Walking into work one day to find that your company is announcing a sudden reduction in its workforce can be a jarring experience. Questions flood your mind: "What happens now? Am I protected? What are my rights?" In Ontario, the Mass Layoff Law addresses such concerns, providing crucial guidelines for employers and employees during large-scale terminations. Understanding this law is essential for anyone handling the uncertainty of potential job loss.
In this blog, we will explore the mass layoff law in Ontario. Also, we’ll explain the rights and responsibilities of employees and employers and provide insights into how to handle these challenging situations best.
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What is a Mass Termination in Ontario?
In Ontario, a mass termination refers to an employer ending the employment of 50 or more employees within four weeks at a single establishment. The Employment Standards Act (ESA) outlines this definition and the associated obligations.
What are the Notice Requirements for Mass Layoff in Ontario?
Like Texas WARN Act that protects employees during a mass layoff; in Ontario, the Employment Standards Act (ESA) outlines specific notice requirements that employers must follow during a mass layoff. Here are the detailed notice requirements for such a scenario:
Notice Period Based on Number of Employees
The length of the notice period that an employer must provide depends on the number of employees being terminated:
50 to 199 Employees: Employers must provide at least 8 weeks' notice.
200 to 499 Employees: Employers must provide at least 12 weeks' notice.
500 or More Employees: Employers must provide at least 16 weeks' notice.
How to Give Notice to the Ministry of Labour?
In addition to notifying the affected employees, employers must notify the Ontario Ministry of Labour. This notice must be given as soon as possible and include:
The number of employees affected.
The date of termination.
Any other relevant details required by the Ministry.
Group Termination Meeting
Employers are required to hold a group termination meeting with the affected employees. This meeting is intended to inform employees about the termination, provide details on their rights and entitlements under the ESA, and offer support and information about the next steps, such as accessing Employment Insurance (EI) benefits.
Click here to contact HTW Law - Employment Lawyer for assistance and legal consultation.
Is Severance Pay Mandatory in Ontario?
Yes, in Ontario, an employer must provide severance pay to employees in certain situations when they lose their jobs.
Severance pay is mandatory for eligible employees if:
Unilateral Termination: The employer terminates Your employment without cause or through constructive dismissal.
Incorrect Termination for Cause: Your employer fires you for cause, but the termination does not meet the legal criteria.
Insufficient Notice: You are not provided with a proper notice period, or the notice period is too short, resulting in additional compensation owed.
Early Termination of Notice: You submit a resignation notice, but your employer will terminate your employment before the notice period ends. In this case, your employer must pay you severance for the remainder of the notice period.
Severance payment is not mandatory in the following situations:
Voluntary Resignation Without Notice: You quit without giving notice.
Voluntary Resignation or Retirement: You resign or retire without being forced to quit.
End of Limited-Term Contract: Your limited-term contract comes to an end.
Alternative Position Offered: You are given the option to take a different position within the company.
External Circumstances: You leave the firm due to circumstances beyond the employer’s control.
Eligibility for Severance Pay
An employee is eligible for severance pay if they meet the following criteria:
Length of Service: The employee has been employed by the employer for five or more years.
Employer’s Payroll: The employer has a payroll of $2.5 million or more, or the termination occurred because of the permanent discontinuance of all or part of the business, and 50 or more employees are being terminated within six months.
Calculation of Severance Pay
The amount of severance pay an eligible employee is entitled to be calculated based on their length of service. Specifically:
Severance Pay Formula: Under ESA, severance pay is calculated by multiplying the employee’s regular wages (excluding overtime) for a regular work week by the sum of:
(the number of completed years of employment) + (the number of completed months of employment of the final year divided by 12)
For example:
An employee who has worked for 7 years and 4 months would be entitled to 7.33 weeks of severance pay.
An employee who has worked for 10 years and 6 months would be entitled to 10.5 weeks of severance pay.
An employee's maximum severance pay is capped at 26 weeks of regular wages.
How is Severance Pay Paid?
Severance pay can be paid in one of the following ways:
Lump Sum: The total severance pay is given to the employee in one payment.
Installments: Severance pay is provided in regular installments as long as both parties agree and the full amount is paid within a specified period.
Combination: A mix of a lump sum and installments, again subject to mutual agreement.
Please note that an employee must receive severance pay either seven days after the employee's employment is severed or on what would have been the employee's next regular pay day, whichever is later, unless both parties agree to installments.
Please click here to read a comprehensive severance pay guide prepared by the Ministry of Labour regarding Severance Pay.
Do I Have To Pay Tax On Severance?
Yes, you must pay tax on your severance pay because it's considered taxable employment income. The tax amount depends on how your employer pays it out. There are two main ways to receive severance: as a lump-sum payment or through salary continuance.
Tax On Lump-Sum Severance
If you get a lump-sum severance payment, it is considered a retiring allowance, your employer will make a statutory deduction and tax withholding but not CPP or EI deductions. You can also deposit the severance into an RRSP or RPP to defer the tax until you withdraw it.
Please click here to learn more about how much statutory deductions may be taken from your retirement allowance.
Tax On Severance as Salary Continuance
If you choose salary continuance, you'll keep getting regular paychecks with benefits for a set period. In this case, you'll have to pay CPP and EI contributions, because the payment is considered employment income instead of statutory deductions.
Other Arrangements
Some employers let you spread your severance over a longer period, which might have tax benefits. Talk to an experienced employment lawyer to find the best option and maximize your severance package.
You may want to take a look at the following article to learn more about tax issues:
Summary
Mass terminations in Ontario involve significant legal obligations for employers under the Employment Standards Act (ESA). Additionally, severance pay is mandatory in specific circumstances, with eligibility based on length of service and employer payroll. It's crucial for both employers and employees to understand these regulations to ensure compliance and secure the rights and entitlements of affected workers.
Want to Learn More about Wrongful Dismissal and Severance Pay?
The employer will provide a severance payment to an employee upon termination, which may or may not be sufficient. When an employee is terminated without just compensation, the employee may be able to sue for wrongful dismissal and seek common law reasonable notice, unless the termination clause in the employment contract limits entitlements to the statutory minimum of termination pay and severance pay under the Employment Standards Act (ESA).
For simplicity this article only discuss mass termination and severance pay under the ESA.
Please click here for the Wrongful Dismissal Ultimate Guide to learn more about Wrongful Termination.
Please click here for the Severance Pay Ultimate Guide to learn more about Termination Pay, Severance Pay, and other interesting severance pay topics.
Final Words
Severance Pay and Other Employment Issues could be technical and complicated. You may want to consult with an experienced employment law firm such as HTW Law, to learn of your employment law rights to understand your options in case of a mass layoff or a termination.
You don't have to fight the battle alone. Speaking with an employment lawyer who is familiar with the laws and regulations regarding employment contracts and employment law in general will go a long way. If you are in doubt, it's essential that you reach out for help as soon as possible right away.
Click here to contact HTW Law - Employment Lawyer for assistance and legal consultation.
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