7.3 Termination of Employment

Termination of employment is a significant event that carries specific legal implications and obligations for employers, including the calculation and payment of final wages and benefits, and potential severance pay, making it essential to understand and adhere to employment laws and regulations.

Termination of employment may occur for various reasons, including voluntary resignation by employees pursuing other employment opportunities, disciplinary or performance-based dismissals owing to misconduct or unsatisfactory job performance, or terminations resulting from layoffs or restructuring in response to economic or organizational changes. Each of these scenarios carries different implications and obligations for employers regarding payroll matters and employee entitlements.

The Employment and Social DevelopmentCanada (2019) is a useful resource for employees and provides information on Labour Standards and employee rights upon termination: 10 Rights on Termination of Employment

7.3.1 Has employment been terminated?

In Canada, the termination of an employee can occur under different circumstances, and the specific rules and obligations surrounding each situation can vary depending on the applicable legislation and employment contract. Refer to the table below for relevant legislation according to the province or territory of employment.

One common termination scenario is when an employee voluntarily resigns from their position. In such cases, the termination is initiated by the employee. Employers are generally obligated to process the resignation and ensure that the employee receives their final paycheque, including any outstanding wages, accrued vacation pay, and any other entitlements in accordance with the province or territory employment standards legislation.

Note: Data collected June 29, 2023

7.3.2 Temporary Layoff vs. Termination

When an employer conducts a layoff without any plans to recall the employee to work, it is regarded as termination of employment. In such instances, employers bear specific responsibilities and obligations to their employees associated with the termination of employment, and in turn, employees benefit from the rights as protection from unjust dismissal. Refer to the table below for information on the termination notice requirement by each province and territory according to their provincial or territorial legislation.

Some types of layoffs do not qualify as termination of employment, including the following:

• When a layoff occurs because of a strike or lockout
• If the duration of the layoff is three months or less
• In cases where the layoff lasts more than three months but does not exceed 12 months, the employee retains recall rights as outlined in a collective agreement

Note: Adapted from What are the Termination Rules in Canada?

The Canada Labour Code outlines what is required from the employer when terminating the employment of an individual employee who has completed at least three consecutive months of employment. Unless the employee was terminated by way of dismissal for just cause, the employer must give the employee notice in writing at least two weeks prior the termination date or two weeks’ wages at the employee’s regular rate of wages or salary for their regular hours of work in lieu of the notice. It should be noted that the Canada Labour Code legislation applies only to industries over which the federal government has jurisdiction. All other industries fall under the legislation of the province or territory in which they operate.

7.3.3 Group Termination

7.3.3.1 What is a group termination?

A group termination refers to terminating 50 or more employees who work at a single industrial establishment either on the same day or within a four-week period (Government of Canada, 2024b). When planning a group termination of employment, a federally regulated employer must adhere to certain requirements. They must provide the Labour Program’s Head of Compliance and Enforcement with written notice at least 16 weeks prior to the termination’s intended effective date. Secondly, the employer must co-operate with the Canada Employment Insurance Commission, provide affected employees with a statement of benefits, and establish a Joint Planning Committee. Finally, the employer is also obligated to provide notice to each individual employee who will be affected by the termination of employment (Government of Canada, 2024b).

Consider the following example to determine how the four-week period when the employer must notify the Head of Compliance and Enforcement 16 weeks in advance:

Note: Adapted from Termination, layoff or dismissal

7.3.3.2 Giving Notice of a Group Termination

The notice of a group termination of employment should contain the following information:

• Employer’s name
• Industry or type of business conducted by the employer
• Location or establishment where affected employees work
• Number of affected employees, including both unionized and non-unionized individuals
• Date(s) of termination of employment
• Union information, if applicable
• Reason(s) for the group termination of employment

To facilitate the process of providing notice to the Head of Compliance and Enforcement regarding the group termination provisions, the ESDC-LAB1197 form is available online to assist employers. A copy of the notice of a group termination of employment should also be provided to the union representing the affected employees. If there is no union, all affected employees should receive a copy of the notice. To accomplish this, it is acceptable for the employer to post a copy of the notice in the workplace where affected employees have access to it. Electronic posting is also acceptable if all affected employees can access the electronic system where the document is posted.

At least two weeks prior to the last day of work, the employer must furnish the employees with a statement of benefits. This statement should include information about the employees’ wages, vacation pay, severance pay owed, and any other applicable benefits.

7.3.3.3 Joint Planning Committee

A Joint Planning Committee must be established by the employer to develop an adjustment program aimed at minimizing the impact of the group termination of employment on affected employees. Adjustment measures may include early retirement packages, job reassignment and training within the organization, or assistance in finding new employment. This committee is formed when notice is given and continues until the end of the notice period. It consists of representatives from both employees and the employer. The committee’s first meeting must take place within two weeks of the notice being submitted to the Head of Compliance and Enforcement.

Within six weeks of the notice being submitted, the Joint Planning Committee must finalize an adjustment program for affected employees, outlining the proposed adjustment measures. If the adjustment program is not ready within the allotted timeframe or if some committee members are dissatisfied with the proposed program, either the employees or the employer’s representative may request the Minister of Labour to appoint an arbitrator to help resolve the dispute.

Employers have the option to seek a waiver for any or all the following requirements:

• Providing and posting the 16-week written notice of group termination of employment
• Providing a statement of benefits to the affected employees
• Forming a Joint Planning Committee

However, to be granted a waiver, an employer must demonstrate that applying the adjustment program would (1) cause undue prejudice to the interests of the affected employees or the employer, (2) seriously impede the employer’s operations, or (3) not be necessary due to the existence of similar measures under a collective agreement or established employee adjustment program.

7.3.3.4 Group Termination in Non-Federally Regulated Companies

The notice required in a group termination in non-federally regulated businesses can vary depending on the specific province or territory. When a company plans a mass layoff or large-scale termination of employment, there are specific rules and regulations in place to protect the rights of the affected employees. The regulations require employers to provide written notice to employees. Unlike the 16-week notice period for federally regulated companies, the notice period can range from a few weeks to several weeks, allowing employees time to prepare for the loss of their jobs and seek alternative employment opportunities. Employers need to be aware of and comply with the applicable provincial or territorial employment standards to ensure that employees are provided with the appropriate notice and support during a group termination. The table below provides the required notice for a group termination in each province and territory.

Note: Data collected on June 29, 2023

7.3.4 Retirement

In Canada, the rules for the termination of employment at retirement can vary depending on the specific circumstances and applicable laws. There is no fixed retirement age in Canada, and it generally depends on the employment agreement or collective bargaining agreement in place. An employee may choose to retire voluntarily. In this scenario, the employee is typically not entitled to termination or severance pay since the termination was initiated by the employee. In some cases, employees who have been with been with the employer for a significant period may be entitled to severance pay upon retirement. The eligibility for severance pay is generally based on factors such as length of service and applicable employment standards legislation.

Severance pay at retirement may also include payments for unused sick-leave credits upon termination. Severance allowance does not include (1) wages, salary, bonuses, overtime, or legal fees; (2) salary continuance; (3) pension benefits; (4) death benefits; (5) benefits derived from counselling services; (6) accrued vacation; (7) wages in lieu of termination; or (8) damages for violations or alleged violations under human rights legislation.

When paying a retirement allowance to a Canadian resident, it is important to deduct income tax from any portion that is paid directly to the recipient using the lump-sum withholding rates. Retirement allowances are subject to income tax, regardless of whether the total earnings received or expected to be received by the recipient are less than the total amount claimed on their TD1 Personal Tax Credits Return form. To determine the withholding rate for lump-sum payments, combine all the retirement allowances that have been paid or are anticipated to be paid within the calendar year.

In the case of a retirement allowance payment made to a non-resident of Canada, it is necessary to withhold 25% of the allowance, though withholding rates may vary depending on tax conventions and agreements. The withheld amount should be remitted to the Receiver General on behalf of the non-resident.

It is important to note that Canada Pension Plan (CPP) contributions or Employment Insurance (EI) premiums should not be deducted from retirement allowances.

7.3.5 Resignation

When an employee is considering quitting their job, it is important to understand that voluntary resignation without cause will result in ineligibility for regular EI benefits. However, the individual may still be eligible for maternal, paternal, sickness, and compassionate care benefits if they meet the criteria for such benefits. Voluntarily resigning or quitting occurs when the employee initiates the termination of employment, rather than it being initiated by the employer. Resigning without just cause means that the employee did not exhaust all reasonable alternatives available to avoid unemployment.

To qualify for regular EI benefits, the employee must demonstrate that quitting the job was the only reasonable option, considering the circumstances. This means showing that all possible measures and alternatives were explored to prevent unemployment. For instance, if the circumstances are related to the work environment, reasonable alternatives could include discussing the situation with the employer or union, requesting repairs or adjustments, using the resources available under a collective agreement or employment contract, exploring the possibility of transferring to different duties or divisions, or using relevant legislation such as labour standards, occupational health and safety, or human rights (Government of Canada, 2022).

It is the employee’s responsibility to provide information and an explanation of the circumstances leading to their voluntary departure, the steps they took, and the reasonable alternatives they considered before making the final decision to quit. The employer’s role is to provide the necessary information regarding the work environment if it is relevant to the circumstances of the employee’s voluntary resignation. If the employer undergoes a permanent workforce reduction and offers the employee the opportunity to quit to protect another person’s job, the employee may leave without penalty.

The table below provides the recommended length of notice for each province and territory when an employee terminates the employer-employee relationship. No notice of resignation is required if the length of employment is less than the minimum length of tenure.

Note: Data collected on June 29, 2023

7.3.6 Termination Without Cause

Termination without cause refers to a situation in which an employer ends an employee’s employment contract without any specific fault or misconduct on the part of the employee. In Canada, employment relationships are generally governed by either provincial or territorial employment standards legislation, which sets out the rights and obligations of employers and employees. If the individual is employed in a federally regulated industry, then the Canada Labour Code applies.

When an employer terminates an employee without cause, the employer is required to provide notice or pay in lieu of giving the employee time to seek alternative employment. The length of notice or the amount of pay in lieu of notice is determined by factors such as the length of employment notice (see the table “Employee Notice of Resignation by Province and Territory” above), their position within the company, and applicable employment standards legislation. Alternatively, employers may choose to provide the employee with a combination of notice and pay in lieu of notice. In some cases, the employer may negotiate a termination or severance package with the employee. In this circumstance, the package may include additional compensation or benefits beyond the statutory requirements. Depending on the province or territory, employment standards legislation can vary. Additional obligations may exist based on collective agreements or employment contracts.

7.3.7 Termination With Cause

Termination with cause refers to a situation in which an employer ends the employee’s employment contract because of the employee’s misconduct, performance issues, or breach of their employment agreement. When the employer terminates an employee with cause, the employer must have justifiable reasons supported by evidence to demonstrate that the employee’s action or behaviour requires immediate termination.

To determine whether a termination with cause is justified, factors such as the severity of the employee’s misconduct, the impact on the employer’s business, and previous disciplinary actions taken against the employee are considered.

In Alberta, the employer must prove that the dismissal is justified. The employer must also keep accurate records and ensure that the employee knows the consequences of breaking the rules.

In British Columbia, the employer must demonstrate that the misconduct is serious and directly related to the employee’s performance or duties. The employer must also ensure that the employee was aware that their behaviour could result in termination. Lastly, the employer is required to conduct a fair and thorough investigation into the alleged conduct.

Employers in Manitoba must ensure that the employee is aware of the expectations and provide the employee with reasonable time and resources to achieve the required standard. The employer must also warn the employee of the consequences of continuing unacceptable behaviour.

Legislation in Prince Edward Island requires the employer to ensure that the employee’s expectations were clear, they were warned to change their behaviour, and that not improving their behaviour would lead to termination.

When terminating an employee with cause, employers are not required to provide notice. The employer is obligated to provide the employee with their final paycheque, which should include all wages, vacation pay, and any outstanding benefits or entitlements. Income tax, CPP contributions, and EI premiums are calculated based on the employee’s earnings in that pay period.

7.3.8 Payroll Processes on Employee Termination

The payroll process for employee termination involves several steps to ensure that the final paycheque and payroll obligations are handled accurately. The following steps should be considered when completing an employee’s final paycheque:

• Determine the employee’s final earnings (regular wages, overtime, bonuses, commission) and any other applicable earnings up to the last day of employment.
• Calculate any accrued and unused vacation pay based on the applicable provincial or territorial employment standards or employment contract.
• Deduct income tax, CPP contributions, EI premiums, and any other applicable withholdings.
• Complete the employee’s Record of Employment (ROE). Indicate the reason for termination, the employee’s earnings, and any other required information.
• Remit the required payroll taxes and contributions according to the regular pay schedule.
• Maintain accurate records on the employee’s termination, and keep the records for the required period, according to the province or territory’s regulations.

References

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Government of Alberta. (2024a). Employment standards – Rules. https://www.alberta.ca/alberta-employment-standards-rules.aspx

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Thakkar, D. (2022, March 8). What are the termination rules in Canada? Canadian Payroll Services. https://canadianpayrollservices.com/termination-rules-canada/

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