O Reg 288/01 sets out exemptions from the termination and severance provisions. It also deals with several matters relating to notice of termination/termination pay, including “mass termination” notice requirements, the method of giving notice, the calculation of “period of employment” and the provision of temporary work after the termination date set out in a notice has arrived.

Section 1 — Definitions

Construction employee

Construction industry

Construction industry is then defined in s. 1 of O Reg 285/01 as follows:

The definitions of construction industry and construction employee are substantially the same in scope as the construction industry definition in s. 1(1) of the Labour Relations Act, 1995, SO 1995, c 1, Sch A, and the "employee" definition in the Construction Industry part of that Act.

The definition of construction employee in O Reg 285/01 produces a significantly different result than that achieved under the former Employment Standards Act, in that it now includes employees who work off-site (either in whole or in part), if the off-site employees are "commonly associated in work or collective bargaining" with a construction employee who is employed in a construction industry activity at the work site. In considering the application of the construction exemption from notice of termination, the Board concluded that an off-site employee who spent about half of her time performing office manager duties and the rest in "limited" contact with on-site staff (for the purposes of scheduling them, managing their invoices and ensuring communications with the employer’s managers) was not "commonly associated in work" with on-site construction employees and so was entitled to termination pay. The Board noted that its decision was consistent with the conclusions of the Board in other cases that considered what it meant to be "commonly associated in work" with on-site construction employees under both the Labour Relations Act, 1995 and the Employment Standards Act, 2000. See 1703171 Ontario Inc. o/a The Construction Group and Bath Solutions v Russo-Janzen, 2016 CanLII 8145 (ON LRB).

Related definitions

Repair vs. maintenance

The definition of construction employee includes repair work but generally excludes maintenance work.

Maintenance involves the preserving of the functioning of a system, whereas repair involves restoration of a system to a functional state. However, the dividing line between maintenance and repair is not always clear, particularly since some maintenance activity may involve procedures that bear a close resemblance to repair (e.g., replacing worn or broken components). In determining whether an employee should be considered to be engaged in repair or in maintenance, one should look to the activity in which the employee spends the majority of his or her working hours. See Stearns Catalytic Ltd. v Everingham (September 3, 1986), ESC 2166 (Kerr), Beaver Engineering Limited v Lightfoot and Woods (April 26, 1985), ESC 1840 (Franks) and Warren v Rexway Sheet Metal (January 10, 1995), ESC 95-06 (Palumbo).

Road maintenance

Road maintenance employees generally fall within construction employee exemptions

Although maintenance work is generally not considered to constitute repair work or some other subcategory of construction, road maintenance employees are nevertheless considered to fall within the definition of construction employee in O Reg 285/01 because of the reference in the definition of construction industry to the "constructing [of] … roads" . There is no conceptual distinction between the "constructing of roads" and "road building", and the term "road building" is defined in s. 1 of O Reg 285/01 to include the maintenance of roads. Thus, as a general rule, an employee engaged in the maintenance of roads is exempt from any employment standard from which a construction employee is exempt, such as the standard limiting hours of work (s. 17 of the Employment Standards Act, 2000).

Exception: Road maintenance employees entitled to termination notice/pay

There is an exception to this general rule, however, in the case of notice of termination.

While "construction employees" are not entitled to notice of termination/termination pay by virtue of paragraph 9 of s. 2(1) of O Reg 288/01 (which exempts "construction employee[s]"), the Program takes the position that employees engaged in the maintenance of roads are entitled to termination notice/pay.

The basis for this position lies in the principle of statutory interpretation that a specific provision overrides a more general provision. The severance pay exemptions in s. 9(1) of O Reg 288/01 refer not only to a construction employee (in paragraph 7) but also to an "employee engaged in the on-site maintenance of . . . roads" (in paragraph 8). It follows from this that for purposes of O Reg 288/01, the maintenance of roads is to be regarded as an activity distinct from the construction of roads (as otherwise there would be no need for paragraph 8). And if that is the case, then since s. 2(1) of O Reg 288/01 exempts a construction employee from entitlements to notice but says nothing about an employee engaged in maintenance, an employee engaged in road maintenance is entitled to notice.

Sewer and watermain

Sewer and watermain: Laying, altering or repairing

The definition of construction industry in O Reg 285/01 explicitly refers to sewers and watermains; therefore, employees engaged in laying, altering or repairing sewers and are exempt from those standards to which the construction employee exemption applies:

They are also subject to the special overtime pay threshold of 50 hours - see O Reg 285/01, s. 9(2).

Sewer and watermain: Maintenance

Employees who are engaged in sewer and watermain maintenance do not fall within the construction employee definition, as maintenance does not generally fall within the scope of activities referred to in the construction industry definition (maintenance of roads being the sole exception, because of the "road building" definition).

Accordingly, employees who maintain sewers and watermains are not subject to the construction employee exemptions.

However:

  • They are exempt from the severance pay provisions pursuant to paragraph 8 of s. 9(1) of O Reg 288/01, because that paragraph explicitly applies to an "employee engaged in the on-site maintenance of . . . sewers, pipelines, mains". See O Reg 288/01, s. 9(1) para.for a discussion of this exemption.
  • They are subject to the special overtime threshold of 50 hours pursuant to s. 16 of O Reg 285/01, because that provision explicitly includes the activity of "maintaining" sewers and watermains.

Section 2 – Employees not entitled to notice of termination or termination pay

Employees not entitled to notice of termination or termination pay – s. 2(1)

This section sets out the exemptions from the termination of employment provisions in ESA Part XV. Subject to s. 2(2) and s. 2(3), the employees listed in this section are not entitled to notice of termination or termination pay under Part XV. A discussion of each exemption appears below.

Definite term or specific task employees

Section 2(1) paragraph 1 relieves employers from the obligation to provide notice of termination or termination pay to employees who were employed for a definite term or specific task. This exemption is in recognition of the fact that employees who are hired for a definite term or to complete a specific task are, at the time of hiring, aware of when their employment will end and therefore they have already received the equivalent of notice.

Note, however, that if the assignment of an assignment employee performing work for a client of a temporary help agency was estimated to be three months or more and the assignment is terminated prior to the end of that estimated term, the temporary help agency may have an obligation to provide one week’s notice of the termination of the assignment or pay in lieu of notice pursuant to s. 74.10.1. This is not notice of termination of the employment relationship with the temporary help agency but rather notice of termination of an assignment to perform work.

For the exemption in paragraph 1 of s. 2(1) to apply, the employee must be hired on the basis that their employment is to terminate either,

  1. On the expiry of a definite term; or
  2. On the completion of a specific task.

For the definite term part of this exemption to apply, the employee must have an agreement, either orally or in writing, which specifies the exact date the employee's contract of employment is to end.

For the specific task part of this exemption to apply, the employer and the employee must have an agreement, either orally or in writing, that describes the task with enough specificity that the employee is able to determine when the task will be completed. For example, an employee who is hired to make 100 widgets will know when the task will be completed.

An employer cannot put an employee who is not a term or task employee on a term or task arrangement as a means of terminating the employee without providing termination notice or pay, since to do so would be to undermine the purpose of Part XV and this exemption. This is so even if the employee agrees to such an arrangement, since ESA Part III, s. 5 prohibits an employee from waiving their rights under the ESA 2000. For example, if a ten-year employee agrees to go on a four-week definite term contract and the employer terminates the employment of the employee at the end of the four-week period, the exemption will not apply. The employee will be entitled to eight weeks' notice or pay in lieu thereof. Note though that if the definite term arrangement was reduced to writing and a copy given to the employee, the employer may receive credit for the four weeks' actual written notice the employee received.

Where definite term or specific task exemption does not apply

The exemption in paragraph 1 must be read in conjunction with s. 2(2), which states:

This section provides that the term or task exemption in paragraph 1 of s. 2(1) will not apply to term or task employees if any of the following circumstances are present:

Employment terminates before the expiry of the term or the completion of the task

Pursuant to s. 2(2)(a), the term or task exemption will not apply if the employment terminates before the expiry of the term or completion of the task and the employee will be entitled to one week of notice of termination or pay in lieu. This clause will apply where, for example, an employee is employed for a six-month term but the employer decides to terminate the employee's employment after the fourth month.

The exemption can only apply where the employee is employed for the duration of the term or until the completion of the task. This is consistent with the rationale for the term or task exemption. If the employer terminates the employee's employment before the end of the agreed upon term or the completion of the task, the basis for the exemption - the employee knowing at the outset when their employment will end - is lost.

Term expires or the task is not yet completed more than 12 months after the employment commences

Section 2(2)(b) means that the term or task exemption in paragraph 1 of s. 2(1) will not apply if:

  • The term of the contract is for a period that is longer than 12 months; or
  • The task is not yet completed 12 months after the employment began.

Where the employee is employed for more than one definite term and the terms are "back to back", i.e., continuous, it is Program policy that the terms should be added together when determining whether the 12-month limit in 2(2)(b) has been exceeded.

Where, however, the terms are not back to back, the terms will not be added together when determining whether the 12-month limit in clause (b) has been exceeded. This is so even if the terms are separated by less than 13 weeks. In this regard, see Metropolitan Toronto Board of Commissioners of Police v Ministry of Labour (October 17, 1994), ESC 94-178 (Muir). It should be noted that although the court did not provide much reasoning in its decision on this particular point, it upheld the referee's decision as correct and therefore it constitutes a precedent that the Program follows.

It should be emphasized that despite Program policy not to add terms that are not "back to back" together for the purpose of determining whether the 12-month limit has been exceeded, the terms will be added together for the purpose of determining the period of employment in ESA Part XV, s. 57 if they are separated by less than 13 weeks – see O Reg 288/01, s. 8(2). This would be relevant, for example, if the employee's employment was terminated before the end of the subsequent term, in which case the term or task exemption would not apply and the employee would be entitled to termination notice or pay based on his or her period of employment.

Employment continues for three months or more after expiry of the term or completion of the task

Section 2(2)(c) stipulates that the term or task exemption in paragraph 1 of s. 2(1) will not apply if the employee continues to be employed for three months or more after the definite term or the specified task for which the employee was hired has either expired or is completed.

For example, an employee is employed for a six-month term and is employed on an open-ended arrangement for an additional four months before having their employment terminated. The term or task exemption will not apply to this employee, and they will be entitled to one week of termination notice or pay.

The question arises as to whether s. 2(2)(c) applies to a situation where, instead of being employed on an open-ended arrangement after the end of the original definite term, the employee is put on a second definite term contract that lasts more than three months past the end of the first contract. It is Program policy that s. 2(2)(c) applies in this situation. This policy prevents an employer from employing an employee for a series of very short, e.g., one-month contracts for a period of less than 12 months and then terminating them without notice or pay in lieu. In that situation, the employee loses the certainty of knowing when their employment will end and should therefore be entitled to the benefit of the notice of termination or pay in lieu provisions.

Employee on temporary lay-off

Pursuant to s. 2(1) paragraph 2, an employee who is on a temporary lay-off is not entitled to notice of termination or termination pay in lieu. Temporary lay-off is defined in ESA Part XV, s. 56(2).

Employee who is guilty of wilful misconduct, disobedience or wilful neglect of duty

Pursuant to s. 2(1) paragraph 3, an employee who has been guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and that has not been condoned by the employer is not entitled to notice of termination or pay in lieu.

The rationale for this exemption is the view that an employer who terminates an employee because the employee was guilty of wilful misconduct, disobedience or neglect of duty should not be obliged to provide that employee with either notice of termination or pay in lieu of notice. See Sacco v MMCC Solutions Canada Company (Teleperformance Canada), 2015 CanLII 82037 (ON LRB) for a discussion of the standard that must be met in order for this exemption to apply.

This exemption will apply only if all of the following criteria are met:

  1. The employee's conduct is wilful
  2. The employee is guilty of:
    • misconduct, or
    • disobedience, or
    • neglect of duty
  3. The employee's conduct is not trivial
  4. The employee's conduct has not been condoned by the employer

Each criterion is discussed in more detail below.

For information on the application of the wilful disobedience exemption where an employee is not vaccinated against, or tested for, COVID-19 in accordance with the employer’s policy, see “ESA Termination and Severance Liabilities Where an Employee is Not Vaccinated Against or Tested For COVID-19”.

As with any exemption from a minimum standard, the onus is on the employer to demonstrate on a balance of probabilities that the exemption applies. As the following discussion demonstrates, this exemption is narrower than the just cause concept applied in the common law and in collective agreement disputes. In other words, an arbitrator or a judge may find that there was just cause to dismiss an employee, but this does not necessarily mean that the exemption in paragraph 3 of s. 2(1) applies.

Employee's conduct is wilful

The key element to this exemption is that the actions or omissions must be wilful on the part of the employee. Although the word "wilful" does not appear before the word "disobedience", it is clear that disobedience involves an element of wilfulness. See, for example, Superior Propane Inc. v Cunningham (August 13, 1988), ESC 2364 (Haefling). Thus the employer must demonstrate that there was wilfulness on the part of the employee, whether it is alleging misconduct, disobedience or neglect of duty.

Ordinarily, wilful means that the employee intended the result that came to pass. Thus, poor work or conduct that is accidental or involuntary will generally not be considered to be wilful. However, an employee who is reckless in their conduct may be guilty of wilful misconduct if that employee knew or ought to have known that their conduct would cause the result that came to pass.

Employee is guilty of wilful misconduct

The following are some examples of conduct that have been found to be wilful misconduct. The list is illustrative only and is not meant to be exhaustive.

Fraud or theft
Alcohol or drug use

If the employee's drinking is due to alcoholism, then the employee's behaviour is due to a recognized handicap and may not be wilful. However, if the employee has been prescribed medicine (e.g., Antabuse) to prevent alcoholism, but does not take it, the employee may be guilty of wilful misconduct since the failure to take the medicine may be in itself wilful. In this regard, see Facelle Company Limited v Hoar and Odo (March 31, 1989) ESC 2492 (Gorsky).

Failure to follow company policy

Where the employer seeks to rely on a failure to follow company policy as grounds for wilful misconduct, the Program's policy position is that the following criteria (most of which were also referenced in the above-noted cases) should be satisfied:

  • The rule that has been violated must have been clear and unequivocal;
  • The rule must have a substantial bearing on the employment relationship (except perhaps in cases of repeated, deliberate infractions of less substantive rules, assuming there is no condonation by the employer - see the discussion of condonation below);
  • The rule must have been communicated to the employee;
  • The employee must know (or ought to know) in advance that the conduct could result in their termination; and
  • The rule must not require the employee to do anything illegal or unsafe.
Recklessness
  • Where the employee's behaviour was so reckless as to amount to wilful misconduct. For example, wilful misconduct was found where the employee, by failing to put pads on a hoist, caused a car to fall from the hoist - see Northwest Motors Limited v Rodrigues (April 4, 1984), ESC 1606 (Ison). In this case, the employee knew or ought to have known that his actions would cause the accident.
Conflict of interest, breach of trust, off-duty misconduct
  • Where the employee is guilty of behaviour that seriously affects a position of trust that they hold with the employer and/or the employer's clientele, or where the employee puts themselves into a serious conflict of interest with the employer, such as, for example, actively engaging in a competitor's business or disclosing confidential information to a competitor - see Polaris Computer Systems Ltd. v Carwana (January 3, 1986), ESC 2013 (Betcherman).

Note, however, that there won’t be wilful misconduct if an employee who is not in a position of trust has a passing economic relationship with a competitor in an area entirely outside of the employee and employer's normal line of work, in which no trade secrets or confidential information is disclosed. See for example Van Noort v 566355 Ontario Ltd o/a K.J. Marketing Services (February 26, 1998), 2677-96-ES (Goodfellow) where the employer and its competitor were in the electrical equipment sales business and the employee built a washroom for the competitor at a time when he was not required by his employer to be at work. Note also that merely intending to join a competitor (for example, the employee has accepted a job offer with a competitor, but has not yet begun working for the competitor, and provided notice of resignation to the employer) does not amount to wilful misconduct. If, on the other hand, the employee begins to disclose confidential information to the competitor, that will be wilful misconduct. Likewise, it is the Program's position that so long as confidential information is not being disclosed to the employee's spouse, there is no conflict of interest if the employee has a spouse who works for a competitor.

  • Where an employee prevents themselves from performing their job duties. This can include off-duty conduct where such conduct prevents the employee from carrying on their duties. For example, where an employee is convicted and incarcerated for dealing in drugs in off-duty hours, this may be wilful misconduct since the employee, by embarking on such a course of conduct, should have known that it could lead to incarceration that would prevent them from performing their job duties - see Stelco Inc. o/a Stelpipe v Addario (November 4, 1991), ESC 2935 (Cumming). It is also possible that this may constitute frustration of contract. See s. 2(1) para. 4 below.
Employee is guilty of wilful disobedience

As mentioned above, although the word wilful does not appear before the term disobedience in the regulation, disobedience necessarily involves an element of wilfulness.

In order for there to be disobedience within the meaning of the exemption, the Program's position is that the following criteria should be satisfied:

  • The order or rule must have been clear and unequivocal;
  • The order or rule must not be minor (except perhaps in cases of repeated, uncondoned infractions);
  • The order or rule must have been communicated to the employee;
  • The employee must know (or ought to know) in advance that the disobedience could lead to their termination; and
  • The order or rule must not require the employee to do anything illegal or unsafe.

Note that these are the same factors that apply when determining whether there is wilful misconduct due to a breach of company policy.

For information on the application of the wilful disobedience exemption where an employee is not vaccinated against, or tested for, COVID-19 in accordance with the employer’s policy, see “ESA Termination and Severance Liabilities Where an Employee is Not Vaccinated Against or Tested For COVID-19”.

Employee is guilty of wilful neglect of duty

Similar considerations apply with respect to neglect of duty as those that apply with respect to misconduct (see the discussion of wilful misconduct, above), except that the former concept focuses on the failure to do something, rather than the doing of something. Typically, cases in which wilful neglect of duty is found to be present are ones where the employee refused to report for work, often after being refused permission to take a holiday or after being required to work overtime. See for example Perly's Maps Limited v Lincoln (July 17, 1980), ESC 816 (Bigelow). Other instances in which wilful neglect of duty has been found to have been present include non-innocent absenteeism and tardiness - see for example Hunter v Ertel Manufacturing Corporation of Canada Ltd. (January 31, 1995), ESC 95-39 (Faubert). However, as mentioned above, the exemption is narrower than the just cause concept applied in the common law and in collective agreement disputes. While an arbitrator or judge may find that there was just cause to dismiss an employee, that does not necessarily mean that the exemption in paragraph 3 of s. 2(1) applies.

For example, see K & R Advertising Limited v Wojick (January 12, 1981) ESC 934 (Bigelow) where the referee found that the employee "was lazy; she was slovenly; she was inconsistent; she was unreliable; she was irresponsible; she was just about everything that a competent secretary should not be. She was unquestionably discharged for just cause. But I cannot go so far as to say that she was guilty of wilful neglect of duty."

Employee's conduct is not trivial

In order for the exemption to apply, the wilful misconduct, neglect of duty or disobedience must not be trivial, i.e., unimportant or insignificant. Trivial acts of wilful misconduct, neglect of duty or disobedience will not serve to disentitle an employee from notice of termination or termination pay.

Employee's conduct has not been condoned by the employer

In order for the exemption to apply, the employee's behaviour must not have been condoned by the employer. In this discussion, the reference to behaviour means wilful misconduct, wilful neglect of duty or wilful disobedience that is not trivial.

Condonation exists in situations where the employer knows about the employee's behaviour but does not act on it, thereby giving the employee the impression that the behaviour is not serious enough to warrant termination. If such condoned behaviour is repeated by the employee, the employer is generally prevented from relying on that recurrence in order to terminate the employee without notice or pay in lieu. The employer can avoid the inference of condonation by warning the employee that such behaviour is unacceptable and that a repeat of it will result in termination. If the behaviour concerning which the employee was previously warned reoccurs, this reoccurrence may be relied on as a "culminating incident" for which the employee may be terminated without notice or pay in lieu. The uncondoned culminating incident also allows the employer to bring into consideration other behaviour of the employee that was previously condoned by the employer. See Cool and Cool c.o.b.a. Timmons Auto Wreckers & Salvage v Duncan (July 29, 1981), ESC 1048 (Sheppard).

Immediate action (e.g., a warning or other disciplinary action) by the employer in response to the employee's conduct is not always necessary to avoid condonation. For example, condonation will not be found where the supervisor responsible for such action is not available until some time has elapsed after the incident, where the employer waits to act until after the work day is over in order to avoid a disruption of operations, or where the employer takes a reasonable amount of time to conduct an investigation of an employee who is suspected of misconduct. In this regard, see Montgary Food Enterprises Inc. o/a Kipling's Restaurant (March 5, 1992), ESC 2996 (Novick) and CCL Custom Manufacturing v Barrett, 2000 CanLII 13149 (ON LRB). However, where there was no reason for the failure to take immediate action, there will generally be condonation. See for example Lighthouse Inn Operations v Mosey (November 24, 1997), 1369-15-ES (ON LRB).

"After-acquired" information

After-acquired information can be used in determining whether the exemption in paragraph 3 of s. 2(1) applies. The fact that the employer discovered the employee's behaviour after the termination is irrelevant, since grounds for terminating the employee without notice or pay in lieu would have existed at the time of the termination. In this regard, seeLake Ontario Portland Cement Co. Ltd. v Groner, [1961] SCR 553, 1961 CanLII 1 (SCC).

Employment contract impossible to perform or frustrated

Section 2(1) paragraph 4 provides that, except where the impossibility or frustration is the result of the employee's illness or injury, an employee whose contract has become impossible to perform or is frustrated by a fortuitous or unforeseeable event or circumstance is not entitled to notice of termination or pay in lieu.

This section must be read in conjunction with s. 2(3), which reads:

The effect of the exemption is to relieve the employer from the obligation to give notice of termination or termination pay where there is a supervening unforeseeable event that strikes at the very root of the contract that is not the fault of the employer and that is not provided for in the contract itself.

The rationale for this exemption is the recognition that employers cannot give advance notice of termination where the termination is caused by events that the employer cannot reasonably be expected to anticipate or foresee. It is also consistent with the common law view that frustration of contract brings the contract to an end automatically by operation of law. Where frustration of the employment contract occurs, the common law does not regard the employer as having terminated the contract.

It should be noted, however, that the exemption will only apply in rare circumstances and, generally speaking, employers' arguments that the contract of employment was frustrated or had become impossible to perform have been met with some considerable skepticism by tribunals.

As with any exemption from a minimum standard, the onus is on the employer to establish on a balance of probabilities that the exemption applies.

Frustration and impossibility in disability situations

Prior to the amendments made by O Reg 549/05, which, among other things, brought in s. 2(3), the exemption in paragraph 4 of s. 2 (and that in s. 9 regarding severance entitlements) of O Reg 288/01 purportedly provided that, subject to the Human Rights Code, RSO 1990, c H.19 (the "Code"), an employer could terminate (or sever) the employment of an employee whose employment contract was "frustrated" due to illness or injury without being required to provide notice of termination or severance pay. In other words, the exemptions purportedly applied in situations in which the contract of employment had become impossible to perform or had been frustrated as a result of injury or illness on the part of the employee, provided that the employer had complied with the duty of reasonable accommodation under the Code.

However, on May 4, 2005, in Ontario Nurses' Association v Mount Sinai Hospital, 2005 CanLII 14437 (ON CA) the Ontario Court of Appeal struck down the severance pay exemption under the former Employment Standards Act. The Court found that the exemption was unconstitutional as it violated s. 15 of the Charter of Rights, in that it was discriminatory on the ground of disability, and could not be saved as a reasonable limit under s. 1 of the Charter. Although the wording of the notice and severance pay frustration exemptions under the ESA 2000 is different from that of the severance pay exemption in the old Act, in substance the exemptions are to the same effect. While the severance pay exemption in the former Employment Standards Act was not expressly made subject to the Code, it was nonetheless considered to be so subject by virtue of the provision in the Code that gives it primacy over other legislation in the event of a conflict.

Accordingly, to reflect the ruling in the Ontario Nurses' Association v Mount Sinai decision, O Reg 288/01 was amended by O Reg 549/05 to indicate that the exemptions for impossibility of performance or frustration do not apply where the impossibility or frustration is the result of employee injury or illness. See subsection (3) below and O Reg 288/01, s. 9(1) para. 2.

It should be noted that it is now irrelevant so far as the ESA 2000 is concerned whether a contract of employment has been frustrated as a result of disability; the crucial point is whether the employer has terminated or severed the employee's employment. Because the frustration exemption is no longer available to the employer in cases where the contract was allegedly frustrated by the employee's disability, there is no need for an officer to attempt to determine whether frustration occurred; the only thing that the officer needs to determine is whether the employer terminated or severed the employee's employment, unless, of course, some other exemption might apply.

Terminating and/or severing the employment relationship does not necessarily mean that the employer must purport to end the employment relationship expressly. The employer may terminate and/or sever the relationship with either a statement or an action that indicates the employer regards the employment relationship as having ended. For example, in Barrette v Rainbow Concrete Industries Ltd., 2006 CanLII 11057 the Ontario Labour Relations Board the employer was found to have terminated the employment relationship when it sent the employee a pension form with several references to termination in it and which was intended to remove the applicant as a pension plan member when the only way to do so was by termination of employment or resignation. In this case the employer was fully aware that the employee had no intention of resigning.

In Fleetwood Canada Ltd. v Burchall, 2006 CanLII 34100 (ON LRB) the Board found that the employer terminated the employment of an employee with a letter that was not worded as a dismissal but which referred to the fact that its obligation to re-employ him under the Workplace Safety and Insurance Act, 1997, SO 1997, c 16, had expired, and that he had therefore ceased to be an employee. However, there must be a termination or severance by the employer in order for there to be an entitlement; the mere fact that it appears to be extremely unlikely or even certain that the employee will not be returning to work is not sufficient if the employer takes no step, whether expressly or by implication, to indicate that it is ending the employment relationship. Note that some court and arbitrator decisions on this point are contrary to the Program’s position and should not be followed (for example,  St. Joseph's General Hospital v Ontario Nurses' Association, 2006 CanLII 35191 (ON LA),  Hoekstra v Rehability Occupational Therapy Inc., 2019 ONSC 562 (CanLII), and Estate of Cristian Drimba v Dick Engineering Inc., 2015 ONSC 2843 (CanLII).)  The OLRB has consistently interpreted the termination and severance pay provisions of the ESA as requiring an actual terminating event on the initiative of the employer prior to a finding that an employment contract has been terminated due to frustration. The OLRB interpretation is consistent with a plain reading of the relevant provisions of the ESA. (See for example: Ardies v 1650691 Ontario Inc. (Chip N' Charlie's Bar & Eatery), 2015 CanLII 49514 (ON LRB); Barrette v. Rainbow Concrete Industries Ltd., 2006 CanLII 11057 (ON LRB); Fleetwood Canada v. Burchall OLRB [2006] 2006 CanLII 34100 (ON LRB); Nour Trading House Inc. v. Lam, 2006 CanLII 41447 (ON LRB); MacDonald v. Zellers Inc., 2005 CanLII 4315 (ON LRB); Velovski v. Woods Industries (Canada) Inc., 2005 CanLII 8257; Chandoo v. Sobeys Ontario Division, 2002 CanLII 35376 (ON LRB); and Glick v. Burke, 2000 CanLII 12787 (ON LRB).

Because O Reg 549/05 was filed on October 28, 2005, and was published in the November 12th, 2005 issue of the Ontario Gazette, an issue arose as to whether the frustration exemptions as they stood prior to the amendments should still be applied in cases where the employee's employment was terminated or severed prior to November 12, 2005 (or October 28, 2005, if the employer knew about the amendments).

The position of the program is that the amendments to the frustration exemptions did not change the law. The amendments simply reflected the Court of Appeal's decision in Ontario Nurses' Association v Mount Sinai - in other words, the amendments brought the text of the regulation into line with what was already the law, as stated by the Court. For this reason, where an employment contract was frustrated as a result of injury or illness, the Program proceeds on the basis that the frustration exemptions cannot be applied - even if the termination or severance occurred before the amendments to the exemptions were filed or published.

Frustration and impossibility in non-disability situations

In determining the applicability of the frustration and impossibility exemption in non-disability situations, it is important to bear in mind three general principles.

  1. The event that allegedly caused the employment contract to be frustrated must be something that strikes at the very basis of the contract; it is not enough that the event has made the contract a more difficult or expensive proposition for the employer.
  2. The event must not have been caused through fault of the employer.
  3. The employment contract must not have addressed the possibility that the event might occur and have provided for its consequences.

As well, where the allegedly frustrating event was something personal to the employee, it is Program policy that factors such as the employee's length of employment, whether or not they were a "key" employee, the length of the employee's absence from work or inability to work, and whether the employment would have been expected to continue indefinitely had it not been for the occurrence of the allegedly frustrating event should all be taken into account. If the employee had been employed for a lengthy period and their employment would have expected to continue had the allegedly frustrating event not occurred, that tends to argue against a finding of frustration. On the other hand, if the employee is a key person in the employer's operation and the absence is extremely lengthy, these factors tend to argue in favour of a finding of frustration. Also relevant is what has the employer's past practice been in response to similar situations; if the employer did not treat the contract as having been frustrated in similar cases in the past, that makes a finding of frustration less likely.

The question may arise as to whether an employment contract would be frustrated or rendered impossible to perform where the employee has been on a series of Part XIV statutory leaves for a period of some years. Given that the employee is exercising a statutory right, it is Program policy that the contract would not be frustrated or rendered impossible to perform in these circumstances.

Set out below are some situations where there could be a possibility that the contract of employment should be regarded as having been frustrated or become impossible to perform. These are provided as examples; the list is not intended to be exhaustive.

Note that where the employee entitlement in issue is severance pay, rather than notice of termination or termination pay, the employer cannot rely on the exemption if the frustration or impossibility is the result of a permanent discontinuance of all or part of the employer’s business because of a fortuitous or unforeseen event.  See O Reg 288/01, s. 9(2)(a)(i).

Supervening change in the law

Where an employer is forced to restrict its activities or discontinue its business because of a change in the law, the contract of employment may be frustrated or impossible to perform. For frustration to be found on the basis of a change in the law, generally the new law:

  • must have been unforeseen,
  • must not be temporary in nature when viewed in the context of the employment contract as a whole, and
  • must make the performance of the employment contract impossible or something radically different from what the employer and employee agreed to in the contract. ( See for example, Cowie v. Great Blue Heron Charity Casino, 2011 ONSC 6357, Klewchuk v. Switzer, 2003 ABCA 187 (CanLII), par. 24.) 

A question arose during the COVID-19 pandemic as to whether the frustration exemption applied on the basis of a change in the law where a business was forced to temporarily close or temporarily restrict its activities due to an order under the Emergency Management and Civil Protection Act (EMCPA) or Reopening Ontario (A Flexible Response to COVID-19) Act, 2020 (ROA). At the time of writing, the requirements of the EMCPA and ROA were all temporary.  As such, at the time of writing, the second criterion to establish frustration of contract on the basis of a change in the law is not met due to the EMCPA or ROA ordersand it is therefore Program policy that frustration of contact on the basis of the EMCPA or ROA orders is not established*. (Where it is determined that one of the criteria set out above is not met, it is not necessary to determine whether the other two criteria would have been met in the circumstances). 

*Although the specifics of individual employment contracts on matters such as whether the contract was for a definite or indefinite term and the timing of the change in the law vis-à-vis the start of the employment contract are part of the context when determining whether the change in the law is temporary, the Program considers those factors not to be pertinent in the scenario of EMCPA/ROA orders and the ESA context where an employee must be continuously employed for three months in order to have termination entitlements, and where an exemption from termination entitlements applies to employees who are employed for a definite term or to complete a specific task.

Note that where the employee entitlement in issue is severance pay, rather than notice of termination or termination pay, the employer cannot rely on frustration because of a supervening change in the law that results in the permanent discontinuance of its business; see O Reg 288/01, s. 9(2)(a)(i).

Destruction of the employer's business / “act of god”

Where the employer's business premises are destroyed by "an act of God", or by other means such as terrorism, war or arson so that the employer is unable to carry on business, there will generally be frustration since such events are generally considered to be unforeseeable (even if the employer has insured itself against these losses). Other factors mentioned earlier might, however, prevent frustration from being found in these circumstances, for example, if the employer commits arson on its own premises, the allegedly frustrating event would have occurred as a result of fault of the employer, and the employer could not therefore rely on the exemption.

A question arose during the COVID-19 pandemic as to whether the pandemic constituted an “act of God” such that it would trigger the frustration exemption.  Although some might argue that the pandemic itself may be an unforeseeable event, it is Program policy that the focus of the inquiry for frustration purposes is on the consequences flowing from the pandemic that were responsible for the terminations (e.g. economic downturn) and whether those consequences amount to frustration of contract, rather than the focus being on the pandemic itself.  To that end, the discussion under the “Business Failure” heading below equally applies here: in light of the situation at the time of writing, it is Program policy that frustration is not established on the basis of business failure or economic conditions created by the pandemic.  

Note that where the employee entitlement in issue is severance pay, rather than notice of termination or termination pay, the employer cannot rely on frustration because its business is permanently discontinued because of the destruction of its business; see O Reg 288/01, s. 9(2)(a)(i).

Loss of an essential licence

Where the employer loses a business licence and is thereby unable to continue operating, this may lead to frustration unless the employer knew or ought to have known of the risk that the licence would be lost or not renewed. For example, in Lakeshore Pubs Ltd. o/a Kelly's Keg'n Jester v Reardin (March 16, 1990), ESC 2650 (Baum) an employer had a concession agreement at Ontario Place that was not renewed. The employer subsequently terminated the employment of the employees at that location, as it was no longer able to carry on a business at the site. In this instance, it was determined that the employer could not rely on frustration of contract because it was found that the employer was fully aware of the possibility that the concession agreement might not be renewed. The employer was found to have known of the risk that staff would not be needed if its application for concession renewal failed and therefore could not resort to the argument of frustration of contract to avoid its obligations under the former Employment Standards Act. In addition, the employer may be prevented from relying on frustration in this circumstance if the loss of the licence was due to its own fault.

Frustration may also occur where the employee loses a licence (such as a driving licence or a professional licence) that is necessary for them to carry out the duties of the job. In that situation, the employer may rely on frustration, so long as the loss of the licence was not the employer's fault.

Note that where the employee entitlement in issue is severance pay, rather than notice of termination or termination pay, the employer cannot rely on the frustration exemption if the loss of an essential licence causes it to cease to carry on business; although the loss would be considered to frustrate the employment contract, it also represents the permanent discontinuance of all or part of its business and so the exemption is inapplicable by virtue of s. 9(2)(a)(i) of O Reg 288/01.

Intention to join a competitor

There are a number of decisions under the former Employment Standards Act that determined that an employee who gives notice of resignation and indicates that they intend to work for a competitor of the employer (or set up a business in competition with the employer) gives rise to a frustration of the employment contract – see Avco Financial Services v Morabita (June 12, 1973), ESC 187 (Learie) and Yurman v J&M Tire Sales Inc. (December 14, 1995), ESC 95-236 (Wacyk). However, the Program's policy is that these decisions should not be followed. These situations do not result in the contract being frustrated. Rather, the consideration should be whether the employee has engaged in willful misconduct. See Nidd v Cartier Supply & Rentals Ltd., 2000 CanLII 12058 (ON LRB) and MTC Leasing Inc. and the discussion at s. 2(1) para. 3 above.

Incarceration

Referees have found that in some cases where an employee was imprisoned for a criminal offence, the contract of employment was frustrated or impossible to perform because the imprisonment rendered the employee unable to perform their job duties: see for example Caland Ore Company Limited v Connors (January 8, 1980), ESC 684 (Aggarwal), a decision under the former Employment Standards Act. However, the determination of whether the employment contract is frustrated will depend on a number of factors such as the length of the incarceration, the employee's period of service prior to the incarceration, and whether the employee was a key person.

Death of sole proprietor

Where the sole proprietor of a business dies, the contract will generally be considered as frustrated, except where an executor (or where the individual dies intestate, personal representative) of the sole proprietor's estate carries on the business. See Estate of Brinklow formerly o/a Brinklow's Body Shop v Anderson et al (January 16, 1988), ESC 235 (Haefling) and Robitaille v J.B. Truck Repair Service & Sale (November 14, 1994), ESC 94-203 (McKellar). Note, however, that the death of an employer will not trigger a similar exemption to severance pay – see the discussion of O Reg 288/01, s. 9(2)(a)(ii).

Note that where the employee entitlement in issue is severance pay, rather than notice of termination or termination pay, the employer's estate cannot rely on the frustration exemption because of the employer's death – see O Reg 288/01, s. 9(2)(a)(ii).

Strike/lock-out

The possibility that strikes or lock-outs might occur and disrupt the employer's business is not unforeseeable and therefore these events will not generally lead to a finding of frustration or impossibility. Note, however, that if an employee's employment is terminated during or as a result of a strike or lock-out at the place of employment, the exemption in paragraph 8 of s. 2(1) of O Reg 288/01 will apply – see the discussion of s. 2(1) para. 8 below. Also see O Reg 288/01, s. 9 para. 1 for a somewhat similar exemption from the severance pay requirements.

Business failure

The failure of a business due to such reasons as an economic downturn, reduced revenues or an inability to obtain financing will generally not support frustration or impossibility since these events are not unforeseeable circumstances.  The inability to obtain financing, or poor or uncertain economic conditions, including those that lead to a bankruptcy, have historically not been considered to constitute frustration, since economic downturns are generally seen as reasonably foreseeable future events when entering into employment contracts.  See for example Iroquois Hotel (London) Limited v Diorio et al (September 25, 1975), ESC 290 (Murphy).

Similarly, an employer’s voluntary decision to discontinue a business for economic reasons or to file for bankruptcy have historically not been considered to constitute frustration of employment contracts, since those are financial decisions and employment contracts are not frustrated simply because the employer is unprofitable or is insolvent.

A question arose during the COVID-19 pandemic as to whether the frustration exemption applied where the business failed because of economic conditions created by the pandemic.  Depending on the length of the pandemic and its eventual impact on the economy, a distinction may be drawn in the future between an economic downturn that is normally foreseeable and that does not trigger the frustration exemptions, and an unforeseeable global emergency that creates an economic disaster and that could trigger the exemption.  In light of the situation at the time of writing, however, it is Program policy that frustration is not established on the basis of business failure caused by the economic conditions created by the pandemic.

Death of the employee

The death of the employee will frustrate the employment contract. This means that the employee's estate will have no entitlement to termination pay where the employment relationship ended with the employee's death. Thus, for example, the estate will not be entitled to termination pay even if the employee had received notice and died before the notice took effect, nor will the estate be entitled where the employee was part of a group of employees whose employment the employer was about to terminate if the employee's death intervenes.

Note that where the employee entitlement in issue is severance pay, rather than notice of termination or termination pay, the employer cannot rely on the frustration exemption if the employee died after receiving a notice of termination – see O Reg 288/01, s. 9(2)(a)(ii).

Employee refuses offer of reasonable alternative employment

Pursuant to s. 2(1) paragraph 5, an employee whose employment is terminated after they refuse an employer's offer of reasonable alternative employment is not entitled to notice of termination or pay in lieu.

The effect of this exemption is to relieve the employer from the obligation to give notice of termination or termination pay where the employee refuses continued employment with the employer when the employer is offering reasonable alternative employment. As with all exemptions from minimum standards, the onus is on the employer to establish on a balance of probabilities that the exemption applies.

The rationale for this exemption is that the ESA 2000 of refusing an offer of reasonable alternative employment is tantamount to resigning.

In determining whether an employee has refused reasonable alternative employment, consideration should be given to the following five points:

Offer must be made

In order for there to be a refusal, the employer must first make a clear and unequivocal offer of reasonable alternative employment to the employee. See Lauderdale Car Cleaners (1965) Limited v Metauro (March 5, 1992), ES 24/92 (Randall), a decision under the former Employment Standards Act.

Offer must be for work with the employee's employer

The exemption uses the phrase "with the employer". The use of this phrase requires that the offer be for reasonable alternative work with the employer. An offer of reasonable alternative employment with a separate employer is not sufficient, even if that separate employer is a purchaser of the employer's business. However, an offer of employment from a "related employer" as defined in ESA Part III, s. 4 would satisfy this criterion.

Offer must be made before the employee's employment is terminated

The exemption applies only if the employee's employment is terminated "after" the employee has refused a reasonable alternative offer of employment. Accordingly, the employer must make the offer of reasonable alternative employment before the termination of the employment relationship in order for this exemption to apply.

Employee must be able to perform the work that is offered and refuse the offer

In order for there to be a refusal, the employee must be able to perform the work that is offered. There is a distinction between a refusal to do something, on the one hand, and an inability to do something, on the other hand. An employee who is unable to do something (for example, through lack of necessary credentials or disability) cannot be said to have refused to do it. Refusal involves declining to do something that one is able to do. Black's Law Dictionary states: ""Fail" is distinguished from "refuse" in that "refuse" involves an act of the will, while "fail" may be an act of inevitable necessity."

Alternative employment offered by the employer must be reasonable

In determining whether the alternative employment offered by the employer was reasonable, consideration must first be given to whether or not there was an actual or implied term of the contract that allowed the employer to make changes to the terms of employment. In that case, an employee cannot argue that such changes are unreasonable. See also the discussion of constructive dismissal at ESA Part XV, s. 56.

Barring a situation where the changes to the terms of employment are made in accordance with actual or implied terms in the contract, the primary factor in determining whether the alternative work offered to the employee is reasonable will be the rate of pay. However, other factors may be relevant as well, including benefits, location, hours and schedule of work, "perks", quality of working environment, degree of responsibility, job security and possibility of advancement. The question to be asked is would a reasonable employee in the circumstances of the employee in question consider the offer to be reasonable.

Remuneration

This is the most important of all the factors to be examined in considering whether or not the offer was reasonable. Generally speaking, offers of employment that entail pay cuts of less than 10 per cent will probably be considered as reasonable, although each case must be examined on its own merits, and the pay cut needs to be viewed in the context of any other changes to the employee's employment, e.g., duties, location etc. One decision from the Office of Adjudication indicated that a pay cut of 12.6 per cent was reasonable – see Eng v Trigraph Inc. (March 12, 1993), ES 93-47 (Blair), a decision under the former Employment Standards Act. However, this case was unique on its facts in that most of the other employees accepted a much larger cut of 20 per cent. The referee noted this in determining that the pay cut was reasonable. The test of whether the cut is reasonable is what a reasonable employee in the circumstances would think of it, and the inference in the above-noted case was that the claimant was acting in an unreasonable manner in refusing to go along with the new arrangement.

When assessing whether or not the offer is reasonable, it is appropriate to consider the overtime possibilities available to the employee. See for example Rowlands v Custom Design Installation Ltd. (April 5, 2000), 4073-98-ES (ON LRB), a decision under the former Employment Standards Act, where the Board held that the employer's offer of a job that had little possibility of overtime was not reasonable when the employee had previously performed overtime on a regular basis.

Benefits

Benefits are to be included when calculating the amount of the pay cut. Some benefit packages are worth 15 per cent to 25 per cent of the employee's total remuneration. If the offer does not include such a package, then the offer may not be reasonable even though the basic wage or salary would remain the same.

Location

In determining whether the offer was unreasonable, the officer should look at how the change will be viewed by a reasonable employee in the circumstances. For example, if the offer involves a change of location from Toronto to Brampton, the offer may be a reasonable one for an employee who has a car and a driver's license, but may not be reasonable for another employee who is forced to rely on public transportation. The location of the employee's residence should also be considered.

Hours and schedule of work

For example, an offer that involves a change from the day shift to the night or "graveyard" shift may not be reasonable. Again, the question to ask is what a reasonable employee in the same circumstances as the employee in question would consider to be reasonable. A single mother, for example, who was on the day shift and is offered alternative employment on the night shift may validly consider such an offer to be unreasonable.

Perks

Such items as whether the employee is entitled to an expense account, to travel to business conferences, etc. may be relevant in determining whether an offer was reasonable.

Quality of working environment

For example, if an employee who has a job with a private office in an office tower is offered a position that comes with a clerical station located on the plant floor, this may be considered an adverse change in the attractiveness of the employee's working environment and militate against a finding that the offer was reasonable.

Degree of responsibility

If the employee was in a managerial position and the employer proposes to place them in a non-managerial position, or if the employee was in a position where they could make significant decisions but is offered a job in which they could not, this will militate against a finding that the offer was reasonable.

Job security

If an employee was in a position where there was a good chance of continuing employment for the foreseeable future and is offered a position where continuing employment is unlikely, this will militate against a finding that the offer was reasonable.

Possibility of advancement

If the employee was in a job that was on the "fast track" and is offered one that is "dead end", this will militate against a finding that the offer was reasonable.

Decisions regarding this exemption

The following are some decisions regarding this exemption. While these decisions were issued under the former Employment Standards Act, they continue to be relevant:

Employee refuses reasonable offer of alternative employment through seniority system

Pursuant to s. 2(1) paragraph 6, an employee whose employment is terminated after they refuse alternative employment that is made available through a seniority system is not entitled to notice of termination or pay in lieu.

The effect of the exemption is to relieve the employer from the obligation to give notice of termination or termination pay where the employee refuses alternate work that was made available through a seniority system.

Note that, unlike the exemption in paragraph 5 of s. 2(1), the word "reasonable" does not appear. Therefore, where an employee has refused alternative employment made available through a seniority system, the exemption will apply and the employee will be disentitled to termination notice or pay in lieu regardless of whether or not that alternative employment was reasonable.

The seniority system does not need to be established pursuant to a collective agreement in order for this exemption to apply. However, where the seniority system is not established pursuant to a collective agreement, the employer will have the onus of demonstrating that the seniority system was formalized and was not merely of an ad hoc nature. In this regard, see Re Great Northern Apparel Inc., a decision under the former Employment Standards Act.

In order for there to be a refusal, the employee must be able to perform the work that is made available. There is a distinction between a refusal to do something, on the one hand, and an inability to do something, on the other hand. An employee who is unable to do something (for example, through lack of necessary credentials or disability) cannot be said to have refused to do it. Refusal involves declining to do something that one is able to do. Black's Law Dictionary states: ""Fail" is distinguished from "refuse" in that "refuse" involves an act of the will, while "fail" may be an act of inevitable necessity."

The exemption applies only when the employee's employment is terminated "after" they have refused alternative employment. Accordingly, the refusal must be made before the termination of the employment relationship and the position must be made available prior to the termination. Further, the exemption will apply only if there is a causal connection between the employee's refusal and the subsequent termination of the employee. In other words, if the termination of the employee had nothing to do with the refusal to accept alternative employment, the exemption will not apply, because it is only the employee's refusal to accept the alternative employment that relieves the employer from its obligation to give notice of termination or pay in lieu.

Employee on temporary lay-off and does not return to work in reasonable time

Pursuant to s. 2(1) paragraph 7, an employee who is on a temporary lay-off and does not return to work within a reasonable time after being requested to do so by the employer is not entitled to notice of termination or pay in lieu.

As with other exemptions from minimum standards, the employer has the onus of showing that the exemption applies. In this case, the employer must show that the offer of recall was made to the employee and that the employee clearly understood its terms. From the point of view of proof, the employer will satisfy the onus if it can show that a written notice of recall was received by the employee and that the employee could read and understand it. If the employer alleges that it orally recalled the employee and the employee denies it, it will, of course, be much more difficult for the employer to demonstrate that the employee was recalled. If the employee wilfully structures their affairs so that it is impossible for the employer, using its best efforts, to contact the employee for recall purposes, an employer who uses its best efforts to recall the employee but fails to reach them will be relieved its obligations to provide termination notice or pay in lieu.

The exemption only applies if the employee did not show up for work within a reasonable time after being recalled. This prevents the employer from recalling the employee with extremely short notice and then relying on the exemption when the employee is unable to respond so quickly. What is a reasonable time depends on the circumstances of each case, and will include factors such as where the employee was geographically when they received the recall.

If the employer recalls the employee for a very brief period of time, such as a few hours, it may be that the offer was not bona fide in that the employer made it for the sole purpose of attempting to disentitle the employee to termination notice or pay in lieu. In such a case, the employee who refuses such an offer may not be disentitled to notice or pay. See Highland Cove Marina v Van Velden and Babcock (December 22, 1983), ESC 1531 (Sheppard), a decision under the former Employment Standards Act.

The exemption only applies where the employee is on a temporary layoff. Since, pursuant to ESA Part XV, s. 56, a temporary lay-off does not include a week in which the employee was not able to work or was unavailable for work, the exemption will not apply where the employee is recalled to work during a sick leave or a pregnancy leave, for example.

Employment terminated because of strike or lock-out

Pursuant to s. 2(1) paragraph 8, an employee whose employment is terminated during a strike or lockout at the place of employment, or as a result of a strike or lock-out at the place of employment is not entitled to notice of termination or pay in lieu.

With respect to lock-outs, the exemption will apply only if the lock-out is a legal one under the Labour Relations Act, 1995, SO 1995, c 1, Sch A.

The exemption applies only if the strike or lock-out was at the employee's place of employment. The term "the place of employment" is not defined in the ESA 2000, and it is not the same as establishment as defined in ESA Part I, s. 1. When the employer has plants across the province, does a strike at a plant in Thunder Bay, for example, constitute a strike at "the place of employment" of an employee who works at the employer's Mississauga plant? The answer is no. The place of employment means the actual plant or office where the employee works.

The exemption applies when the employee's employment is terminated during a strike or lock-out, or as a result of a strike or lock-out. The meaning of "during" a strike or lock-out is self-evident. An employee terminated during a strike or lock-out, for whatever reason, would not be entitled to notice of termination or pay in lieu. Further, if an employee was given notice of termination prior to a strike or lock-out but was terminated (for example) during a subsequent strike and before the notice period had ended, this exemption would relieve the employer of any obligation with respect to the balance of the notice period or pay in lieu of notice. There is no requirement that the employee be a member of the striking or lock-out bargaining unit.

More difficult is the concept of "as a result of" a strike or lock-out. Can the employer rely on the exemption in a situation where the result of the strike is beneficial to the employer? For example, if the strike enables the employer to find a more efficient and profitable way of doing business without some of the employees, the employer might argue that the employees were terminated as a result of the strike in that their employment would have continued "but for" the strike. However, it is Program policy that in order to take advantage of the exemption, the employer must show that the strike had adverse consequences to its business and therefore necessitated the termination of the employees. In this regard, see Hayes Danc Inc. operating as Spicer Reman Centre v 15 Employees (December 29, 1989), ESC 2609 (Solomatenko), a decision under the former Employment Standards Act.

Furthermore, if the strike was little more than a catalyst, precipitating a closure that would have likely happened anyway, even without the strike, then the terminations will not be "as a result of" the strike within the meaning of the exemption. The strike must be the major cause of the terminations in order for the exemption to apply. If the major cause is instead, for example, lower demand, increased competition, or aging equipment and processes, and the strike is merely "the straw that broke the camel's back", then the exemption will not apply. See Robson Lang Leathers Limited v Legacy et al (January 19, 1979), ESC 574 (Picher), a decision under the former Employment Standards Act.

Construction employees

Pursuant to s. 2(1) paragraph 9, an employee who is a construction employee is not entitled to notice of termination or termination pay in lieu of notice. For purposes of this regulation, of O Reg 288/01, s. 1 provides that construction employee has the same meaning as in O Reg 285/01.

Note, however, there is an exception to this in the case of employees engaged in the maintenance of roads, based on principles of statutory interpretation. O Reg 288/01, s. 9(1) sets out exemptions from the right to severance pay; paragraph 7 of s. 9(1) exempts construction employees, while paragraph 8 exempts employees engaged in the on-site maintenance of, among other things, roads. This clearly indicates an intention on the part of the maker of the regulation that an employee employed in the maintenance of roads would not be considered to be a construction employee for purposes of O Reg 288/01, even though such an employee would be considered to be engaged in road building and thus be a construction employee for purposes of O Reg 285/01. It follows that because O Reg 288/01, s. 2(1), which sets out exemptions from the right to notice of termination or termination pay in lieu, contains no provision corresponding to paragraph 8 of O Reg 288/01, s. 9(1), an employee employed in the maintenance of roads is entitled to notice or termination pay.

See O Reg 288/01, s. 9 for a discussion of the severance pay exemption for road maintenance employees.

Employment terminated when employee reaches age of retirement

On December 12, 2006, O Reg 288/01, s. 2(1) paragraph 11 was amended so that it applies only if the termination does not contravene the Human Rights Code, RSO 1990, c H.19 (as amended by the Ending Mandatory Retirement Statute Law Amendment Act, 2005, SO 2005, c 29). Formerly, the exemption applied where an employee's employment was terminated in accordance with the employer's established practice regarding retirement.

The amendment reflects changes to the Ontario Human Rights Code made under the Ending Mandatory Retirement Statute Law Amendment Act, 2005, SO 2005, c 29 which came into force on December 12, 2006.

On that date, 65 was removed as the cap in the definition of "age" for the purpose of the prohibition against discrimination under the Human Rights Code. As a result, all employees aged 18 or over, including those aged 65 or more, are protected against discrimination on the basis of how old they are, and among other things, generally cannot be forced to retire merely because they are 65 years old or older. Note however that under the Human Rights Code, mandatory retirement polices that can be upheld on bona fide occupational requirement grounds are still lawful.

For example, a fire department's policy that requires firefighter employees to retire at a specific age (e.g., 60 years) would not contravene the Human Rights Code if being younger than that age constituted a bona fide occupational requirement for firefighters. In that case, the notice of termination exemption in O Reg 288/01 would apply to a firefighter whose employment was terminated at age 60 in accordance with that policy.

The rationale for this exemption is that where the employer has an established retirement policy that does not contravene the Human Rights Code, the employee has advance knowledge that their employment will end at a certain time, and there is therefore no need to receive notice of termination or pay in lieu. If the employer has a mandatory retirement policy that contravenes the Human Rights Code, the employer cannot lawfully terminate an employee's employment on the basis of that policy; therefore, the rationale is not applicable in such situations.

On the other hand, if an employer has a voluntary early retirement plan, and the employee chooses to take advantage of it, the employee will not be entitled to notice of termination or pay in lieu. This is not because the exemption applies but because the employee has resigned, rather than having their employment terminated by the employer. In determining whether such an early retirement plan was truly voluntary, one consideration would be what the employee was told would happen if they did not accept early retirement. If the employee was told that they would be fired if the early retirement package were not accepted, then the employee may be considered to have been forced to resign, which is equivalent to a termination and would trigger a right to termination notice or pay in lieu.

Finally, note that even where a termination is effected pursuant to an alleged retirement practice that does not contravene the Human Rights Code, the employer must show that the practice is established for the exemption to apply. The Program's position is that this means it must have been in place for a reasonable period of time and must be known to the employees, especially the employee in question, for a reasonable period of time. If the employer, for example, institutes what is determined to be a bona fide retirement policy at age 60 a few days or weeks prior to the employee turning 60, the policy will not have been in place long enough to be established within the meaning of the exemption. This would be so even if the policy were a bona fide one.

Ship building and repair employees

Pursuant to s. 2(1) paragraph 12, an employee who meets the following conditions is exempted from termination pay or notice of termination:

  • The employee's employer is engaged in the business of building, altering or repairing ships or vessels that have a gross tonnage of over ten tons and that are designed for or used in commercial navigation.
  • The employee has access to a legitimate supplementary unemployment benefit plan that the employee (or their agent) agreed to. Pursuant to ESA Part 1, s. 1(3) the agreement must be in writing.  Note that ESA Part 1, s. 1(3.1) addresses agreements in electronic form.
  • The employee (or their agent) has agreed to have this exemption apply. Pursuant to ESA Part 1, s. 1(3) the agreement must be in writing.  Note that ESA Part 1, s. 1(3.1) addresses agreements in electronic form.

Employees not entitled to notice of termination or termination pay – s. 2(2)

This provision sets out exceptions to the application of the term or task exemption in paragraph 1 of s. 2(1). For a discussion of this provision refer to s. 2(1) para. 1 above.

Employees not entitled to notice of termination or termination pay – s. 2(3)

This provision sets out an exception to the application of the impossibility of performance or frustration of contract exemption in paragraph 4 of s. 2(1) of O Reg 288/01. It provides that the exemption does not apply where the impossibility of performance or frustration of contract is the consequence of an illness or injury suffered by the employee. It was added to O Reg 288/01 by O Reg 549/05, which was filed on October 28, 2005. Refer to s. 2(1) para. 4 above for a discussion of this provision.

Section 3 — Notice, 50 or more employees

Notice, 50 or more employees — s. 3(1)

This section sets out the amount of notice employees are entitled to when there is a "mass" termination under s. 58(1) of the Employment Standards Act, 2000. These entitlements are the same as they were under the former Employment Standards Act.

In a mass termination, the amount of notice an employee is entitled to receive is determined by the number of employees whose employment is terminated, rather than by the employee’s period of employment. It should be noted that in the Employment Standards Act, 2000, the application of the mass notice provisions depend upon the number of employees actually terminated in a four-week period rather than the number of terminations initiated in a four-week period as was the case under the former Employment Standards Act. See the discussion of mass notice under s. 58(1) at ESA Part XV, s. 58(1).

Notice, 50 or more employees — s. 3(2)

This section sets out the information that is required to be provided to the Director of Employment Standards and posted in the employer’s establishment under ss. 58(2)(a) and (b) of the Act. Please refer to ESA Part XV, s. 58 for a discussion of the requirements to provide and post this information.

Section 3(3) of O Reg 288/01 sets out the manner in which this information is to be provided to the Director.

Notice, 50 or more employees — s. 3(3)

This section sets out the manner in which the information referred to in s. 3(2) of O Reg 288/01 is to be provided to the Director of Employment Standards. This section should also be read together with s. 58(4) of the Act, which provides that mass notice is deemed not to have been given until the information referred to in s. 3(2) of O Reg 288/01 has been received by the Director of Employment Standards. See the discussion of s. 58(4) of the Act at ESA Part XV, s. 58.

The prescribed information must be provided to the Director on the form approved by the Director. The form approved for this purpose is entitled "Form 1". The Form 1 may be downloaded from the Ministry of Labour’s website or may obtained from a Service Ontario Information Centre.

The Form 1 is to be delivered during the hours and on the days specified in s. 3(3) to:

Director of Employment Standards
Employment Practices Branch
Ministry of Labour
400 University Avenue, 9th Floor
Toronto, ON M7A 1T7

The Form 1 may be delivered by facsimile transmission to: (416) 326-7061.

Notice, 50 or more employees — s. 3(4)

This section is similar to the corresponding provision (s. 5(1) of O Reg 327) under the former Employment Standards Act.

This section provides an exception to the application of the mass termination rules. Generally, the mass termination rules apply where the employment of 50 or more employees at an establishment is being terminated in the same four-week period. This section provides that those rules will not apply if the following two criteria are met:

  1. The number of employees whose employment is being terminated represents not more than 10 per cent of the employees who have been employed for at least three months at the establishment; and
  2. None of the terminations are caused by the permanent discontinuance of all or part of the employer’s business at the establishment.

Both criteria must be met in order for this exception to apply. For example, in a situation where the employment of less than 10 per cent of the employees at an establishment is terminated, the mass terminations rules will apply if any of the terminations are caused by a permanent discontinuance of all or part of the business at the establishment.

If the exception in s. 3(4) applies, the individual notice provisions will apply instead of the mass termination rules.

Each criterion is discussed in more detail below.

  1. The number of employees whose employment is being terminated is not more than 10 per cent of the employees who have been employed for at least three months at the establishment.

This is commonly referred to as the "10 per cent rule". This criterion will be met if the number of employees to be terminated represents 10 per cent or less of the number of employees who have been employed for at least three months at the establishment.

To determine whether this criterion applies, the first step is to determine the number of employees who have had their employment terminated (the numerator in the equation). All employees who are terminated, whether they are entitled to notice of termination or not under the Act, are included in counting the number of employees being terminated, including employees with less than three months of employment. A plain reading of the regulation suggests that these employees are excluded only when counting the number of employees employed at the establishment; they are not excluded when counting the number of employees whose employment is terminated.

The second step is to determine how many employees who have been employed for at least three months were employed at the employer’s establishment (the denominator in the equation). The time at which this count is done is the day before the first day of the four-week period in question.

Consider the following example:

Number of employees whose employment is terminated:

  • Less than three months — 10
  • Three months or more — 95

Total — 105

Number of employees at establishment:

  • Less than three months — 150
  • Three months or more — 950

The calculation to be performed to see if the 10 per cent criterion applies is as follows:

  • The numerator (Number of employees to be terminated, including those that have been employed less than three months) — 105
  • The denominator (Number of employees employed three months or more) — 950

105 divided 950 = 11.05%

Because this calculation results in a number greater than 10 per cent, the exception in s. 3(4) will not apply, and, consequently, the mass termination rules in s. 58 will apply.

  1. None of the terminations are caused by the permanent discontinuance of part of the employer’s business at the establishment.

This criterion will be met only if none of the terminations are caused by the permanent discontinuance of part or all of the employer’s business at the establishment. If any of the terminations are caused by the permanent discontinuance of the employer’s business at the establishment, the mass termination rules will apply.

Again, both this criterion and the 10 per cent criterion must be met in order for the exception to the application of the mass termination rules in s. 3(4) to apply.

The corresponding provision under the former Employment Standards Act (s. 5(1) of O Reg 327) referred to "all or part" of the employer’s business. Section 3(4) of O Reg 288 has the same meaning even though it refers only to "part" of the employer’s business. This is because, logically, where there is a discontinuance of all of the business there will necessarily be a discontinuance of part of the business.

The phrase "part of the employer’s business" is not defined in the Act, and was the subject of some controversy under the former Employment Standards Act. There is not a body of case law from referees or adjudicators on the meaning of this phrase. However, there have been quite a few decisions from the Ontario Labour Relations Board on the issue of what constitutes "part of a business" within the meaning of the Labour Relations Act, 1995, SO 1995, c 1, Sch 1 ("LRA 1995") successorship provisions. Although these decisions have been decided in a context different from the ESA 2000 provisions, they may be helpful.

Generally, the LRA 1995 cases suggest that what is meant by "part of the business" is a coherent and severable part of the employer’s economic organization, managerial or employee skills, plant, equipment, "know how" or goodwill. Thus, the closing of one of several stores in a chain, or the closing of one of several plants will amount to the discontinuance of part of the employer"s business at an establishment, provided, of course, that the stores or plants in question were all in the same "establishment" as that term is defined in s. 1 of the Act. See the discussion of this term in the mass termination context in ESA Part XV, s. 58. Also, where the employer conducts several types of operations at one location, e.g., it manufactures several types or brands of products at that location, and the employer discontinues one of those operations, there will be a discontinuance of part of the employer’s business. However, where the employer is merely reducing its workforce by downsizing and continues to perform the same operations or functions as before, but on a smaller scale, there will not be a discontinuance of part of the business.

Some of the relevant LRA 1995 cases on what is "part of a business" are as follows:

A discontinuance that is temporary in nature will not be permanent for the purposes of s. 3(4)(b), even if the discontinuance goes beyond 13 weeks. For example, where one of the employer’s witnesses testified that the closure of a mine could last as long as three years, but that it intended to re-activate the mines at some future unknown date, it was held that the discontinuance was not a permanent one - see Re Falconbridge Nickel Mines Ltd. and Simmons et al., 1978 CanLII 1696 (ON SC), a decision under the former Employment Standards Act.

Section 4 — Manner of giving notice

Manner of giving notice — s. 4(1)

This provision sets out the manner in which notice of termination required by ss. 57 or 58 must be provided. This section is subject to s. 5 of O Reg 288/01, which addresses the issue of providing notice where "bumping rights" apply. See O Reg 288/01, s. 5. It is substantially the same as the corresponding provision (s. 8(1) of O Reg 327) under the former Employment Standards Act.

In writing — s. 4(1)(a)

Notice of termination of employment must be in writing. It is Program policy that the notice must specify when the employment is to be terminated, even if the employee is made aware of the impending termination through other means. See for example Estimations Trimac Appraisals Inc. v Cholette (October 31, 2000), 2806-99-ES (ON LRB), a decision under the former Employment Standards Act in which an employee was aware of and actively involved in the employer’s closure plans, including writing a letter to the landlord indicating the premises would be vacant on a particular date.

Although this provision requires notice in writing, it is Program policy that oral notice may be sufficient if the oral notice is clear and unequivocal and is greater in length than the notice required under ss. 57 or 58 and the minimum requirements concerning continuation of wages and benefits are met. The basis of this policy is that a greater right or benefit under s. 5(2) of the Employment Standards Act, 2000 has been provided. This is supported by Fanaken v Bell, Temple, 1984 CanLII 1856 (ON SC), a court case decided under the former Employment Standards Act.

Where the employer is alleging that it gave oral notice greater in length than the required minimum written notice, the onus is on the employer to show that the employee received and understood the oral notice, and that the notice was specific as to the date of termination.

Addressed to the employee — s. 4(1)(b)

The notice of termination is to be addressed to the employee whose employment is to be terminated. Obviously, notice cannot be effective if it is not clear whose employment is to be terminated.

Served on the employee in accordance with section 95 — s. 4(1)(c)

This clause was amended by O Reg 397/09 to delete specific references to personal service. The amendment reflects the fact that the expanded methods of service listed in s. 95 (as amended by the Employment Standards Amendment Act (Temporary Help Agencies), 2009, SO 2009, c 9, in force on November 6, 2009) include personal service.

The written notice of termination must be served in accordance with s. 95 of the Act. For a discussion of the methods of service listed in s. 95(1), see ESA Part XXI.

Service of a written notice of termination by a method listed in s. 95(1) is effective in accordance with ss. 95(2), (3) or (4) depending on the method of service used.

Manner of giving notice — s. 4(2)

This section applies in situations where an employer intends to lay off an employee for a period longer than a temporary lay-off but would be in breach of a collective agreement if it gave notice of termination of employment. (This situation arises, for example, where the collective agreement permits indefinite lay-offs but permits "terminations" only where there is just cause.) In this case only, the employer may give written notice of indefinite lay-off and be deemed to have provided the employee with notice of termination.

Subsection 56(4) of the Act states that an employer who lays an employee off without specifying a recall date shall not be considered to terminate the employment of the employee unless the lay-off is longer than a temporary lay-off — see ESA Part XV, s. 56. Accordingly, while the notice of indefinite lay-off is from the outset deemed to be a notice of termination, there is no termination of employment per se unless the lay-off goes on longer than a temporary lay-off.

If an employer gives working notice of indefinite layoff that is of sufficient length, there would be no termination pay liability in the event that the period of the lay-off ends up exceeding the period of a temporary lay-off, because the employer is deemed under s. 4(2) of O Reg 288/01 to have provided the employee with notice of termination. In such cases, the termination date is deemed under s. 56(5) to have been the first day of the lay-off. Because of s. 56(4) there will be a termination pay entitlement only if the layoff goes on longer than a temporary lay-off and the notice of indefinite layoff given under s. 4(2) was in some way deficient (e.g., notice not in writing, or notice to take effect immediately or prior to the expiry of the notice period that would otherwise have been applicable under s. 57).

Conversely, where notice of indefinite lay-off is given but the lay-off turns out not to exceed the period of a temporary lay-off, there would be no termination of employment and therefore no termination pay entitlement.

It should be noted, however, that an employer may run the risk that some employees may resign during the notice of indefinite layoff period in accordance with the condition described in s. 63(1)(e) of the Act and become entitled to severance pay. Clause 63(1)(e) of the Act provides that where an employee is given a notice of termination by the employer and resigns with at least two weeks' notice to take effect during the statutory notice period, his or her employment is severed. Since a notice of indefinite lay-off is deemed to be a notice of termination under s. 4(2), this means that the employee who receives a notice of indefinite lay-off and who responds with a notice of resignation meets all the specified conditions in order to be entitled to severance. The employment is deemed to have been severed on the termination date specified in the employer’s notice, and the employer would have to pay the severance pay on the later of seven days after that date and the date that would have been the next pay for the employee. See ESA Part XV, s. 63.

Section 5 — Notice of termination where seniority rights apply

Notice of termination where seniority rights apply — ss. 5(1), (2)

These provisions are substantially the same as the corresponding provision (s. 7 of Reg 327) under the former Employment Standards Act.

This section applies where employees who are to be terminated have the right to "bump" another employee with less seniority out of their job and take that job.

Where an employee has the right to "bump" a more junior employee, the employer is deemed to have provided written notice of termination to the more junior employee who is ultimately terminated by posting a notice in a conspicuous part of the workplace indicating the seniority, job classification and proposed lay-off or termination date of the employee named in the notice (the "bumper"). The principle is that the employee who will be bumped out can determine his or her fate from the posted notice and the seniority list. Note, however, that if the employee originally identified in the posted notice does not "bump" a more junior employee, the employer will be required to comply with the notice requirements in s. 4(1) of O Reg 288/01 with respect to the employee named in the posted notice.

Finally, it should be noted that if read literally, this provision would appear to limit the application of s. 5 such that it would provide effective notice only to the first employee bumped by the employee named in the posted notice. If that were the case, the employer would have to comply with s. 4(1) with respect to the employee ultimately bumped (e.g., a second or third, etc. "bumpee"). However, it is the Program’s policy (based on the principle of statutory interpretation that a literal interpretation should not be taken where the result would lead to an absurdity) that the section must be read broadly as if it were of the same purport as the corresponding provision (s. 7) in O Reg 327 under the former Employment Standards Act. As a result, it is the Program’s policy that s. 5 will apply to provide effective notice to the employee ultimately displaced through the "bumping" process, even though he or she is not in fact displaced by the person named in the notice.

Notice of termination where seniority rights apply — s. 5(3)

This section provides that s. 60(1)(a) of the Employment Standards Act does not apply to an employee who bumps another employee as described in ss. 5(1) and (2). Section 60(1)(a) provides that an employer shall not reduce the employee’s wage rate or change a term or condition of employment during the statutory notice period. See ESA Part XV, s. 60.

Under this provision, an employee whose position is being terminated and who exercises his or her seniority rights to "bump" into a position of a more junior employee, may be paid the wage rate and be subject to the terms and conditions of employment of that new position during the statutory notice period.

Section 6 — Temporary work, 13-week period

This section provides that an employer who has given an employee notice of termination in accordance with the Employment Standards Act, 2000 may provide the employee with temporary work during the 13-week period following the date the employee’s employment was to end without affecting the employee’s termination date or period of employment and without being required to provide any further notice when the employee’s employment finally does end. In that regard, see Di Tomaso v Crown Metal Packaging Canada LP, 2011 ONCA 469 (CanLII), where the Court of Appeal held that s. 6 of O Reg 288/01 contemplates temporary work not exceeding 13 weeks in duration from the originally-specified termination date and that if the temporary work exceeds that duration, new notice is required. The employer was unsuccessful in arguing that s. 6 allowed successive periods of temporary work of 13 weeks or less without imposing an obligation on the employer to give new notice in respect of the date on which employment is finally ended. The court held that to interpret the section in that way would be inconsistent with the status of employment standards legislation as remedial, benefit-conferring legislation as characterized by the Supreme Court of Canada in Rizzo & Rizzo Shoes Limited (Re), [1998] 1 SCR 27.

Section 7 — Inclusion of vacation time in notice period

This section is substantially the same as the corresponding provision (s. 10 of O Reg 327) under the former Employment Standards Act.

This section states that the period of notice of termination given to an employee shall not include any vacation time unless the employee agrees to include the vacation time in the notice period. Under s. 1(3) of the Employment Standards Act, 2000, any such agreement must be in writing.

Note that if an employee had been scheduled to take a vacation before he or she was given notice of termination, and that vacation would now fall within the statutory notice period, this provision would require the employer to obtain the employee’s agreement to take that previously scheduled vacation during the notice period.

Section 8 — Period of employment

Period of employment — s. 8(1)

This section is substantially the same as the corresponding provision (s. 14(1) of O Reg 327) of the former Employment Standards Act.

This section establishes the length of an employee’s period of employment for the purpose of calculating the amount of notice of termination or termination pay owing to that employee. The period of employment is the period beginning on the date the employee most recently commenced employment with the employer, and ending:

  • On the day notice of termination was given, if it was given in accordance with Part XV of the Employment Standards Act, 2000; or
  • On the day the employment was terminated, if notice of termination was not given in accordance with Part XV of the Act.

This section must be read in conjunction with s. 8(2) of O Reg 288/01, which sets out circumstances in which two periods of employment are to be considered as one period of employment (see the discussion of subsection (2) below).

The period of employment will only include employment in Ontario or work that is a continuation of work in Ontario. For example, if an employee worked for ABC Inc. for five years in England, then was transferred to Ontario and worked in Ontario for two years before being terminated, his or her period of employment for the purposes of s. 54 to s. 62 of the Act and O Reg 288/01 would be two years.

This section should also be read in conjunction with s. 59 of the Act, which sets out time that is to be included and excluded from an employee’s period of employment - see ESA Part XV, s. 59.

Note that this provision applies only for the purposes of ss. 54 to 62 of the Act (Termination of Employment). That is, it applies only for the purpose of calculating the amount of notice of termination or termination pay owing. It does not apply for the purpose of determining eligibility for notice of termination or for determining severance pay entitlements.

Eligibility for notice of termination is triggered by three months of continuous employment rather than the employee’s "period of employment".

As a result, time on lay-off after the deemed termination date will be excluded in determining the "period of employment" under s. 59 of the Act but will be included when determining whether the employee had three months of continuous employment and was or was not eligible for notice of termination. See the discussion of eligibility for notice under s. 54 of the Act at ESA Part XV, s. 54.

Period of employment — s. 8(2)

Section 8(2) of O Reg 288/01 requires that successive periods of employment that are separated by 13 weeks or less be added together for the purpose of determining the period of employment under s. 8(1), which is used for calculating the amount of notice of termination or termination pay to which an employee is entitled. Bear in mind, however, s. 59 of the Act, under which inactive employment counts in determining an employee’s period of employment, except for any part of a lay-off that falls after the deemed termination date. Where the periods of employment are more than 13 weeks apart, only the last period of employment will be counted for these purposes.

The application of s. 8(2) can be illustrated with the following example: an employee was employed by Company A from January 1, 2008, until December 31, 2013 (5 years), and from February 1, 2014, to April 30, 2015 (1.25 years). This employee will have a period of employment of 6.25 years for notice of termination and termination pay purposes. The first 5-year period of employment is added to the second 1.25 year period of employment since the two periods are not separated by more than 13 weeks.

Note that s. 8(2) will apply to add more than two periods of employment together if the periods are not separated by more than 13 weeks. For example, if an employee was employed by Company B from January 1, 2010 to December 31, 2010 (one year), then again from February 1, 2010 to October 1, 2011 (0.75 of a year) and then yet again from December 1, 2011 until October 1, 2011 (2.25 years), all the periods of employment will be added together since the intervals between the first and second periods and between the second and third periods do not exceed 13 weeks. Thus, the employee’s period of employment will be four years.

This provision will apply to tie together successive periods of employment that are separated by no more than 13 weeks regardless of the reason for the earlier period coming to an end, i.e., it is irrelevant that the earlier period ended because the employee quit or was fired (regardless of the reason for the firing). See for example Filter Dynamics v Couling (September 9, 1981), ESC 1061 (Davis).

Note that eligibility for notice of termination is triggered by three months of continuous employment (and not a period of employment of three months). See the discussion of eligibility for notice under s. 54 of the Act at ESA Part XV, s. 54.

Note also that this provision applies only for the purposes of calculating the notice of termination or termination pay entitlement. It does not apply for the purpose of determining severance pay entitlements.

Section 9 — Severance of employment

Employees not entitled to severance pay — s. 9(1)

This section sets out the exemptions from the severance provisions of the Employment Standards Act, 2000. The employees listed in this section are not entitled to severance pay. A discussion of each exemption appears below.

Permanent discontinuance caused by strike — s. 9(1) para. 1

This provision has substantially the same effect as s. 58(5)(b) of the former Employment Standards Act

The effect of this exemption is to relieve an employer of its obligation to provide severance pay under s. 64 if an employee’s employment is severed as a result of a permanent discontinuance of all or part of the employer’s business that the employer establishes was caused by the economic consequences of a strike. Note that the exemption can apply only in the context of a strike, not a lock-out.

With respect to the phrase "permanent discontinuance of all or part of the employer’s business", see the discussion of s. 3(4)(b) of O Reg 288/01. Although s. 3(4)(b) refers to a permanent discontinuance of only part of the employer’s business rather than all or part, it is the Program’s view that the two phrases have the same meaning. This is because, logically, where there is a discontinuance of all of the business, there will necessarily be a discontinuance of part of the business.

The test to be applied in determining whether the permanent discontinuance was caused by the economic consequences of the strike is whether or not the closure would have happened even if the strike had not occurred. If the answer is yes, then this exemption will not apply.

In determining whether the closure would have happened even in the absence of the strike, an employment standards officer considers whether the business would have continued to operate for a significant period of time beyond the closure if it were not for the strike. If, without the strike, the business would have closed soon after it actually did, then the employer cannot escape severance pay liability by showing that the strike simply hastened a closure that would have happened in any event. If the seeds of a business demise are "planted and take root" before a strike, it cannot be said that the strike caused the closure within the meaning of the exemption. See Courtaulds Films Canada, division of International Paints (Canada) Limited v Amalgamated Clothing and Textile Workers' Union, Locals 1332 and 1675 (December 10, 1991), ESC 2949 (Bendel), a decision under the former Employment Standards Act. In applying the test noted above, consideration should also be given to whether the employer actually took into account the economic consequences of the strike in deciding to close its business. If the employer did not take those consequences into account, then it cannot later on, after the closure, look back in retrospect and say that the closure was actually caused by the strike for purposes of the exemption.

Other cases that dealt with s. 58(5)(b) of the former Employment Standards Act include:

Contract impossible to perform or frustrated — s. 9(1) para. 2

The effect of this exemption is to relieve an employer of its obligation to provide severance pay under s. 64 in some situations where an employee’s contract of employment has become impossible to perform or has been frustrated (see O Reg 288/01, s. 2(1) para. 4 for a discussion of the meaning of these terms). However, there are exceptions to the application of this exemption set out in s. 9(2) of O Reg 288/01, discussed below.

Employee retires after being severed and receives actuarially unreduced pension — s. 9(1) para. 3

The effect of this exemption is to relieve an employer of its obligation to provide severance pay under s. 64 in some situations where an employee retires upon having his or her employment severed. The exemption will apply only if the employee receives an actuarially unreduced pension benefit that reflects any service credits the employee would have earned for the purposes of the pension plan had the employment not been severed. This exemption is substantially similar to the corresponding provisions (ss. 58(5)(g) and 58(6)(d)) under the former Employment Standards Act, as those provisions were interpreted in the case law.

In order for this pension exemption to apply, the pension must be provided by the employer that is severing the employee. Pensions from the Canada Pension Plan or from prior employers are not to be taken into consideration.

This exemption will not apply if the pension benefit is reduced (whether actuarially or otherwise) to an amount less than what the employee would have received had the employee been given the opportunity to stay until the normal retirement date.

It should be noted that although the term pension plan is defined very broadly in O Reg 286/01 (and encompasses such plans as deferred profit sharing plans, group RRSPs or retiring allowances) for the purposes of prohibiting differentiation in the provision of such plans (s. 44 of the Act and O Reg 286/01), they are not in fact true pension plans.

The Program’s position is that it is appropriate in the context of prohibiting differentiation in the provision of benefits to construe the term "pension plan" broadly, but in the context of creating an exemption from an entitlement to severance under the Act that the term should be construed narrowly to include only plans that are registered under the Pension Benefits Act, RSO 1990, c P.8 and the federal Income Tax Act, RSC 1985, c 1 (5th Supp) as pension plans. The two main types of registered plans are defined benefit pension plans and defined contribution pension plans.

Further, of these two types of plans, the exemption in s. 9(1) paragraph 3 will apply only where the employee has a defined benefit pension plan. A defined benefit plan is one where the benefit is predetermined and the payout is dependent upon the accrual of service credits. It is the Program’s view that the exemption can have no application where the employee has a defined contribution plan because such plans have a payout that is not dependent on years of service (i.e., the payouts are dependent on the total amount of contributions and investment income that has been earned).

The following are examples of a defined benefit pension plan:

  1. The pension plan provides for a normal retirement date of age 65.

The monthly pension amount is calculated as $100 multiplied by the number of years of service; it also provides for a reduction in that amount of 5 per cent for each year between the actual retirement date and the normal retirement date. The employee was forced to retire at age 62 after fifteen years of employment.

Here the exemption cannot apply for two reasons. First, the penalty, typically imposed to reflect the fact that employees who retire before normal retirement age will collect their pensions for a longer time than those who do not retire until normal retirement age, means that the pension is not "actuarially unreduced". Second, because in the normal course of events the employee would not have retired until age 65, by which time he would have had eighteen years of employment, the pension does not reflect all the service credits that the employee, had his employment not been severed, would have been expected to have earned in the normal course of events.

  1. The pension plan provides for a normal retirement date of age 65

The monthly pension is calculated as one-twelfth of the product of an employee’s years of service multiplied by 2 per cent multiplied by the average of the employee’s five highest years of salary. The employee was forced to retire at age 61 after 22 years of service. However, her pension was not subject to any penalty for early retirement because the plan provides that there will be no such penalty if the employee is at least 60 years of age and has at least 20 years of service credits.

Here, although the pension is actuarially unreduced, the exemption still cannot apply. This is because in the normal course of events she would not have retired until age 65 and would have been expected to have had 26 years of service credits rather than 22.

It is important to remember that there must be a severance of the employee’s employment in order for the severance pay provisions to apply at all. An employee who voluntarily takes early retirement and receives a reduced pension has resigned and will not be entitled to severance pay. In determining whether or not the employee’s decision to take early retirement was truly voluntary, the circumstances behind the decision must be considered. If the employer informed the employee that the only alternative to accepting the early retirement package would be dismissal or a change in the job that would amount to a constructive dismissal, then the employee’s resulting acceptance of the early retirement package would not be considered to be truly voluntary. Where the employee retires at normal retirement age pursuant to a mandatory retirement provision in the contract of employment, the employment will be considered to have been severed, even if the employee does not expressly ask to be allowed to stay on past that age. Where, however, the employee is asked to stay on past the normal retirement age and refuses, the employee will either be considered to have resigned or to have refused reasonable alternative work and will therefore be disentitled to severance pay.

It should be noted that this exemption has no application where an employee whose employment is severed, retires with no pension provided by the employer. In such cases, the employee will be entitled to severance pay unless he or she is otherwise exempted. In this regard, see the following cases which were decided under the former Employment Standards Act: Re Alexanian & Sons Ltd.; Ascona Spinning Ltd. v Avery (March 21, 1990), ESC 2659 (Bendel); and D.H. Howden, Division of Sodisco-Howden Buying Group Inc. v Lines, 2000 CanLII 13255 (ON LRB).

Employee refuses reasonably alternative employment — s. 9(1) para. 4

The effect of this exemption is to relieve an employer of its obligation to provide severance pay under s. 64 where it severs the employment of an employee who has refused an offer of reasonable alternative employment with the employer. This exemption is substantially similar to the corresponding provision (s. 58(6)(a)) of the former Employment Standards Act.

This exemption is identical in wording and meaning to the corresponding termination notice/pay exemption in paragraph 5 of s. 2(1) of O Reg 288/01 — see the discussion in O Reg 288/01, s. 2(1), para. 5.

Employee refuses reasonable alternative employment made available through seniority system — s. 9(1) para. 5

The effect of this exemption is to relieve an employer of its obligation to provide severance pay under s. 64 where it severs the employment of an employee who has refused reasonable alternative employment that is made available through a seniority system. This exemption is substantially similar to the corresponding provision (s. 58(6)(b)) of the former Employment Standards Act.

With one important difference, this exemption is the same as the corresponding termination notice/pay exemption (paragraph 6 of s. 2(1) of O Reg 288/01). The only difference is that this exemption only applies if the alternative work offered is reasonable. With respect to the issue of whether an employee has refused alternative work made available through a seniority system, please refer to section O Reg 288/01, s. 2(1) para. 6. With respect to the issue of whether the alternative work was reasonable, please refer to O Reg 288/01, s. 2(1) para. 5.

Employee guilty of wilful misconduct, etc. — s. 9(1) para. 6

An employee who has been guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and that has not been condoned by the employer is not entitled to severance pay. This exemption is substantially the same as the corresponding provision (s. 58(6)(c)) of the former Employment Standards Act and the Program policy under that provision. The only difference between the wording of this exemption and its predecessor is the addition of the words "that is not trivial". This change codifies Program policy that applied under the former Act.

This exemption is identical in wording and meaning to the corresponding exemption for termination notice/pay in paragraph 3 of s. 2(1) of O Reg 288/01. Please refer to the discussion of that provision in O Reg 288/01, s. 2(1) para. 3.

For information on the application of the wilful disobedience exemption where an employee is not vaccinated against, or tested for, COVID-19 in accordance with the employer’s policy, see “ESA Termination and Severance Liabilities Where an Employee is Not Vaccinated Against or Tested For COVID-19”.

Construction employee — s. 9(1) para. 7

An employee who is a “Construction employee” is not entitled to severance pay. For purposes of O Reg 288/01, section 1 of the regulation provides that the term “construction employee” has the same meaning as in O Reg 285/01.

Note, however, there is an exception to this in the case of employees engaged in the maintenance of roads, based on principles of statutory interpretation. Employees who are engaged in road maintenance, although considered “construction employees” for the purposes of O Reg 285/01, are not treated as construction employees for the purposes of O Reg 288/01. See O Reg 288/01, s. 1 for a detailed explanation. Accordingly, employees who are engaged in road maintenance are not covered by the “construction employee” exemption from severance pay in paragraph 7 of s. 9(1). Nonetheless, they are not entitled to severance pay; this is because of paragraph 8 of s. 9(1), which exempts employees engaged in the on-site maintenance of, among other things, roads. See paragraph 9 below for detailed discussion of paragraph 9 of s. 9(1).

Employee engaged in on-site maintenance — s. 9(1) para. 8

Employees who are engaged in the on-site maintenance of buildings, structures, roads, sewers, pipelines, mains, tunnels or other works are not entitled to receive severance pay.

Although employees who are engaged in the maintenance of roads are exempt from severance pay entitlements by virtue of this paragraph, they are entitled to the termination pay/notice provisions. See O Reg 288/01, s. 2(1), para. 9. Note that a decision under the former Employment Standards Act rejected the argument that office cleaners should be regarded as being engaged in on-site maintenance of buildings. The referee in Federated Building Maintenance Co. Ltd. v 195 Employees (September 23, 1988), ESC 2377 (Franks) held that cleaning was of a cosmetic and hygienic nature, whereas maintenance was an activity primarily aimed at preventing systems from falling into disrepair.

Exceptions to employees not entitled to severance pay — s. 9(2)

Section 9(1) para. 2 relieves an employer of its obligation to provide severance pay under s. 64 in some situations where an employee’s contract of employment has become impossible to perform or has been frustrated. Section 9(2) sets out the exceptions to s. 9(1) para. 2. These two provisions mean that an employee whose employment has been severed (and who meets all the qualifying criteria for severance pay) will be entitled to severance pay even if the contract has become impossible to perform or frustrated, if the reason for the frustration or impossibility was because of:

  1. A permanent discontinuance of all or part of the employer’s business because of a fortuitous or unforeseen event;
  2. The death of the employer;
  3. The death of the employee and the employee received notice of termination before his or her death; or
  4. The employee’s illness or injury.

Each of these situations is described in more detail below.

1. The contract has become impossible to perform or frustrated because of a permanent discontinuance of all or part of the employer’s business because of a fortuitous or unforeseen event

An employee whose employment contract has become impossible to perform or frustrated because of a permanent discontinuance of all or part of the employer’s business because of a fortuitous or unforeseen event will be entitled to severance pay (assuming the qualifying criteria for severance pay are met).

With respect to the phrase "permanent discontinuance of all or part of the employer’s business", see the discussion of s. 3(4)(b) of O Reg 288/01.

The phrase "because of a fortuitous or unforeseen event" could include events such as the destruction of the employer’s business (for example, by fire, tornado or flood), a supervening change in the law (for example, where a company manufactures cigarettes and it becomes illegal to manufacture tobacco products in Canada), or the loss by the employer of a licence that it must have in order to operate.

It should be noted that where a contract is frustrated or has become impossible of performance as a result of a permanent discontinuance of all or part of the business because of a fortuitous or unforeseen event, the employee is entitled to severance pay because of the application of s. 9(2)(a)(i), but he or she would not be entitled to notice of termination/termination pay under the Act (paragraph 4 of s. 2(1) of O Reg 288/01) because there is no corresponding exception to the "impossibility of performance/frustration of contract" exemption from notice of termination/termination pay.

2. The contract has become impossible to perform or frustrated because of the death of the employer

An employee whose employment contract has become impossible to perform or frustrated because of the death of the employer will be entitled to severance pay (assuming the qualifying criteria for severance pay are met). Thus, where a business that had been carried on by a sole proprietor ceases to operate because of the employer’s death and the employee’s employment is severed as a result, the employee will (assuming that he or she otherwise qualifies) be entitled to severance pay, notwithstanding that the employer’s death would have frustrated the employment contract as a matter of law.

Note the different results with respect to an employee’s entitlement to termination pay/notice and their entitlement to severance pay where the contract has become impossible to perform or frustrated because of the employer’s death. Whereas the death of the employer may, in some situations, disentitle an employee from notice of termination/termination pay as a fortuitous or unforeseeable event that frustrates the contract of employment or makes it impossible to perform — see the discussion of paragraph 4 of s. 2(1) of O Reg 288/01 — it will not disentitle an employee from severance pay.

3. The contract has become impossible to perform or frustrated because of the death of the employee and the employee received notice of termination before his or her death

An employee whose employment contract has become impossible to perform or frustrated because of the employee’s death will be entitled to severance pay (assuming the qualifying criteria for severance pay are met), so long as the employee received notice of the termination of his or her employment before his or her death.

For example, if an employee is given eight weeks' notice of termination and dies after six weeks of that notice have elapsed, the employee will be entitled to severance pay even though the employee’s employment was not actually severed by the employer, in that the employee’s death, having occurred during the notice period and before the notice took effect, ended the employment contract before severance by the employer could take place.

4. The contract has become impossible to perform or frustrated because of the employee’s illness or injury

The frustration exemption does not apply where the frustration of the employment contract is a result of employee injury or illness. An employee whose employment has been severed and whose employment contract has become impossible to perform or frustrated because of the employee’s illness or injury will be entitled to severance pay (assuming the qualifying criteria for severance pay are met).

This exception to the exemption from severance entitlements was amended by O Reg 549/05. Prior to the amendment, the exception applied only if the employer was also prohibited from severing the employee’s employment under the Human Rights Code, RSO 1990, c H.19. See the discussion of frustration and impossibility in disability situations in O Reg 288/01, s. 2(1) para. 4.