Do this when Constructively Dismissing an Employee
Organizations are constantly changing to remain competitive. Sometimes the need to make organizational changes requires an employer to constructively dismiss one or more of its employees. Last month, I wrote an article about constructive dismissal, which occurs when an employer makes a major, unilateral change to an essential term of an employee’s written or unwritten contract of employment. If the employee does not agree to the new terms of employment, the law treats the employee as if he or she were terminated ‘without cause’ (i.e. no fault) and the employee would be entitled to a termination package.
There is a way for employers to constructively dismiss an employee without triggering large termination package payment obligations. An employer could provide written notice of the change, which would take place sometime in the future. It would be business as usual and the employee would continue to work under his or her existing terms of employment until the change took place (referred to as working notice). At that time, the employee would then have a choice of continuing to work under the new terms of employment or ending the employment relationship. If the employee decided to end the employment relationship, he or she may not have additional termination entitlements because the working notice period (i.e. the time between the written notice and the implementation of the change) would essentially comprise the employee’s termination package.
So how much working notice should an employer provide? Working notice can be determined in 1 of 2 ways:
- If a written employment contract specifies what the employee will receive as notice of termination and severance, then this should be the amount of working notice the employee should receive; or
- If there is no written contract of employment or the contract of employment does not have a termination clause (or if the termination clause/contract is unenforceable), then the working notice period would be determined by the common law factors used to establish a reasonable notice period; namely the employee’s age, years of service, type of position, and availability of new employment.
Note however that Ontario employers who are regulated by the Employment Standards Act and who have a payroll of greater than $2.5 million annually, may still be required to provide statutory severance in addition to working notice for a constructive dismissal. Statutory severance is payable to an employee with 5 or more years of service and equals 1-week of the employee’s earnings for each completed year of service, pro-rated for partial years.
Employers need not fear large termination payments, which may result from constructively dismissing an employee. Planned correctly, an employer may be able to implement the operational changes they seek, retain a valued employee for a longer period of time, and minimize termination payments by providing working notice.