partners or other employees of their employer, during the employment relationship and/or after the employment relationship has ended. Often, but not always, the non-solicit provision applies for a specified period after the end of the employment relationship, rather than indefinitely.

A non-disclosure clause or agreement is a provision in an employment contract that prohibits an employee from disclosing proprietary or confidential company information and processes.

The definition of “non-compete agreement” in s. 67.1 does not capture non-solicit agreements or non-disclosure agreements. As such, the prohibition in s. 67.2 with respect to entering into non-compete agreements does not apply to agreements that are non-solicit or non-disclosure agreements.

Some employers and employees may not use precise terminology when drafting their agreements and may use “non-compete” / “compete” incorrectly or interchangeably with “non-solicit” / “solicit” or “non-disclosure”. When determining whether an agreement falls within the definition of a non-compete agreement, the substance of the agreement is what matters, not the words that are used. When determining whether an agreement falls within the definition of a non-compete agreement, the Program looks at what activities the agreement prohibits. For example, an employment contract may have a heading that says “Non-Competition” in relation to a clause that says, “The employee will not, for two years after the end of the employment relationship contact any person, firm, corporation, or governmental agency who was a customer of the employer at any time during the employee’s employment with the employer.” Despite the heading “Non-Competition”, the substance of the clause is about soliciting rather than competing and as such does not fall into the definition of “non-compete agreement”.

Prohibition - s. 67.2(1), (2)

Subsection 67.2(1) prohibits employers from entering into an employment contract or any other agreement with an employee that includes a non-compete agreement, or that is a non-compete agreement. “Non-compete agreement” is defined in s. 67.1

For greater certainty, ss. 67.2(2) reinforces that the effect of ss. 5(1) of the ESA (the “no contracting out” provision) is to void any non-compete agreement that was entered into in contravention of ss. 67.2(1).

These provisions must be read in conjunction with ss. 67.2(3) and (4), which establish exceptions to the prohibition.

Subsections 67.2(1) and (2) only prohibit and void the parts/words of an employment contract or other agreement that fit within the definition of “non-compete agreement”. This means, for example, that where an employment contract contains both a prohibited non-compete agreement and a non-solicit clause that is not prohibited, only the non-compete agreement is prohibited and voided. (See the definition of “non-compete agreement” in s. 67.1 for a discussion of these terms.)

These subsections, along with the rest of Part XV.1, were added to the ESA by the Working for Workers Act, 2021 (WFWA). Although the WFWA received Royal Assent on December 2, 2021, Part XV.1 was deemed to have come into force on October 25, 2021, which was the day that the WFWA was introduced in the Legislature. As such, employers were prohibited from entering into non-compete agreements starting October 25, 2021, and any such agreements that were entered into on or after October 25, 2021 are void. Non-compete agreements that were entered into prior to October 25, 2021 are not prohibited, and are not voided, by the ESA.

“Employee” and “Employer”

Section 67.1 contains expanded definitions of “employee” and “employer” that apply for the purposes of Part XV.1. The expanded definitions include an applicant for employment and a prospective employer.

As such, the prohibition against entering into non-compete agreements applies even before the employment relationship begins, and if a prospective employer and an applicant for employment enter into a non-compete agreement, it is void.

The definition of “employee” also includes “a person who was an employee”. As such, the prohibition against entering into non-compete agreements continues to apply after the employment relationship ends and any non-compete agreement entered after the end of the employment relationship is also void.

Enforcement and Remedies

Part XV.1 does not prohibit employees and employers from resolving disputes about the enforceability of non-compete agreements in the courts. (See s. 8 of the ESA.) Although Part XV.1 creates, with two exceptions, a prohibition against entering into all non-compete agreements on or after October 25, 2021 – regardless of whether a court would have ruled the agreement to be enforceable - parties may wish to go to court to resolve issues about, for example, the enforceability of non-compete agreements that were entered into prior to October 25, 2021, or if there is a dispute as to whether one of the exceptions applies or whether an agreement entered into on or after October 25, 2021 fits within the definition of a prohibited “non-compete agreement”.

With respect to the Employment Standards Program, claimants may file a claim alleging, for example:

that their employer entered into a prohibited non-compete agreement with them, or
that they were reprised against because they refused to enter into a non-compete agreement, asked their employer to comply with Part XV.1, or engaged in any other protected activity under s. 74.

Because the definition of “employee” in s. 67.1 includes applicants for employment and former employees, the allegations may be made with respect to events that occur before the employment relationship is entered into, during it, or after it ends.

Where an employer is found to have contravened s. 67.2, an Employment Standards Officer may:

issue a compliance order pursuant to s. 108,
issue a notice of contravention pursuant to s. 113, and the prescribed penalties in Reg. 289/01 would apply, and/or
where the officer finds that the employer committed a reprisal, issue an order to compensate and/or an order to reinstate pursuant to s. 104. Note that there is no authority to issue an Order to Hire where the reprisal consisted of the prospective employer refusing to hire the applicant employee.

The officer also has the authority to initiate a prosecution under the Provincial Offences Act (POA). (Note: at the time of writing, there was no authority to issue Part I “tickets” under the POA for contraventions of s. 67.2.)

Exception – sale, etc., of business - s. 67.2(3)

67.2(3) If there is a sale of a business or a part of a business and, as a part of the sale, the purchaser and seller enter into an agreement that prohibits the seller from engaging in any business, work, occupation, profession, project or other activity that is in competition with the purchaser’s business after the sale and, immediately following the sale, the seller becomes an employee of the purchaser, subsection (1) does not apply with respect to that agreement.

Subsection 67.2(3) establishes one of the exceptions to the prohibition against entering into non-compete agreements.

It establishes that where:

there is a sale of a business or a part of a businesss, and
immediately following the sale the seller becomes an employee of the purchaser, and
as part of the sale the purchaser and seller enter into an agreement that prohibits the seller from engaging in any business, work, occupation, profession, project or other activity that is in competition with the purchaser’s business after the sale,

then the prohibition against entering into non-compete agreements per ss. 67.2(1) does not apply to that agreement.

“Sale” is defined in ss. 67.2(5) to include a lease.

Because of the second condition – that the seller becomes an employee of the purchaser – this exception only applies where the seller is an individual or individuals – i.e. where the business that is sold operated as a sole proprietorship or a partnership. As such, the exception in s. 67.2(3) does not apply in the context of the sale of a corporation and, as such, the purchaser is prohibited by ss. 67.2(1) from entering into non-compete agreements with any employees of the seller that it employs (subject to the “executive” exception in ss. 67.2(4)).

(Note: the definition of “non-compete agreement” in s. 67.1 applies only to agreements between employees and employers. Agreements prohibiting competition in the context of a sale of a business may be characterized by the parties as agreements between employers and employees, or they may be characterized as something else, such as being part of the sales agreement between the seller and the purchaser. For Part XV.1 purposes, it does not matter how that contractual term is characterized, as the agreement is not prohibited by the ESA in either situation.
- If it is an agreement between an employee and an employer, it would fit into the definition of “non-compete agreement” but it would not be prohibited by ss. 67.2(1) since the exception in ss. 67.2(3) would apply.
If it is any other type of agreement, such as part of the sales agreement between the purchaser and the seller, it would not fit into the definition of “non-compete agreement” and would not be prohibited by ss. 67.2(1).

Exception - executives - s. 67.2(4)

67.2 (4) Subsection (1) does not apply with respect to an employee who is an executive.

Definitions – s. 67.2(5)

67.2 (5) In this section,

“sale” includes a lease.

Subsection 67.2(5) establishes definitions for the terms “executive” and “sale” in s. 67.2. These terms are used in the context of the exceptions set out in ss. (3) and (4) to the prohibition against entering into non-compete agreements.

“Executive” is defined to mean any person who holds the office of chief executive officer, president, chief administrative officer, chief operating officer, chief financial officer, chief information officer, chief legal officer, chief human resources officer or chief corporate development officer, or holds any other chief executive position]

Accordingly, the prohibition in s. 67.2(1) against employers entering into non-compete agreements does not apply with respect to any employee who holds any of the listed offices, or any other chief executive position.

When determining whether the exception to the prohibiton applies, it is the job title held by the employee that matters. The Program does not generally look behind the title and assess whether the employee’s duties appear to be at an executive level.

The exception to the prohibition will apply if the employee holds one of the listed job titles, even if they simultaneously hold other job titles that are not listed.

“Sale” is defined to include a lease. Note that the definition of “sale” for purposes of s. 67.2 is narrower from the definition of “sells” and “sale” in s. 9 of the Act (in Part IV, Continuity of Employment), where it includes a lease, a transfer and a disposition in any other manner.

Updated: April 25, 2023

Published: July 19, 2018