It’s an unfortunate reality of managing a business: eventually, you’ll have to terminate an employee. You might have to let someone go for many reasons – some far more pleasant than others – but the reality remains the same. It’s probably not going to be a pleasant conversation.
Awkwardness aside, there’s another hurdle you have to jump: Canadian employment standards legislation. It’s a big one – small businesses nationwide struggle with labour compliance.
For instance, Ontario saw 11 718 ESA violation investigations in the 2022-23 fiscal year.
More than an uncomfortable conversation is at stake here – this can cost you a lot of time and money. But it’s not always the business’s fault – the legislation is complex, and not everyone has a lawyer or HR professional on hand.
So let’s dive in: how do you terminate an employee in Canada and ensure you’re compliant?
Table of contents
- Canadian employment standards legislation
- Individual termination of employment
- Severance pay
- Group termination
Breaking down small business compliance and employment standards legislation in Canada
Terminating an employee is never easy, but it is necessary. And you must be careful and respectful when you do it – otherwise, you could face legal troubles or damage your reputation. That’s why you need to follow your province or territory’s employment standards legislation, which outlines the procedures and rights of employers and employees when it comes to termination of employment.
Individual termination of employment
Let’s start with individual termination of employment – the most common type of termination. This is when you decide to end the employment relationship with one employee for any reason other than just cause. Just cause means you have a valid and serious reason to fire an employee without notice or severance pay, such as theft, fraud, violence, or gross misconduct. However, just cause is difficult to prove, and you should always consult a lawyer before taking this step.
So, how do you terminate an employee in Canada without just cause? Please note this list isn’t bulletproof – it’s always best to contact a lawyer or HR professional when terminating an employee.
1. Review your employment contract and policies. Ensure you know the terms and conditions of the employment agreement, such as the probation period, notice period, severance pay and confidentiality clauses. Also, check your performance management, discipline, and termination policies to ensure you have followed them correctly and consistently.
2. Document everything. Keep a record of all the interactions and communications you have had with the employee regarding their performance, conduct, feedback and warnings. This will help you justify your decision and avoid any claims of discrimination or unfair treatment.
3. Prepare a termination letter. Write a clear and concise letter that states the reason for termination, the effective date of termination, the notice period or pay in lieu of notice (if applicable), the severance pay (if applicable), and any other information relevant to the termination (such as the return of company property, a final pay cheque, reference letter.). You can find some templates online or consult a lawyer for assistance.
4. Schedule a meeting with the employee. Choose a time and place that is private and respectful. Avoid Fridays or before holidays or weekends. Have a witness present, if possible, such as another manager or a human resources representative.
5. Communicate the decision calmly and respectfully. Explain the reason for termination briefly and factually. Do not get into arguments or debates with the employee. Instead, give them the termination letter and go over the main points with them. Answer any questions they may have or refer them to someone who can help them.
6. Offer support and assistance. Depending on your policies and budget, you may offer some support and assistance to the employee during their transition period, such as outplacement services, career coaching or resume writing. You should also allow access to your Employee Assistance Program (EAP) and any other services you agreed to provide employees during their tenure.
7. Run their final payroll with any termination payments. Once the termination is official, you’ll have to run this employee’s final payroll with any termination payments. Determining the correct termination payment is essential – check your province’s employment standards legislation or contact a HR professional.
8. Conduct an exit interview (optional). If possible and appropriate, you may conduct an exit interview with the employee to gather feedback on their experience working for your company.
9. Collect company property and disable access. Ask the employee to return any company property they possess, such as keys, badges, laptops or phones. You should also disable their access to company systems, networks and emails.
10. Escort the employee off the premises. Depending on the situation and your policies, you may ask the employee to leave immediately or give them time to pack their belongings and say goodbye to their colleagues. Either way, you should escort them out of the premises discreetly and dignifiedly.
11. Inform your team and stakeholders. After the employee has left, you should inform your team and any other relevant stakeholders (such as clients or suppliers) about the termination in a professional way. You don’t have to disclose the details or reasons for termination, but you should acknowledge the departure and explain how it will affect their work or projects.
Understanding severance pay in Canada
So you’ve just terminated an employee and you aren’t sure what you owe. How do you calculate that? Severance pay is one of the termination payments… It’s an oft-overlooked but critical part of a compliant termination.
Under Canadian employment standards legislation, your employees may be entitled to severance pay if they’ve completed at least a year of continuous work for you.
The amount of severance you’ll have to pay depends on several factors, such as:
- The regulations in your province
- Any unions or collective agreements
- Employment contracts
- How long the employee worked for you
- Why you terminated the employee
The federal government regulates certain industries – such as banks and air transportation – so if you work in one of these industries, federal law will decide how much you owe your employee. You should also check your province’s employment standards for specific severance guidelines. For example, in Ontario, if your global payroll is over $2.5 million, you’ll be subject to particular severance rules. Similarly, if you’ve terminated 50 or more employees in a six-month period, your severance pay will be impacted – but more on that shortly.
Typically, you’ll pay severance in one of the following ways:
- As a lump-sum payment.
- As a salary continuance. This means that your regular pay and benefits continue for a limited time after you lose your job.
- As deferred payments. This means that you’ll receive your severance pay over several years.
How you pay your severance pay may affect your employees’ income tax and Employment Insurance (EI) benefits. As a rule, you should consult a payroll expert to ensure your payroll deductions are set up correctly.
Navigating group termination in Canada
If you’re terminating 50 or more employees working at a single establishment within a four-week period (like a large layoff), additional rules apply to you. You must notify the Head of Compliance and Enforcement in writing at least 16 weeks before your employment terminations begin. You must also create a joint planning committee with your employees’ representatives to help the impacted employees transition to new jobs.
Yeah, we get it – that was a lot. Compliance is complicated. That’s why we’ve reimagined HR to fit your needs. Get the help you need when you need it.