1. law, govt and politics

TERMINATION HANDBOOK
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simon margolis
howard ehrlich
herb isherwood
ryan berger
Managing Partner
604.641.4871
[email protected]
Partner
604.641.4901
[email protected]
Partner
604.641.4818
[email protected]
Partner
604.641.4956
[email protected]
christian petersen
MARINO SVEINSON
taryn mackie
Partner
604.641.4903
[email protected]
Partner
604.641.4907
[email protected]
Partner
604.641.4877
[email protected]
andrew schafer
KATHERINE COBBAN
Associate
604.641.4858
[email protected]
Associate
604.641.4899
[email protected]
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TERMINATION HANDBOOK
A GUIDE TO THE DISMISSAL OF EMPLOYEES
LABOUR & EMPLOYMENT GROUP
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CAVEAT
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OVERVIEW
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A. TERMINATION OBLIGATIONS
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B. EMPLOYMENT CONTRACTS 11
C. HUMAN RIGHTS CODE 11
D. STRUCTURE OF SEVERANCE OPTIONS 12
E. TAXATION OF SEVERANCE PAYMENTS
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F. PREPARING FOR THE TERMINATION
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CAVEAT
We have prepared the following materials to assist you when the need to terminate an employee arises.
These materials should be considered a reference only since each termination situation will have different
and sometimes unique issues to resolve. Also, although we update these materials from time to time, you
will need to ensure that there have been no significant changes in the law since our last update.
OVERVIEW
Regulation of employment, and specifically the termination of employment, in British Columbia, Alberta
and Saskatchewan is covered by both statute and common law. The primary statutes which govern the
employment relationship between a nonunionized employee and employer are the Employment Standards
Act (B.C.), the Employment Standards Code (Alta.) and the Labour Standards Act (Sask.). In addition,
the Human Rights Code (B.C.), the Human Rights, Citizenship and Multiculturalism Act (Alta.) and the
Saskatchewan Human Rights Code, as well as Workers’ Compensation legislation, impact the employment
relationship. There are similar statutes for federally regulated industries.
This Termination Handbook does not deal with termination of employees who are covered by a collective
agreement with a union.
Employment standards legislation establishes minimum working conditions, including minimum
obligations on termination of employment, and applies to most employeesin the province. The termination
provisions of this legislation set out the minimum notice or severance pay obligations where there is no just
cause for termination. These are minimum requirements and cannot be changed by agreement between an
employer and an employee.
Employees are also entitled to reasonable notice at common law which is often greater than the minimum
obligations found in employment standards legislation. The various human rights statutes prohibit the
termination of employees on designated basis including sex, disability, race or religion.
Workers’ compensation legislation provides rules designed to improve job safety. Under this legislation,
workers who are injured on the job receive compensation and rehabilitation. This legislation also provides
protection for the employer as workers are precluded from suing their employer for workplace injuries.
A. TERMINATION OBLIGATIONS
In the absence of express contractual obligation or just cause, an employer is obligated to provide an
employee with reasonable notice of termination. The calculation of “reasonable notice” is based on factors
such as length of service, age, salary, marketability of the employee and the position held, and is often
greater than obligations under employment standards legislation. There is a common misunderstanding
amongst employers who do not have extensive experience with terminations that the legislation sets out
an employer’s entire severance obligations. These are minimum requirements only. The obligation to give
reasonable notice will not be less than the requirements of the legislation and, in the vast majority of cases,
will exceed them.
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1. WAGES AND OTHER MONIES OWING TO THE DATE OF
TERMINATION
British Columbia
Upon termination by the employer, the employer must pay to the employee all wages which are due to the
date of termination. These wages must be paid within 48 hours after the termination. “Wages” includes
any salaries, commissions or money payable to the employee. This also includes any unused vacation and
banked overtime owed to the employee.
The Employment Standards Act prohibits an employer from making deductions from wages payable to an
employee except in limited circumstances.
If the employee terminates the employment relationship, the employer has 6 days within which to pay
earned wages to the employee.
Alberta
Upon termination by the employer by a termination notice, termination pay or a combination of the two,
the employer must pay the employee’s earnings not later than 3 consecutive days after the last day of
employment. If no termination notice or termination pay is required to be given, the employer must pay
the employee’s earnings not less than 10 consecutive days after the last day of employment. Identical time
periods apply if it is the employee who terminates the employment. “Earnings” includes wages, overtime
pay, vacation pay, general holiday pay and termination pay.
The Employment Standards Code prohibits an employer from making deductions from earnings payable
except in limited circumstances.
Saskatchewan
Every employee who terminates his or her employment or whose employment is terminated for any reason
must be paid his or her wages in full by the employer within 14 days after the date on which the termination
of employment takes effect.
“Wages” includes salary, pay, commission and any compensation for labour or personal services. The Labour
Standards Act also provides that the employer must pay the employee their annual holiday pay within 14
days of the effective date of termination.
2. TERMINATION OF THE EMPLOYMENT RELATIONSHIP AT COMMON
LAW
As noted above, employment standards legislation sets only the minimum notice of termination or
severance pay that must be provided to an employee. Except for these minimums, the employer/employee
relationship is governed by contract law which is based on court decisions. This body of law is known as
the “common law.” At common law, the courts have required both employees and employers to provide
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reasonable notice of termination of the employment relationship if there is no just cause for termination.
This obligation can be altered by written agreement provided that the agreed notice is not less than the
minimum notice period under employment standards legislation. A written contract may provide for a
defined severance payment on termination, fix a term for the employment where severance is not owing
upon expiry of the term, or both. The legislation and common law requirements run concurrently and not
cumulatively.
3. JUST CAUSE
If an employer has just cause to terminate the employee’s employment, the employer does not have to
provide reasonable notice to the employee. Generally speaking, just cause will require a serious breach of
the employment relationship (e.g. theft or dishonesty) or continued or repeated improper conduct (e.g.
insubordination or harassment) for which the employee was adequately warned. Just cause must be based
on the conduct of the employee and not other factors such as economic conditions. In most situations it
will be necessary to show that appropriate work directions and warnings were given without success. Each
circumstance must be examined as it arises to determine whether just cause is present.
4. REASONABLE NOTICE
The calculation of reasonable notice depends on a number of factors, the most important of which are the
length of service of the employee, the employee’s age, the level of skill involved in the job and the chances
for reemployment. Special circumstances such as inducement in hiring or unfair dealing at the time of
termination can influence the notice period. There is no precise formula to calculate the required notice
period. Some employers and employees believe there is a rule of thumb of one month per year of service.
There is no such general rule. Reasonable notice depends on the particular circumstances of each employee
and notice periods can range up to 24 months or more if special circumstances exist.
It is important to note that the employer’s obligation is to provide the employee reasonable notice of
termination during which the employee would continue to work. This is known as “working notice.” Most
employers prefer to immediately terminate employees and pay the employee wages in lieu of notice.
This payment will reduce the employee’s damages but does create some potential risks for the employer.
For example, if an employee becomes totally disabled during the notice period, the employer’s disability
insurance plan will not cover the employee because the employee is no longer actively employed. If the
employer had allowed the employee to work during the legally required notice period, the employee could
have made a claim against the insurance plan. As a result, the employer may be directly liable to make
disability payments to the employee for the duration that those payments would have been paid to the
employee by the insurance carrier.
5. CONSTRUCTIVE DISMISSAL
If an employer unilaterally and without reasonable notice changes a fundamental term of the employee’s
employment, the employee may be able to resign and claim a constructive dismissal entitling the employee
to damages in lieu of reasonable notice, as if employment of the employee actually had been terminated.
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6. VOLUNTARY RESIGNATION
An employee who voluntarily resigns is not entitled to severance pay. If the resignation is not voluntary
(e.g. an employer tells an employee to quit or else be fired), or if the resignation is caused by a constructive
dismissal, the employee may be able to claim damages.
7. NOTICE OF TERMINATION UNDER EMPLOYMENT STANDARDS
LEGISLATION
BRITISH COLUMBIA
An employee becomes entitled to notice or pay in lieu thereof under the Employment Standards Act
upon completion of 3 consecutive months of employment. After 3 consecutive months of employment,
an employee is entitled to one week’s wages as compensation for length of service, or one week’s written
notice in lieu of wages. After 12 consecutive months of employment the amount of notice or pay in lieu
thereof is increased to 2 weeks. After 3 consecutive years of employment the amount increases to 3 weeks’
wages or notice and an additional week of notice or pay in lieu thereof is added for each additional year
of employment thereafter up to a maximum of 8 weeks’ wages. The maximum individual termination
requirement under the Employment Standards Act is 8 weeks of written notice or pay in lieu thereof upon
completion of 8 years employment.
Summary of Notice required:
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Up to 3 months’ service – no notice;
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3 to 12 months’ service – 1 week notice;
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12 to 24 months – 2 weeks’ notice; and
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24 months and more – 2 weeks’ notice, plus 1 week additional notice per year of service up to a
maximum of 8 weeks.
The period of notice may not coincide with an employee’s annual vacation.
The Act contains group termination requirements that ordinarily apply where 50 or more employees are to
be terminated.
ALBERTA
An employee becomes entitled to notice or pay in lieu thereof under the Employment Standards Code upon
completion of 3 months of employment. After 3 months of employment, an employee is entitled to one
week’s wages as compensation for length of service, or one week’s written notice in lieu of wages. After 2
years of employment the amount of notice or pay in lieu thereof is increased to 2 weeks. After 4 years of
employment the amount increases to 4 weeks’ wages or notice. After 6 years of employment the amount
increases to 5 weeks’ wages or notice, after 8 years to 6 weeks and after 10 years to 8 weeks. The maximum
individual termination requirement under the Employment Standards Code is 8 weeks of written notice or
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pay in lieu thereof upon completion of 10 years employment.
Summary of Notice required:
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Up to 3 months’ service – no notice;
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3 months to 2 years – 1 week notice;
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2 years to 4 years – 2 weeks’ notice;
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4 years to 6 years – 4 weeks’ notice;
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6 years to 8 years – 5 weeks’ notice;
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8 years to 10 years – 6 weeks’ notice;
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10 years or more – 8 weeks’ notice.
For the purposes of determining the correct termination notice, when an employee has been employed by
the same employer more than once, the periods of employment with that employer are considered to be one
period of employment if no more than 3 months has elapsed between them.
The Code contains group termination requirements that ordinarily apply where 50 or more employees are to
be terminated.
SASKATCHEWAN
An employee becomes entitled to notice or pay in lieu thereof under the Labour Standards Act upon
completion of 3 continuous months of employment. After 3 continuous months of employment, an
employee is entitled to one week’s wages as compensation for length of service, or one week’s written
notice in lieu of wages. After 1 year of employment the amount of notice or pay in lieu thereof is increased
to 2 weeks. After 3 years of employment the amount increases to 4 weeks’ wages or notice. After 5 years of
employment the amount increases to 6 weeks’ wages or notice, and after 10 years to 8 weeks. The maximum
individual termination requirement under the Labour Standards Act is 8 weeks of written notice or pay in lieu
thereof upon completion of 10 years employment.
Summary of Notice required:
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Up to 3 months’ service – no notice;
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3 months to 1 years – 1 week notice;
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1 year to 3 years – 2 weeks’ notice;
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3 years to 5 years – 4 weeks’ notice;
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5 years to 10 years – 6 weeks’ notice;
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10 years or more – 8 weeks’ notice.
The period or any part of the period of notice shall not form part of any annual holiday to which the
employee is entitled. The Labour Standards Act contains group termination requirements that ordinarily
apply where 10 or more employees are to be terminated.
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8. DUTY OF FAIR DEALING
As a result of a decision of the Supreme Court of Canada, employers owe a duty to employees to treat
them fairly upon termination. An example of unfair dealing would include an employer alleging cause for
termination when none exists, or defaming an employee to potential employers.
The consequence of breaching this duty is an increase in the amount of damages owed to the employee.
9. TERMINATION WITHOUT NOTICE UNDER EMPLOYMENT
STANDARDS LEGISLATION
BRITISH COLUMBIA
Dismissal by the employer without notice or compensation under the Employment Standards Act is
justifiable only in the following circumstances:
(a) an employee who has not completed 3 consecutive months of employment;
(b) an employee discharged for just cause (see section on wrongful dismissal for the meaning of “just
cause”);
(c) an employee employed under an arrangement whereby the employer may request the employee to come
to work at any time for a temporary period and by which the employee has a choice of accepting or
rejecting work (commonly known as “casual” or “on call work”);
(d) an employee employed for a definite period or for specific work to be completed in a period of up to 12
months;
(e) an employee who has been offered and has refused reasonable alternative employment by the employer;
and
(f) an employee employed under a contract of employment that is impossible to perform due to an
unforeseeable event.
If an employer has substantially altered a condition of employment, the Director of Employment Standards
may determine that the employment of an employee has been terminated and require the employer to give
notice or pay in lieu of notice.
ALBERTA
In addition to the circumstances set out above for B.C., termination notice is not required under the
Employment Standards Code in the following circumstances:
(a) if the employee refuses work made available through a seniority system;
(b) if the employee is not provided with work by the employer by reason of a strike or lockout occurring at
the employee’s place of employment;
(c) if the employee is employed on a seasonal basis and on the completion of the season the employee’s
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employment is terminated; and
(d) when employment ends under the layoff provisions of the Code.
SASKATCHEWAN
Under the Labour Standards Act, except for just cause, other than shortage of work, no employer can
discharge or lay off an employee who had been in his or her service for at least three continuous months
without notice or pay in lieu of notice.
10.CALCULATION OF WAGES FOR SEVERANCE PAY
In British Columbia, the weekly wage entitlement under the Employment Standards Act is determined as an
average of the last 8 weeks in which wages (exclusive of overtime wages) were earned or the normal weekly
wages, whichever is greater, times weeks of entitlement. Under the Employment Standards Code of Alberta,
the weekly wage entitlement is determined as the average of the employee’s wages for the 3-month period
immediately preceding the date of termination. In Saskatchewan, the four weeks immediately proceeding
termination (exclusive of overtime) are used.
11.ALTERATION OF TERMS OF EMPLOYMENT DURING THE PERIOD
OF NOTICE
The Employment Standards Act (B.C.) provides that an employer is not permitted to alter wages or
conditions of employment during the period of notice unless the employee consents to the changes. The
Employment Standards Code (Alta.) provides that neither the wages, wage rate, nor any other term or
condition of employment may be reduced by an employer. There is no provision in the Code that allows an
employee to consent to a reduction. The Labour Standards Act (Sask.) does not contain a similar provision.
12.LIABILITY OF DIRECTORS AND OFFICERS
Under the Employment Standards Act (BC), directors and officers of a corporation at the time wages of an
employee of the corporation were earned are personally liable for up to 2 months’ unpaid wages for each
employee. Wages include amounts owing for statutory severance. Directors and officers are not liable for
unpaid wages if the corporation is in receivership or bankruptcy or is subject to action under Section 178 of
the Bank Act (Canada).
In Alberta, only directors are liable to employees for unpaid wages. The definition of “wages” in the
Employment Standards Code does not include termination pay.
The Labour Standards Act (Sask.) provides that directors are liable to employees for all debts due for
services performed for the corporation, which includes wages, annual holiday pay, public holiday pay and
pay in lieu of notice.
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B. EMPLOYMENT CONTRACTS
Parties to an employment relationship can have the terms of their relationship governed by a written
employment agreement. The agreement can include a provision that sets out the notice or pay required
upon termination. The agreed notice or pay must not be less than the employment standards legislation
minimum notice or pay requirement but can be less than the common law reasonable notice obligation.
The employer must be careful to ensure that termination provisions are clearly drafted. It is important that
the employee read, understand and execute the contract prior to commencing employment. Special steps
need to be taken to implement a written contract for an existing employee. The contract must be updated
and renewed as the employment relationship changes or develops.
C. HUMAN RIGHTS CODE
BRITISH COLUMBIA
The BC Human Rights Code prohibits a person from refusing to employ or refusing to continue to employ
a person or discriminating against a person with respect to employment or any term or condition of
employment because of the race, colour, ancestry, place of origin, political belief, religion, marital status,
family status, physical or mental disability, sex, sexual orientation or age of that person or because of a
criminal conviction or charge that is unrelated to the employment or to the intended employment of that
person. Age discrimination is prohibited in respect of persons between the ages of 19 and 65.
This prohibition does not apply as it relates to age, to any bona fide scheme based on seniority, or as
it relates to marital status, physical or mental disability, sex or age, to the operation of any bona fide
retirement, superannuation or pension plan or to a bona fide group or employee insurance plan. Also the
provision does not apply with respect to a refusal, limitation, specification or preference based on a bona
fide occupational requirement.
ALBERTA
The Human Rights, Citizenship and Multiculturalism Act prohibits employers from refusing to employ or
refusing to continue to employ a person or discriminating against a person with respect to employment or
any term or condition of employment because of the race, religious beliefs, colour, gender, physical disability,
mental disability, age, ancestry, place of origin, marital status, source of income or family status of that
person or of any other person. Sexual orientation is not an expressly prohibited ground of discrimination in
employment, however, court decisions have read in the words “sexual orientation” to the prohibited grounds
of discrimination. The Act does not provide any protection for individuals convicted of or charged with, a
criminal offence. Age discrimination is prohibited in respect of persons 18 years or older.
This prohibition does not apply as it relates to age and marital status, to affect the operation of any bona fide
retirement or pension plan or the terms or conditions of any bona fide group or employee insurance plan.
Also, the provision does not apply with respect to a refusal, limitation, specification or preference based on a
bona fide occupational requirement.
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SASKATCHEWAN
The Labour Standards Act prohibits employers from refusing to employ, or refusing to continue to employ a
person, or discriminating against a person or class of persons with respect to employment, or any term of
employment on the basis of religion, creed, marital status, family status, sex, sexual orientation, disability,
age, colour, ancestry, nationality, place of origin, race or perceived race or receipt of public assistance. The
Act does not provide any protection for individuals convicted of, or charged with, a criminal offence. Age
discrimination is prohibited in respect of persons between the ages of 18 and 65.
The prohibition not apply as it relates to age to prohibit the operation of any term of a bona fide retirement,
superannuation or pension plan, or any terms or conditions of any bona fide group or employee
insurance plan, or of any bona fide scheme based upon seniority. Any part of this provision relating to any
discrimination, limitation, specification or preference for a position or employment based on sex, disability
or age does not apply where sex, ability or age is a reasonable occupational qualification and requirement for
the position or employment.
In addition, this prohibition does not prohibit an exclusively non-profit, charitable, philanthropic, fraternal,
religious, racial or social organization or corporation that is primarily engaged in serving the interests of
persons identified by their race, creed, religion, colour, sex, sexual orientation, family status, marital status,
disability, age, nationality, place of origin or receipt of public assistance from employing only, or giving
preference in employment to, persons similarly identified if the qualification is a reasonable and bona fide
qualification because of the nature of the employment.
Employers need to be alert to identify circumstances that could indicate a possible human rights issue.
For example, a chronically absent employee may have a disability that requires accommodation under the
legislation.
D.STRUCTURE OF SEVERANCE OPTIONS
If an employer plans to terminate an employee immediately and just cause does not exist, the employer
should consider how to structure a severance offer.
The employer should consider whether it wants to offer the terminated employee a lump sum payment or
salary continuance. Under salary continuance, the employee’s salary and benefits are paid in the normal
fashion for the duration of the notice period. When structuring an offer the employer may want to consider
the likelihood the employee will be able to mitigate the loss. Generally, the longer the notice period, the
more likely the employee will be able to find work prior to the expiry of the notice period. For this reason, an
employer may not want to provide a lump sum payment to an employee entitled to a long notice period as it
could result in a windfall to the employee and an unnecessary expense for the employer.
A decision to offer salary continuance can guard against a potential windfall to the employee. Salary
continuance can be structured to include a payout (often 50%) where the employee obtains employment or
self employment.
The employer should also advise the employee of any right to convert life insurance or any other benefits. It
is also a good idea to consider advising an employee to attempt to obtain LTD coverage.
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If requested by the employee, employers should also consider providing a reference letter.
Finally, it is imperative that the employer obtain a full and comprehensive release from the employee.
The release should bar long term disability claims, as well as all other claims, including claims under
employment standards and human rights legislation, although the release may not be effective in preventing
claims under such statutes. The employee need not execute the release immediately and should be advised
to take it away and seek independent legal advice prior to executing it.
E. TAXATION OF SEVERANCE PAYMENTS
The employer is required to deduct income tax from a payment to an employee in respect of the loss of
employment. The employer is not required to deduct CPP or Employment Insurance premiums from the
lump-sum payment if the payment is properly classified as one in recognition of service or compensation for
loss of employment.
Income tax should be deducted from the lump sum payment at the following flat rates:
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10% – if the payment is not more than $5,000.
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20% – if the payment is more than $5,000 but not more than $15,000.
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30% – if the payment is more than $15,000.
If the employee is only provided with the minimum pay in lieu of notice in accordance with Employment
Standards Act, the employer is required to deduct and remit standard payroll deductions (i.e. CPP, EI, and
income tax).
The transfer of vehicles, computers or other in kind compensation to the employee is also subject to tax
withholdings.
A portion of a severance payment may be transferred by the employer directly into an employee’s RPP or
RRSP account without deducting income tax depending on the employee’s length of service.
The amount that is eligible for transfer is limited to:
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$2,000 for each year or part of a year of service by the employee before 1996;
plus
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$1,500 for each year or part of year of service before 1989 provided that none of the employer’s
contributions to the RPP or DPSP (Deferred Profit Sharing Plan) had vested in the employee’s name
when the retiring allowance is paid.
F. PREPARING FOR THE TERMINATION
A termination should be carefully planned. The following are some general pointers that will assist in the
termination process:
1. Have the letter, release and paycheque for the employee up to the final day of employment ready to
be presented to the employee (if the cheque is not available that day then it should be provided to the
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employee as soon as possible after the termination);
2. Conduct the termination in the employee’s office or a neutral site;
3. Carry out the termination at the end of the day, preferably when other employees in the office have left,
and at the beginning of the week;
4. Check to see whether the planned date of termination has any special significance for the employee
(birthday, anniversary, etc.) and change the date accordingly;
5. Take steps to address security issues (e.g. keys, passwords, cards, tendency of the employee to become
violent);
6. Consider an appropriate announcement to staff, customers, suppliers and others;
7. Be careful about internal and external email communications concerning the employee and the
termination, as these can be subject to disclosure in any subsequent litigation;
8. Refrain from engaging in any detailed discussion of the reasons for the termination with the employee
(employees have difficulty remembering the discussion accurately, and could become defensive and
argumentative);
9. Keep the termination interview as short as possible;
10. Have two senior persons present for the termination, one of whom will be the spokesperson;
11. Write out notes or a rough script in advance of the meeting;
12. Advise the employee that he/she can clean out the employee’s office or desk immediately, or that you
will arrange to do it at a later date;
13. Make sure that it is clear to the employee that the decision is firm and irrevocable;
14. Ensure that the employee leaves the building without providing the appearance that the employee is
being forcibly escorted out of the building;
15. Make arrangements for the employee to get home safely (arrange for a cab if necessary);
16. Refrain from pressuring the employee to sign the release immediately (if the employee asks to sign the
release immediately you should tell the employee to take it away and seek independent legal advice prior
to executing it); and
17. Make notes of the interview immediately thereafter in anticipation of possible litigation.
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Bull Housser is a leading law firm with expertise in key industries within British Columbia,
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