At law, employers can terminate employees at any time and for any reason (as long as it is not discriminatory) provided the employer provides sufficient notice to the employee. The purpose of this notice is to give the employee time to look for suitable alternative employment; this is what is known as the “notice period”. The length of the notice period varies according to several factors, such as length of service, pay, age, and the industry. The notice period can also be limited in the employment contract.
Oftentimes, mostly due to possible awkwardness or feelings of rejection, employers do not wish for the employee to continue working during the notice period and so opt to provide the employee with pay in lieu of notice (i.e. money to replace the salary they would have received if they were continue to work). This is also a good option for employees who may become disgruntled or toxic when they learn that they are being dismissed from employment.
What about my package?
Employees are often surprised to learn that working notice is a perfectly acceptable form of notice, and, in fact, is the legal default. If enough working notice is offered to the employee, he is she is not entitled to additional monies. However, if the working notice is insufficient, he or she may have a claim for wrongful dismissal in respect of any shortfall between the amount of working notice offered and the reasonable notice period a court might award.
What if I do not wish to work out my notice period? Why can’t I just have the cash?
This is at the discretion of the employer. While there is no issue with asking for pay in lieu of the amount of notice offered, the employer is not obligated to provide it. Some employers may set out various options or combinations of working notice and pay in lieu on termination so that the employee can decide.
What about severance pay?
In Ontario, employers with a worldwide payroll exceeding CAD $2.5 Million must pay severance pay on termination to employees with 5+ years’ service. Severance pay is equivalent to 1 week per year of service up to a maximum of 26. Severance pay cannot be given in the form of working notice, rather it must be paid out in cash monies. An employer may pay severance pay in installments with the written agreement of the employee or the approval of the Director of Employment Standards, Ministry of Labour, Training and Skills Development.
It is critical that employers abide by their obligations to provide notice and severance on termination.