December 10, 2003

Does Laid Off Time Count in Determining Severance?

Question: We are an Ontario-based employer and we have an employee whose employment was terminated after he had been temporarily laid off for a short period. Is he entitled to severance pay? If so, should the period of time he was temporarily laid off be included in determining the calculation of severance pay?

Answer: Severance pay is compensation paid to a qualified employee who has his employment “severed.” It compensates an employee for loss of seniority and job-related benefits. It also recognizes an employee’s years of service. Severance pay is not the same as termination pay, which is given in place of the required notice for termination of employment.

In Ontario under the Employment Standards Act, 2000, an employer must pay severance pay if:

  • the employer has an annual payroll in Ontario of at least $2.5 million;
  • the employee has at least five years of service; and
  • the layoff period exceeds 35 weeks in a period of 52 consecutive weeks (where the severance is initially considered a layoff).

Severance pay is also required where more than 50 employees are terminated within a six-month period as a result of the closure of all or part of the business. In these cases, the $2.5 million requirement does not apply.

Employees will not be entitled to severance pay:

  • when the closedown of the business was caused by a strike;
  • where employment has been made impossible by an unforeseeable event unless it has caused a closedown of the business;
  • when they retire with full retirement benefits;
  • when they refuse reasonable alternative employment with the employer;
  • when they are guilty of willful misconduct or willful neglect of duty;
  • when employed in the construction industry or on-site maintenance of buildings, roads, sewers, or other works; or,
  • if they are on-call employees who may choose not to work when called.

Severance pay is calculated by providing one week’s pay per year of service to a maximum of 26 weeks’ pay. If employment is terminated, for example at 15 years of service, the employee will be entitled to severance pay of 15 times his weekly wage rate.

An employee must receive severance pay no later than seven days after his employment is severed or what would have been his next regular pay day, whichever is later. However, an employer may apply to the Minister of Labour for approval to make severance payments by instalments over a maximum period of three years. This enables employers to meet their severance pay responsibilities in a manageable way. If an employer fails to make a scheduled payment, all of the severance pay still owing to the employee becomes due immediately.

If an employee resigns after receiving notice of termination, the employee may still be entitled to severance pay. To receive severance pay, the employee will have to have given the employer at least two weeks’ written notice and the last day of work must be in the employer’s minimum notice period.

A temporary layoff happens where an employer suspends, cuts back or stops an employee’s employment without permanently ending it. Employers are not required under the Employment Standards Act to provide employees with a written notice of a temporary layoff, nor do they have to produce a reason. If an employee has been temporarily laid off and employment is subsequently terminated with notice, the period of temporary layoff is included in determining the severance pay calculation.

Does poor treatment entitle an employee to resign and seek damages for constructive dismissal?

Question: Does poor treatment by an employer entitle an employee to resign and seek damages for constructive dismissal?

Answer: Employees are entitled to be treated with civility, decency, respect and dignity, particularly in the context of discipline. In accordance with these principles, Ontario courts have found an employee who has been subjected to derogatory and demeaning conduct at the hands of his employer may be considered to have been constructively dismissed. Where it can be proven an employer has repudiated the employment relationship by its conduct, without cause, constructive dismissal will be found to have occurred.

A workplace environment characterized by an atmosphere of hostility, embarrassment or humiliation may entitle an employee to resign and seek damages. Examples of conduct that courts have found to be unacceptable include:

  • hostile, aggressive, profane, rude, demeaning, abusive and intimidating conduct directed toward the employee;
  • a management style occasionally punctuated with anger and profanities; and
  • discipline carried out in a manner which is demeaning.

Depending on the circumstances, such conduct may amount to treatment of an employee of sufficient severity and effect to constitute a repudiation of the employment relationship.

It has been found that an employee has no obligation to advise his employer that its conduct is unacceptable. The onus is on the employer to identify the problems in the workplace and take the appropriate steps. In cases of objectively inappropriate and severe conduct, the burden placed upon the employer is less problematic. But in less obvious cases this burden may pose significant difficulty for an employer because it could potentially relieve an employee from any responsibility to indicate that the employer’s management style is having a demotivating or debilitating result.

Employers must ensure they do not turn a blind eye to abusive treatment of an employee which could lead to a successful claim of constructive dismissal. If such behaviour does occur, it is important that employers act quickly and effectively to stop it and ensure those guilty of such behaviour are disciplined. The best way employers can ensure their employees are not being treated abusively at work is to be involved and in tune with employee relations. Employers must be aware of what is happening in the workplace since it cannot deal with a problem if it does not know one exists.

Peter Israel is the senior partner in the Toronto law firm of Israel Foulon LLP – Employment and Labour Lawyers. He can be reached at 416-640-1550 or pi@israelfoulon.com. A version of this article originally appeared in the Carswell publication, Canadian Employment Law Today

LEGAL DISCLAIMER: This article is for informational purposes only and is not intended to provide legal advice, which in all circumstances must be tailored to the specific facts of any problem. You should obtain a proper legal consultation in order to determine how this article applies to your specific situation.
Please feel free to contact Israel Foulon LLP to learn more at 416-640-1550.

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