Greater termination entitlements coming for federally regulated employees

As of February 1, 2024, federally regulated private sector employees will have greater termination entitlements when terminated without cause. As of that date, changes to the Canada Labour Code will come into effect, expanding the amount of working notice (or pay in lieu) an employer must provide to an employee on a termination without cause.   

Currently, employers must give an employee with at least three months of service two weeks of notice or pay in lieu (or some combination thereof) for without-cause termination.

Under a revised section 230, employers must provide notice or pay in lieu equivalent to: 

• two weeks after three consecutive months of continuous employment, 
• three weeks after three consecutive years of continuous employment,
• one additional week per consecutive year of continuous employment, up to a maximum of eight weeks.

As before, any combination of notice or wages in lieu of notice is permitted as long as the notice periods are equivalent to at least the number of weeks described above. 

These changes to mandatory termination notice do not alter an employee’s additional entitlement to severance pay under section 235 of the Code. Employees who have completed 12 consecutive months of continuous employment are entitled to severance pay, in addition to termination notice or pay in lieu, for the greater of:

• two days’ wages for each completed year of employment, and
• five days’ wages.

In addition, as of February 1, 2024, employers will be required to provide a written statement to terminated employees listing their vacation benefits, wages, severance pay, and any other benefits and pay arising from their employment as of the date of the statement. The statement must be given to:

• Employees receiving notice: as soon as possible but not later than two weeks before the date of termination. 
• Employees receiving wages in lieu of notice: not later than the date of the termination. 
• Employees receiving a combination of notice and wages in lieu of notice: as soon as possible but not later than two weeks before the date of termination, unless the period of notice is shorter, in which case, not later than the date of termination.

Limited application of new termination entitlements 

Although these new expanded termination entitlements appear significant, their application is relatively limited because of other employee rights that must be considered, namely:

• “Unjust dismissal” provisions under the Code prohibit an employer from terminating without cause unless the employee:
  • has less than 12 months of service;
  • is a manager; or
  • is terminated for lack of work or discontinuance of a function.
• “Group termination” provisions under the Code require employers to provide 16 weeks of notice when 50 or more employees are terminated in any four-week period. For greater clarity, in this case, employers must still provide their employees with an individual notice in accordance with section 230 of the Code.
• Employment contracts may provide for greater termination entitlements than the minimum notice required by the Code.

As a result, generally speaking, the new expanded notice entitlements will not impact most permissible “without cause” terminations. For example:

• Employees with less than 12 months service will have no greater entitlements under the new rules than they did before – they are entitled to two weeks of notice.
• Employees terminated for lack of work or discontinuance of a function as part of a larger downsizing or business closure affecting 50 or more employees are already entitled to 16 weeks of notice, which exceeds the new statutory minimums in any event. 
• Managerial employees are often entitled under contract to greater termination entitlements than under the revised minimum termination notice, so the new notice entitlements will apply only to those managers who do not have contracts that provide for greater termination benefits.

The expanded termination notice entitlements will apply only to employees who do not qualify for “unjust dismissal” or greater contractual rights.

Important takeaways

Diarize Changes and Educate Personnel

Employers should diarize these changes and ensure that human resources professionals and managers are educated on the changes. In addition, any internal systems for calculating notice should be updated to ensure that proper notice is provided once the new provisions come into place.

Time to Review Employment Contracts

In addition, before February 1, 2024, federally regulated employers in common law jurisdictions should review their employment contracts to ensure compliance with these expanded termination notice entitlements. 

On a valid without-cause termination, employees in those jurisdictions are entitled to common law reasonable notice of termination in addition to statutory notice under the Code. Common law notice may be limited by a termination clause, but only if that clause complies with the Code. A termination clause giving employees less than statutory notice is unenforceable.

For example, if an existing employment contract states that the employee is entitled to two weeks of notice upon termination, as of February 1, 2024, that contract will no longer comply with the Code, and its termination clause may be unenforceable. Employers should consult with counsel to revise such provisions for Code compliance.

This issue does not arise for federally regulated employers in Quebec where contracts cannot limit an employee’s termination entitlements provided by the Civil Code of Quebec.

The authors would like to thank Brandon Pierre, summer student, for help in preparing this legal update.