Audit, Compliance and Risk Blog

After an employer discharges an employee, the (ex) employee may be able to sue claiming that the discharge was unjustified or“wrongful,” depending on the terms of any applicable employment contract andthe circumstances of the discharge. One complicated set of circumstances involve discharges that are “constructive” rather than explicit/actual. Whereas an employer may commit an actual breach by dismissing an employee without cause and without sufficient advance notice or severance pay, a constructive breach occurs when an employer forces the employee to accept a fundamental (or in some formulations, “substantial”) change in the employment relationship or quit.

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The Canadian employment standards acts generally specify a minimum notice period before such terminations (the statutory notice period), and generally allow the employer to pay compensation to the employee instead of giving the employee notice (e.g., Ontario Employment Standards Act (OESA) s. 54-67). This compensation is usually called severance pay; it replaces advance notice of termination (OESA s. 61). In general, the severance pay must equal the salary and benefits that the employee would have earned if permitted to work until the end of the notice period. Courts interpret and defend prohibitions against employment agreements that reduce – “contract out” – termination benefits below these thresholds. 

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