What is Redundancy in Employment Law?
At its core, redundancy occurs when a position within a company is no longer necessary. This could be due to restructuring, adopting new technology, merging with another company, or simply because of economic cutbacks.
Redundancy isn’t about an employee’s performance or conduct; it’s purely about the role itself no longer being required. If you’re an employee facing redundancy, it’s important to understand that this isn’t a reflection of your abilities. For employers, this isn’t about terminating someone for cause—it’s about making difficult decisions because the job itself has become redundant.
Although “redundancy” is commonly used in many parts of the world, it’s not officially recognized in Canadian legal terminology. But don’t let that throw you off. In Canada, we address the concept through terms like “termination due to lack of work” or “layoffs.” The language might differ, but the legal principles and obligations remain much the same. And with Ontario unemployment on the rise, understanding these nuances is more important than ever.
What is Redundancy in Employment Law in Ontario?
In Ontario, redundancy—or termination due to job elimination—is governed by the Ontario Employment Standards Act, 2000 (ESA) and the common law. While the ESA doesn’t specifically mention redundancy, it lays out the requirements and obligations that apply when an employee’s position is eliminated. Generally, it is treated as a termination without cause.
Employment contracts play a significant role in how redundancy is handled. Under the ESA, employers must provide notice of termination or pay in lieu of notice, and this requirement is often outlined in the employment contract.
The length of the notice period depends on how long the employee has been with the company. For instance, an employee who has been with the company for more than five years is entitled to a minimum of five weeks’ notice or statutory redundancy pay in lieu. Additionally, severance pay may be required if the employee has been with the company for five years or more, and either the employer’s payroll is at least $2.5 million or 50 or more employees are being terminated within a six-month period.
Beyond these ESA entitlements, employees may have a significantly longer notice period under the common law. Employment contracts often fail to properly limit these greater entitlements.
Redundancy, as a type of termination without cause, is different from other types of termination. Termination for cause occurs when an employee is let go due to misconduct or poor performance, in which case the employer may not be obligated to provide notice or severance. On the other hand, constructive dismissal happens when an employer makes significant changes to an employee’s job or employment agreement, such as reducing their pay or demoting them, which forces the employee to resign. Constructive dismissals are then construed as terminations without cause. Redundancy, however, is strictly about the job disappearing due to reasons unrelated to the employee’s actions or performance.
Employer Obligations During Redundancy
When a job becomes redundant, Ontario law imposes certain obligations on employers to ensure the process is handled fairly and transparently. First and foremost, employers must provide a notice period or statutory redundancy payment in lieu of notice. This notice period can vary from one to eight weeks, depending on the length of the employee’s service.
In addition to notice or pay in lieu, some employees may also be entitled to severance pay. Severance is separate from termination pay and is intended to recognize the long-term service of employees who lose their jobs through no fault of their own. In Ontario, severance pay can be as much as 26 weeks’ pay for employees with a long tenure.
Further, these only refer to an employee’s statutory entitlements. Under the common law, employees often have far greater entitlements above and beyond the ESA minimums. While it is possible for these common law entitlements to be limited by an employment contract, the standard for drafting such termination provisions is very high. Many employers do not meet this high threshold when they draft their employment contracts. An experienced employment lawyer can help determine what your total entitlements could be.
Employers are also responsible for continuing employee benefits during the notice period. This means that health, dental, and other insurance coverage should remain in place until the notice period ends, or the employer should provide compensation to cover the value of those benefits.
Another important aspect is transparency. Employers must communicate clearly with employees affected by redundancy, explaining the reasons behind the decision and how it was made.
Employee Rights and Options
If you’re an employee facing a redundancy situation, you likely have a lot of questions and concerns. Fortunately, Ontario law provides several protections to help you through this process. First and foremost, you’re entitled to receive notice of termination or pay in lieu of notice. This gives you some time to plan your next steps and find new employment.
You may also be entitled to severance pay if you’ve been with the company for at least five years and meet the other criteria under the ESA. Severance pay is not a gift—it’s your legal right, recognizing the years you’ve dedicated to your employer. But what if you believe that the redundancy isn’t legitimate or your employer got the redundancy process wrong? Perhaps you think that your employer is using redundancy as an excuse to get rid of you for other reasons, such as age, gender, or because you raised concerns about workplace issues. In such cases, you have the right to challenge the redundancy decision on the grounds that it was a discriminatory termination on the basis of a protected ground such as the above.
It’s also essential to know that your benefits should continue during the notice period. If your employer chooses to provide pay in lieu of notice, they should also compensate you for the value of any benefits you would have received during that time. This includes health and dental coverage, pension contributions, and any other perks you were entitled to as part of your employment.
Facing a Layoff or Redundancy? Trust Whitten & Lublin for Guidance
At Whitten & Lublin, our team is here to offer the support and representation you need to navigate the layoff process.
For employers, we provide expert advice on managing redundancies in compliance with Ontario law. This includes helping you understand your obligations under the ESA and common law, drafting redundancy policies, and ensuring that the process is conducted fairly and transparently.
For employees, we’re here to protect your rights and ensure you receive the compensation you deserve. Whether you need help finding a severance solution, challenging a redundancy decision, or understanding your entitlements, our experienced employment lawyers are ready to assist you.
If you’re dealing with redundancy, whether as an employer or an employee, don’t hesitate to reach out to Whitten & Lublin for a consultation. We’re in your corner, ready to help you achieve the best possible outcome. Contact us today to learn more about how we can assist you.