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How Much To Pay An Employee Upon Termination

Published on: June 2018 | News

Pallett Valo Lawyer: Jeffery Percival

Video Transcript:

(Music starts)

(Text on screen: Jeffrey Percival B.A. (Hons.), B.JOURN., LLB
Partner – Employment & Labour)

(Pallett Valo Logo)

(Text on screen: How Much To Pay An Employee Upon Termination)

(Jeffrey Percival appears on screen and faces the camera for the duration of this video.)

One of the biggest misconceptions in employment law is that you can simply terminate anyone for any reason at any time without paying them adequate compensation.

Particularly if your business isn’t doing well.

That is a myth.

How your business is doing is completely irrelevant. In fact, you can terminate an employee at any time for any reason provided you are willing to pay them adequate compensation.

Compensating an employee who you are terminating is made up of two components. One is the statutory component. And that is something that is prescribed by the Ontario’s employment standards act.

That includes such things as statutory termination pay, and statutory severance pay if your business is $2.5 million in payroll in Ontario and the employee has five years of service or more.

What a lot of employers don’t recognize is that is simply the minimum amount that you are required to pay an employee that you are terminating.

In fact, there’s something called common law notice which is far more significant and often increases the amount of notice you are required to pay to an employee much greater than you would under the statutory termination of that severance pay.

Common law looks at the employee as an individual from the age that they are, the years of service they have with you, the experience they have and how difficult it would be for them to find a comparable position.

So, it can increase the amount of notice that you are required to pay by a considerable amount.

Now, one of the things that employers often think about is – well, how can I modify that.

And in fact you can do that, and the way you do that is by putting in specific provisions in the employment contract. It’s important to remember that any provisions you put in limiting the amount of notice that employee is entitled to upon termination has to be in the employment contract, that has to be signed before the employee starts work with you.

It’s important to get good legal advice if you’re thinking about limiting the amount of termination pay and notice that you’re going to provide to an employee that you are about to terminate. The way you do that is through an employment contract.

Many employers are not aware that you can in fact limit the amount of notice that you’re required to pay an employee upon termination. It’s also important to note that any terms limiting the amount of notice that an employee is entitled to upon termination has to be in an employment contract; that has to be signed before the employee commences the employment with your company.

If they sign it after they have commenced employment, it’s too late. It’s not binding on the employee. So get that advice if you’re challenged on the termination provision in the employment contract.

Make sure that you have a leg to stand on in terms of saying no…this all that you get as an employee being terminated.