Closer Look at ESA

The termination clause of the employment contract must not violate any employment standard to escape judicial scrutiny. The draftsperson must be aware of these entitlements to insure that the contract does not violate these requirements.

A review, hence, of such statutory entitlements in order for this purpose.

Benefits & “Wages” for Notice Period

As noted in the recent Ontario case law, the Act requires all benefits to be continued for the statutory notice period which sets a cap of 8 weeks. This section, however, does more than extend benefit plans. It also extends the time period of employment [efn_note] s. 62(1) [/efn_note] and requires the status quo of wages for this time. [efn_note] s. 60(1) [/efn_note]

This will effect the service record for the purpose of severance pay. An employee, for example, with 10 years of service as of the termination date without notice, will have 10 years and 8 weeks for this purpose. More significantly, an employee with 4 years and 11.1 months of employment will see his service record extended to capture the severance entitlement, requiring 5 years in total. This will then entitle the employee to 4 weeks notice and 5 weeks of severance. A formula of two weeks per completed year will in this example be offside the statute.

As noted below, the Act requires that “benefit plan contributions” continue for the statutory notice period and also mandates that the “wage rate”, as defined, continue for the same time window.

The Act states the following regarding benefits continuity:

Requirements during notice period

60 (1) During a notice period under section 57 or 58, the employer,

(a)  shall not reduce the employee’s wage rate or alter any other term or condition of employment;

(b)  shall in each week pay the employee the wages the employee is entitled to receive, which in no case shall be less than his or her regular wages for a regular work week; and

(c)  shall continue to make whatever benefit plan contributions would be required to be made in order to maintain the employee’s benefits under the plan until the end of the notice period.  2000, c. 41, s. 60 (1).

The Act does state that the “wage rate” shall be continued for the notice period. It also uses two other terms “wages” which shall be no less than the “regular wages”.

“Wages” is a defined term as follows:

(a)  monetary remuneration payable by an employer to an employee under the terms of an employment contract, oral or written, express or implied,

(b)  any payment required to be made by an employer to an employee under this Act, and

(c)  any allowances for room or board under an employment contract or prescribed allowances,

but does not include,

(d)  tips or other gratuities,

(e)  any sums paid as gifts or bonuses that are dependent on the discretion of the employer and that are not related to hours, production or efficiency,

(f)  expenses and travelling allowances, or

(g)  subject to subsections 60 (3) or 62 (2), employer contributions to a benefit plan and payments to which an employee is entitled from a benefit plan; (“salaire”)

Such additional monetary sums akin to R.R.S.P, car allowances and the similar forms of compensation are likely caught by this definition as “monetary remuneration” or a “required” payment, as in required by contract.

Also, as noted below, vacation pay, also an employment standard, is payable for this statutory notice period.

The Act prohibits any reduction in the “wage rate” and also bans a revision to “any other term or condition of employment”. [efn_note] s. 60(1)a [/efn_note]

The contract would be wise to state that these similar issues are extended by the statutory notice period.

One decision in which the contract specifically defined the compensation to include a car allowance required that this sum be included in the statutory claim. [efn_note] in Miller v A.B.M [/efn_note] This leads to the conclusion that all such monetary compensation should continue for the statutory period.

This issue was critical to a recent decision of Pierce, J. [efn_note] Dufault v Ignace ONSC 1029, not on Canlii presently [/efn_note] in which the agreement stated the “base salary” would be continued as opposed to the total remuneration. The contract failed for this and other reasons.

Vacation Pay

Vacation pay is an employment standard required to be provided by each jurisdiction. The failure of the agreement to provide for it or to purport to contract out of such a benefit will be unenforceable. It may also put the contract in jeopardy.

The employment agreement in Kenpo Greenhouses v Director of Employment Standards allowed for vacation pay to accrue at 12% on base salary, well above the statutory rate of 6%, yet denied vacation pay on the annual bonus sum. This was found to be contrary to the Act, hence allowing a claim for vacation pay on the bonus sum at the statutory rate.

The Ontario statute contains a similar definition of wages on which vacation pay is calculated, yet exempts from its determination a bonus payment which is dependent on the discretion of the employer and that is not related to hours, production or efficiency, a test which would be difficult for most employers to meet. Likely this provision exempts only the Christmas turkey from vacation pay.

Vacation – Use It or Lose It

The Ontario Superior Court in Geluch v Rosedale Golf and Country Club concluded that the employer’s “use it or lose it” vacation pay policy was contrary to the Act not only with respect to the minimum vacation pay owing under the Act but rather to the contractual entitlement of the employee. Himel J. stated:

   Mr. Geluch testified that he had not taken a total of twenty-one weeks of vacation for the period from 1988 to 1996 inclusive.  Mr. Geluch now seeks compensation for these accrued vacation days, to be based upon his salary in place at the relevant times.  Rosedale maintains that Mr. Geluch was bound by the “use it or lose it” policy.  However, there was evidence led that another employee had been paid for accrued vacation.  Furthermore, the Employment Standards Act, R.S.O. 1990, c. E.14 (since replaced by the Employment Standards Act, S.O. 2000, c. 41, s.38) prohibits a “use it or lose it” policy.  In light of the statutory provisions, Mr. Geluch is entitled to be compensated for untaken accrued vacation pay for the twenty-one weeks, the value of which I fix at $50,000.

There is no reference in the 1990 version of the Act to such a term.

The quoted section 38 of the 2000 Act does not specifically deal with a “lose it or use it” term. It states:

 If an employee’s employment ends at a time when vacation pay has accrued with respect to the employee, the employer shall pay the vacation pay that has accrued to the employee in accordance with subsection 11 (5). 2000, c. 41, s. 38.

Section 11(5) sheds no further light as it states when payment of wages is due, following termination.

The Act does, however, make it clear that as far as the statutory payments are concerned, if the vacation is not taken, the employer must pay the vacation pay owing. There can be no “use it or lose it” for the statutory sum. There is authority for the Director of Employment Standards to authorize the foregoing of vacation pay. The Act states:

Approval to forego vacation

  1. (1)If the Director approves and an employee’s employer agrees, an employee may be allowed to forego taking vacation to which he or she is entitled under this part. 2000, c. 41, s. 41 (1).

Vacation pay

(2)  Nothing in subsection (1) allows the employer to forego paying vacation  pay. 2000, c. 41, s. 41 (2)

The issue of accumulated and unpaid vacation pay was considered in a 2024 Ontario decision. [efn_note] Boyer v Callidus [/efn_note] The above decision was not referenced, nor was the statutory term. The court awarded the arrears in vacation pay based on the principle that the employer was obliged to put in clear definitive language in an agreement to this effect. This, of course, was not the basis of Geluch. In this instance, the court stated:

If Callidus wished to impose a condition to Mr. Boyer’s contract of employment that he was required to take vacation in each year, and was precluded from carrying over to subsequent years his entitlement to vacation or pay in lieu thereof, it was incumbent on Callidus put its best foot forward and tender evidence showing that there was such a policy of which Mr. Boyer was aware. There is no evidence that Callidus did so.

Severance Pay

The Ontario Act requires severance pay, given the threshold service and payroll requirements. Severance pay cannot be conflated with working notice. A contract which hence sets out a notice, or payment obligation of two weeks per year of service, violates the statute.

As noted above, an employee with 8 years of service and severance positive, would be entitled to a minimum of 8 weeks’ notice. As the 8 weeks of statutory notice extends the service records, the employee would then have 8 years and 8 weeks employment history. The severance sum then due would be 8.08 weeks. The two week per year formula would violate the ESA.

The Act defines the entitlement of severance pay based on the number of full years and the number of months of a part year. In the example of an additional 8 weeks of employment, there will be one more full month. [efn_note] Non-continuous employment. (2) All time spent by the employee in the employer’s employ, whether or not continuous and whether or not active, shall be included in determining whether he or she is eligible for severance pay under subsection 64 (1) and in calculating his or her severance pay under subsection (1).  2000, c. 41, s. 65 (2). [/efn_note] The severance sum due will then be 8 and 1/12 weeks, or .08 weeks. [efn_note] Calculating severance pay.65 (1) Severance pay under this section shall be calculated by multiplying the employee’s regular wages for a regular work week by the sum of, (a)  the number of years of employment the employee has completed; and (b)  the number of months of employment not included in clause (a) that the employee has completed, divided by 12.  2000, c. 41, s. 65 (1). [/efn_note]

Such were the facts in Wood v Fred Deeley; hence, the termination clause failed.

Service History for Severance Pay – Cumulative – Ontario Based

A further point on the same topic is that the service history for the purposes of the statutory notice and severance is that the employment history is cumulative and not based on a continuum of interrupted employment.

To qualify this issue, the employment history must be Ontario based. Such was the decision of the Divisional Court in 1998.[efn_ note] Singer v Tullett Tokyo 1998 Carswell Ont 2291[/efn_note] The employee had been working for the American parent company for 4 years after which he was transferred to Ontario. The service in New York was not counted.

This decision was followed in 2005 by the Ontario Labour Relations Board. [efn_note] Dao v Brick Warehouse [/efn_note] The employee had worked in Alberta for 19 years after which he was moved to Ontario. The years spent in Alberta were not included to determine severance pay eligibility. [efn_note] to the same end is Zhang v IBM [/efn_note]

Although not binding statement of law, the Ministry shares the view of the above decisions. Its Interpretation Manual concludes it is only Ontario service which is relevant.

The Ontario court came to the same view in a January 2024 decision. [efn_ note] Mittra v Royal Bank [/efn_note]

Further, the issue arises as to whether the payroll must be the Ontario payroll or should this calculation include employees beyond Ontario. A 2011 decision decided that only Ontario payroll should be included and related entities outside the province must not be counted. [efn_note] Altman v Steve’s Music [/efn_note] This view was reversed in a 2021 decision of the Divisional Court, [efn_note] Hawkes v. Max Aicher [/efn_note]which was followed by the 2024 decision of the Ontario Labour Relations Board. [efn_note] Podder v Maran Sanmugathasan [/efn_note]

The Divisional Court spoke to a strong policy reason for its determination:

In view of the foregoing, I am unable to say that the Board’s reasons are based on an internally coherent and rational chain of analysis. But there is an additional reason for concluding that the decision is unreasonable. Those who interpret the law – whether courts or administrative decisionmakers – must do so in a manner consistent with the modern principle of statutory interpretation: see Vavilov, at para. 118. For this reason, as I have already stated, the merits of an administrative decisionmaker’s interpretation of a statutory provision must be consistent with the text, context, and purpose of the provision. Where an administrative decisionmaker fails to consider a key element of a statutory provision’s text, context, or purpose, and may well have arrived at a different result if it had done so, its failure to consider that element would be indefensible, and unreasonable in the circumstances. In this case, while the Board noted Mr. Hawkes’ reliance on the remedial purpose of the ESA in its description of the submissions of the parties, it did not take it into consideration in its reasons. The purpose of the ESA, and the purpose of the severance pay provisions in particular, bear closer consideration.

This issue would appear to be now settled.

Other Employment Standards Issues

Other ESA employment standards may include vacation pay, vacation pay on past bonuses, pay for statutory public holidays, a statutory holiday which occurred during a vacation period, over-time pay for non-managers, equal pay for equal work, pregnancy leave, parental leave, statutory leave and a reprisal claim and reinstatement remedies for any breach of these leave and/or reprisal terms.

Timing of the ESA Payment

The Act requires the statutory sums to be paid in a lump sum and hence an agreement which allowed for these payments over time was seen to be offside.  [efn_note] Dufault v Ignace [/efn_note] This presumes no working notice was provided.

Right to Terminate at Any Time

The same agreement allowed the employer the right to terminate employment “at any time” in its “sole discretion”. These words were found also to be offside the ESA as this would run afoul of the protected right of reinstatement after a statutory leave and/or reprisal. [efn_note] Dufault v Ignace not yet on Canlii [/efn_note]

A prior decision of the same court considered these same substantive words in 2020. [efn_note] Henderson v Slavkin [/efn_note] The agreement allowed the employer to terminate “without cause for any reason”. The plaintiff made the same submission that these words ran afoul of the protections afforded by statute, citing 47 illustrations of such rights as set out in the Employment Standards Act, the Occupational Health & Safety Act and the Human Rights Code. The submission failed.

The arguments were multiple. As noted above, the plaintiff submitted that (1) there was no severance pay component, also noting that this was a small dental office; (2) benefits were said to be “paid” as opposed to being “continued”, noting that there were no benefits; (3) there was no reference to vacation pay being paid for the ESA notice period; and (4) the submission as above on the words “for any reason”.

These submissions were considered collectively in the reasons:

It is the position of the defendants that the termination clause should be read in context and as a reflection of the clear intent of the parties that the minimum requirements of the ESA apply. The defendants cite Oudin as a framework for the analysis of the enforcement of a termination clause.

[36]           As stated in Amberber, the court should not strain to create ambiguity where none exists in the context of interpreting a termination clause. Further, as stated in Cook v. Hatch, a judge, in interpreting a termination clause, must look for the true intention of the parties, not to disaggregate the words looking for any ambiguity that can be used to set aside the agreement and, on that basis, apply notice as provided for by the common law.

[37]           In my view, there is no inconsistency between the termination clause and the ESA provisions which could give rise to any ambiguity in the plaintiff’s right to continue to receive benefits pursuant to the ESA. When considering the wording of the clause in issue and the intent of the parties demonstrated in the wording of the clause, indicating compliance with the requirements of the ESA, I cannot conclude that the clause could or should be interpreted as contrary to or inconsistent with the provisions of the ESA. I do not find anything which would suggest that the termination clause should be interpreted as contrary to the ESA.

Comfort was found in the reasons in the apparent intent of the employer to comply with the statute. This is discussed in the “saving provision” review. To put this charitably, it is difficult to see the words in this case as leading to a fair conclusion that such a term should save the day, particularly in view of the words from the Court of Appeal on this very issue, which have stated a saving provision cannot cure an agreement which violates the ESA. The decision in this instance found in favour of enforcing this clause, as a saving term:

Your employment may be terminated without cause for any reason upon the provision of notice equal to the minimum notice or pay in lieu of notice and any other benefits required to be paid under the terms of the Employment Standards Act, if any. By signing below, you agree that upon receipt of your entitlement under the Employment Standards Act, no further amount shall be due and payable to you, whether under the Employment Standards Act, any other statute or common law.

Fixed Term Contract

A  fixed term contract presents unusual issues as there is a statutory obligation to provide notice and/or severance pay in certain circumstances.

The abbreviated version of the Ontario requirement is that the legislated notice and/or severance must be provided where:

the employment comes to an end before the fixed term has concluded, or

the employment ends before the specific task has been completed, or

the term is longer than 12 months, or

the specific task is not completed within 12 months, or

whatever the specific term may be (presumably 12 months or less as a contract longer than 12 months would be automatically caught) , if employment continues for 3 months or more after that time period.

This presents an added degree of complexity to a termination within the context of a fixed term contract. This issue is discussed here.

Mass Termination

Ontario’s ESA requires a different mandatory statutory notice period, given a mass termination. The notice periods fluctuate based on the number of employees being terminated. The regulation reads as follows:

3. (1) The following periods are prescribed for the purposes of subsection 58 (1) of the Act:

1. Notice shall be given at least eight weeks before termination if the number of employees whose employment is terminated is 50 or more but fewer than 200.

2. Notice shall be given at least 12 weeks before termination if the number of employees whose employment is terminated is 200 or more but fewer than 500.

3. Notice shall be given at least 16 weeks before termination, if the number of employees whose employment is terminated is 500 or more.  O. Reg. 288/01, s. 3 (1).

No cases have considered whether this provision must be addressed in the employment termination clause. The theory has been approved that it is the potential impact of the relevant clause being offside, not the actual consequence at the relevant time period.

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