Reviewing Recent Changes to the Canada Labour Code and Scrutiny of Ontario Termination Provisions

This two-part article addresses recent updates to the Canada Labour Code and explores recent scrutiny from an Ontario court on the interpretation of a termination provision that was held to be offside the Employment Standards Act, 2000 (“ESA”).

Part I: Changes to the Canada Labour Code

Effective February 1, 2024, federally regulated employees should note the following changes to Part III of the Canada Labour Code (“CLC”), which establishes basic labour standards for employees of federal Crown corporations and federally regulated private-sector industries.

Graduated Notice Entitlement (s. 230 (1.1))

The introduction of a graduated notice entitlement brings an approach to notice periods akin to provincial employment standards. Previously, the notice entitlement under the CLC was a standard minimum of two weeks’ notice of termination or pay in lieu to any employee who has completed at least three months of continuous employment, with notable exceptions for “just cause” or group terminations.

Now, employees are entitled to a range of notice periods, from two weeks (after three months of continuous work) to eight weeks (after eight years or more of employment).

It should be noted that these entitlements are distinct and do not impact an employee’s right to severance pay under s. 235 of the CLC. Employees remain entitled to severance if they have completed at least 12 consecutive months of continuous employment before their employment is terminated. Severance pay is equal to the greater of:

• two days wages for each full year the employee worked prior to their termination of employment; and
• five days wages at the employee’s regular rate.

Statement of Benefits Upon Termination (s. 230 (2.2))

When terminating employees, employers must now provide them with a detailed “statement of benefits” outlining the employees’ rights to vacation benefits, wages, severance and other benefits arising from their employment.

The deadline for providing the statement of benefits depends on whether the termination notice is provided by working notice or payment in lieu:

• Working notice: as soon as possible and no later than two weeks before the date of termination.
• Payment in lieu of notice of termination: no later than the date of termination.
• Combination of both working notice and payment in lieu of notice: as soon as possible and no later than two weeks before the date of termination, unless the period of notice is shorter, in which case, the statement must be provided the day on which notice is given to the employee.

Changes Previously in Force

Employers should also note the following changes already in force as of 2023.

1. Written Statement on Conditions of Employment (s. 253.2 (1))

   
   Effective July 9, 2023, employers must provide employees with “written statements regarding certain terms and conditions related to employment.” The statement must be provided within the first 30 days of employment. In the event of any changes to the initially provided information, employers must supply employees with a revised employment statement within the same time period. The mandatory contents of the statement are set out by the Standard Regulations and closely mirror the conventional provisions of an employment agreement or offer letter.

2. Reimbursement of Reasonable Work-Related Expenses
   
   Effective July 9, 2023, employers must reimburse employees’ reasonable work-related, out-of-pocket expenses within 30 days after employees submit their expense claims to the employer, unless they have agreed to another timeline in writing or in a collective agreement.

   Employment and Social Development Canada has published an interpretation bulletin detailing the expense reimbursement rules.

3. Provision of Menstrual Products in the Workplace
   
   Effective December 15, 2023, employers must provide menstrual products, including clean and hygienic tampons and menstrual pads in each bathroom or another location in the workplace, so long as it is controlled by the employer, accessible to employees and offers a reasonable amount of privacy. There must also be a covered container for the disposal of menstrual products in any toilet and stall.
   

Part II: New Scrutiny to ESA-Minimum Termination Provisions

In the recent case of Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029 (“Dufault”), the Ontario Superior Court of Justice (the “Court”) responded to what it cites as pressure from appellate jurisprudence for stricter adherence between employment contracts and the termination and severance provisions of the ESA.

In Dufault, the Court ruled that both the “for cause” and “without cause” provisions in a fixed-term employment contract were unenforceable. As a result, the Court held that the plaintiff was entitled to damages equivalent to the balance owing under her contract.

‘For Cause’ Provision

In invalidating the “for cause” provision, the Court relied on established jurisprudence that the provision wrongly allowed the employer to terminate the employee for conduct that may fall short of (or does not specifically differentiate) the ESA’s “wilful misconduct” standard, without paying the employee their minimum statutory entitlements. The employment agreement simply stated:

4.01 The Township may terminate this Agreement and terminate the Employee’s employment at any time and without notice or pay in lieu of notice for cause.

Employers will recall that there is no “cause” provision in the ESA and employers will only be able to forego provision of statutory minimum entitlements, including termination pay and severance pay, if the employee is guilty of “wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been conducted by the employer” – an exceptionally high bar. As in past cases that we have reported on, the Court took issue with the vagueness of the agreement and lack of specificity in the actions that would constitute “cause” and held that “the employer conflate[d] the grounds for dismissal under the ESA with a common law standard that does not appear in the ESA.”

‘Without Cause’ Provision

The Court took issue with both the qualification of remuneration under the without cause termination provision, as well as the seemingly discretionary portion that allowed the employer to terminate without cause at its “sole discretion.” The agreement read as follows:

4.02 The Township may at its sole discretion and without cause, terminate this Agreement and the Employee’s employment thereunder at any time upon giving to the Employee written notice as follows: (i) the Township will continue to pay the Employee’s base salary for a period of two (2) weeks per full year of service to a maximum payment of four (4) months or the period required by the Employment Standards Act, 2000 whichever is greater…

The Court held that in only providing the employee’s base salary during the statutory notice period, the provision was offside the ESA, which requires a continuation of “regular wages.” The Court held that the absence of refence to “regular wages,” vacation pay and contractually provided paid sick time invalidated this provision for falling short of ESA minimum standards.

Perhaps more significantly, the Court held that the provision’s references to being able to terminate the employee at the employer’s “sole discretion” and “at any time” breached sections 53 (reinstatement after protected leave) and 74 (reprisal for exercising a right under the ESA) of the ESA, which articulate instances where the employer could be limited in its “discretion” to terminate an employee at any time.

Conclusion: Implications for Employers

The Dufault case and recent changes to the CLC underscore the importance of aligning employment agreements, including, most notably, termination provisions with statutory requirements to ensure enforceability. In the ongoing push towards more specificity in employment agreements and stricter alignment between employment contracts and legislated employment standards, courts are likely to continue to invalidate what appears to be even a trivial or inconsequential inconsistency with the ESA.

Employers are advised to review and update employment contracts accordingly, including removal of references to termination “at any time” or in the employer’s “sole discretion.” Where a contract provides for only ESA minimum entitlements on termination, attention should be paid so as not to inadvertently exclude (or imply the exclusion of) a component of compensation, including components that would fall under the broad definition of “regular wages” in the ESA.

If you have questions or require assistance with updating your organization’s employment contracts, do not hesitate to reach out to a member of our Workplace Law Group.