Over the last few weeks, the news has been dominated by stories of struggling businesses, including Target Canada Co. (“Target Canada”) and the impending mass termination of its employees. Many of these reports have focused on the (subjectively) small“severance packages” these employees are expected to receive.
In Ontario, a “mass termination” is one that involves the dismissal of 50 or more employees. The Employment Standards Act, 2000(the “ESA”) stipulates that in such circumstances, employees are entitled to uniform amounts of notice, plus individualized severance pay (if applicable). (My colleague, Ryan Campbell, wrote an informative blog in August 2013 about mass terminations and the associated termination entitlements.)
Because some of the news stories about the terminations at Target Canada and other struggling companies have misstated employees’ entitlements upon termination, I want to address some of the misunderstandings about the law regarding mass terminations and the impact of restructuring under the Companies’ Creditors Arrangement Act (“CCAA”). My insights are as follows:
Working notice vs. a “severance package”: Some reports have chided Target Canada for not providingterminated employees with “severance.” Most people associate the word “severance” with a post-terminationpayment, but not all employees are entitled to such payments. In Ontario, employees who are terminated without cause have the following minimum entitlements under the ESA:
- notice (or pay in lieu of notice). This means working notice – i.e. an employee will continue to work for the next X number of weeks, at which time his or her employment will be terminated. It is within an employer’s discretion to provide either working notice or pay in lieu of notice, or a combination of the two. An employee’s wages and benefits continue during the period of working notice (or for an equivalent period if the employee’s employment is terminated immediately and s/he is provided with pay in lieu of notice).
- severance pay. . . possibly. Not all employees are entitled to receive severance pay. An employer is required to pay severance pay to employees who have been employed for more than five years, but only if the employer’s payroll is $2.5 million or more per year. Unlike the notice obligation, an employer cannot satisfy its severance obligations by way of providing working notice – rather, severance pay must be paidto the employee.
In most terminations, the calculation of notice and severance pay is based on an employee’s length of service; however, that is not the case in a mass termination situation. In the event of a mass termination, all affected employees are entitled to the same total amount of notice, pay in lieu of notice or a combination thereof, regardless of their length of service (i.e. either 8 weeks, 12 weeks or 16 weeks, depending upon the number of employees affected); however, they each remain entitled to receive their applicable and individualized severance pay.
It has been widely reported that Target Canada’s employees will receive sixteen weeks’ notice or pay in lieu of notice (or a combination of the two); and it should be recognized that this is indeed the statutorily-mandated amount of notice in such a mass termination. It is misleading to suggest that these employees are being denied a “severance” entitlement if they are required to work during all or part of the notice period – in that regard, it is up to the employer to determine how to provide “notice” to the employees; and the employer has the prerogative to provide working notice to one employee while providing pay in lieu of notice to another employee. Further, because virtually all of Target Canada’s employees will not be entitled to “severance pay” in light of their short lengths of service, there is nothing improper about Target Canada not paying statutory “severance” to these employees.
Assuming Target Canada provides its employees with the required notice pursuant to the ESA, its employees will have no statutory right to any additional “severance” or other pay.
- Termination entitlements scaled to amount of salary and length of service: While it may be tempting to compare dollar amounts received by different employees resulting from the termination, most termination payments are a function of weekly wages multiplied by weeks of notice. Except in mass termination situations where the number of weeks is fixed based on the number of affected employees, the number of weeks of notice of termination is a function of an employee’s length of service. On that basis, employees earning lower wages and/or who have shorter service will receive lower payments in lieu of notice and, if applicable, lower amounts of severance pay.
- Additional termination benefits: There may be some Target Canada employees who will receive morethan the minimum statutory termination entitlements described above – i.e. in the event that they have written employment contracts stipulating those additional entitlements. Target Canada would be obliged to honour such contracts (subject to the terms of the stay, described below).
- WEPP Claims: In 2008, the federal government established the Wage Earner Protection Program (the “WEPP”), which is a fund for all Canadian employees whose employers have entered bankruptcy or other insolvency proceedings and who cannot pay certain outstanding wages to their employees. The WEPP provides for limited compensation to terminated employees for unpaid wages, vacation pay, termination pay and severance pay, up to a maximum of four weeks of insurable Employment Insurance earnings (i.e. $3,807.68 for 2015).
Pursuant to the initial court order in the Target Canada receivership, Target Canada will create a trust of up to $70 million to cover the costs associated with the termination payments owing to its employees (the “Fund”). If Target Canada provides all of the statutory termination entitlements owing to its employees through the Fund and satisfies its other obligations to pay unpaid wages, the employees will not be entitled to additional compensation from the WEPP.
- Stay of proceedings: Because Target Canada is winding down its operations pursuant to the CCAA, it is protected by a “stay” of proceedings. The stay prevents Target Canada’s creditors, including its employees, from commencing any claims against it (e.g. claims to the Ministry of Labour for unpaid wages, and court claims for wrongful dismissal). Accordingly, Target Canada’s employees will be prevented from making individual claims for termination payments beyond their termination entitlements, and can only seek compensation through the Fund and, if necessary, the WEPP.
The special legislative rules affecting mass terminations provide defined, uniform notice entitlements to employees upon termination. The additional rules under the CCAA limit an employee’s right to sue for additional common law entitlements. Although it may seem unfair to limit an employee’s ability to sue his or her employer, these rules were enacted to ensure fairness among the large number of employees who are typically impacted by situations like this, and to balance the employees’ claims against the economic reality facing the distressed employer.