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Termination of Employment, Notice and Pay in Lieu of Notice

Upon the termination of employment, an employee is entitled to notice or payment in lieu of notice. Employers must be aware of their obligations. A failure to comply with the minimum notice standards under the Employment Standards Act can lead to further, increased damages against you.

Part 8 of the act outlines an employer’s minimum obligations regarding notice of termination of employment for both individual and groups of employees. The obligations apply to any termination of employment, except where the termination is for just cause or where the employee voluntarily terminates through resignation or retirement.

For employers covered by collective agreements that contain provisions respecting the payment of wages upon termination, those collective agreement provisions prevail.

TERMINATION OF EMPLOYMENT

Termination is simply the end of the employment relationship. However, in certain circumstances it may not be entirely clear whether a termination has occurred, or when the effective date of the termination is.

Section 1 of the act defines termination as including a layoff other than a temporary layoff. A temporary layoff is a layoff of up to 13 weeks in any period of 20 consecutive weeks, or in the case of an employee with recall rights, a layoff that exceeds the recall period. Once a layoff exceeds this period, it is deemed a termination.

NOTICE AND PAY IN LIEU OF NOTICE

An employee who is terminated is entitled to either notice of termination (working notice), or pay in lieu of notice (termination pay) based upon the amount of service they have accumulated with the employer. An employee who resigns or voluntarily quits his or her employment is not entitled to termination pay or working notice.

In order to be eligible for termination pay or notice of termination, an employee must have worked at least three consecutive months for the employer.

CALCULATING NOTICE

The following chart shows the minimum amount of working notice or termination pay in lieu of notice required under Section 63 when an employer terminates the employment of an employee:

LENGTH OF EMPLOYMENT LENGTH OF NOTICE
3 months but less than one year one week
one year or more but less than 3 years two weeks
3 years or more but less than 4 years three weeks
4 years or more but less than 5 years four weeks
5 years or more but less than 6 years five weeks
6 years or more but less than 7 years six weeks
7 years or more but less than 8 years seven weeks
8 years or more eight weeks


It is important to emphasize that this chart provides the statutory MINIMUM amount of notice that an employee may be entitled to upon termination.  Additional, and often much lengthier, notice periods may still exist in respect of the reasonable notice required at common law.  The amount of common law notice will depend on the length of the employee’s service, the age of the employee, the type of position held, and the availability of similar employment in the job market at the time of termination.  Such notice can amount to one month per year of service, or more.

Under the Act, an employer may provide a combination of working notice and termination pay provided that the aggregate amount is at least equivalent to the amounts in the above chart.

If the employer chooses to provide termination pay, the amount becomes payable on the termination of employment and is calculated by totaling the employee’s weekly wages during the previous eight weeks in which the employee worked normal or average hours of work (at regular wage), dividing the total by eight, and multiplying the resulting amount by the number of weeks the employer is obligated to pay in accordance with the above chart.

TERMINATION FOR CAUSE

An employee is not entitled to notice of termination or pay in lieu when terminated for "just cause." The burden of proving just cause rests with the employer. Just cause includes fundamental breaches of the employment relationship, including criminal acts, gross incompetence, willful misconduct or a significant breach of a workplace policy.

An employee who has committed minor infractions of workplace rules or unsatisfactory conduct that is repeated despite clear warnings will be held to have been terminated for just cause and is not entitled to written notice or payment in lieu of notice of termination. In order to prove just cause in the absence of a breach of a fundamental term of employment, the employer must demonstrate all of the following:

  • a. reasonable standards of performance have been set and communicated to the employee;
  • b. the employee was warned clearly that his/her continued employment was in jeopardy if such standards were not met;
  • c. a reasonable period of time was given to the employee to meet such standards;
  • d. the employee did not meet those standards.

For further information about what constitutes just cause for termination, visit Employment Standards Branch - Just Cause Fact Sheet.

RESIGNATIONS

The notice requirements under the act do not apply to employees who have voluntarily resigned from their employment. Although this seems fairly straightforward, questions frequently arise as to whether an employee has actually resigned or, alternatively, was dismissed by the employer.

The test that the Branch and Tribunal will use in determining whether an employee has resigned from employment has been stated as follows:

The act of resigning, or "quitting," employment is a right that is personal to the employee and there must be clear and unequivocal evidence supporting a conclusion that this right has been voluntarily exercised by the employee involved. There is both a subjective and objective element to the act of quitting: subjectively, an employee must form an intention to quit; objectively, that employee must carry out an act that is inconsistent with further employment.

The employee has the onus of proving that he/she has been dismissed.

Where an employee provides advance notice of an intention to quit, the employer must allow the employee to work through such notice period. If the employer requires the employee to cease working earlier than the effective quit date, the employer may be liable to provide termination pay.

INEFFECTIVE NOTICE

The notice required under the act will not be effective if the employee is on annual vacation, approved leave of absence or temporary layoff. In addition, notice is not effective if it coincides with a period during which an employee is absent from work due to a strike or lockout, or because of medical reasons (including short term sick leave, long term disability or workers’ compensation leave).

You must remain on top of these details. If an employee continues to work past the end of the notice period, prior notice of termination is deemed void and the employment relationship continues. In order to meet the obligations under the act, you would have to provide new notice or payment in lieu of notice to terminate an employee who has worked beyond a prior notice period.

Finally, once proper working notice is provided, you are prohibited from changing the employee’s wage or any other term or condition of employment without the written consent of the employee, or a trade union representing the employee if the employment is governed by a collective agreement. Changes to employment that are prohibited may include a change in duties or responsibilities, limiting of authority, or a reduction of hours.

EXCEPTIONS

The ESA provides for several exceptions to the notice. Employees hired under certain arrangements, such as under a definite term contract, are not entitled to notice of termination, or payment in lieu of notice. For more information about these exceptions visit the Interpretation Manual – Section 65.

RULES ABOUT PAYMENTS

Paying an employee termination pay does not discharge an employer’s liability for any other payments required under the act, including vacation or statutory holiday pay, overtime, or penalties for breaching the act.  See Interpretation Manual – Section 68 – Rules about payments.

A common issue that arises on termination is whether an employee is entitled to all or a portion of a bonus or incentive pay that they claim to have earned. Whether or not such a bonus payment will be considered wages, and therefore owed to the employee, will depend on the specific terms of the employment contract.

True discretionary bonuses will generally not be payable. However, if the terms of the employment contract do not clearly provide for sole discretion of the employer, or do not specify that a bonus is only earned if the employee works the entire year for which the bonus is earned, a terminated employee may be able to claim for a bonus payment upon termination.

An employer’s liability for termination pay is not reduced where an employee obtains alternate employment or gains income from any other source during the notice period.

For further information concerning termination of employment, notice and pay in lieu thereof, visit Employment Standards Branch - Termination of Employment Fact Sheet and Interpretation Manual – Section 63 – Notice Requirements.

Information provided by Ryan Anderson, an employment lawyer with Mathews Dinsdale & Clark LLP. The information provided in this article is necessarily of a general nature and must not be regarded as legal advice. For more information about Mathews Dinsdale & Clark LLP, please visit mathewsdinsdale.com.

This article may not be republished without the express permission of the copyright owner.