An unfortunate aspect of working for a large corporation is that employees are in danger of the dreaded force reduction, wherein the company decides to reduce its staff and terminates hundreds, or sometimes thousands, of people without cause. In some cases, employees may even find themselves unexpectedly fired for cause during a layoff, raising concerns about whether the employer is attempting to avoid severance obligations. There are many potential reasons for this. Sometimes its economic downturns. Sometimes it’s a corporate pivot toward the latest magical technology allegedly capable of replacing human labour. And sometimes mass terminations conveniently cause stock prices to rise for reasons best left unexamined.
The employees terminated as a result of these decisions are, by definition, terminated without cause, meaning that they have not committed any misconduct that would justify their employer firing them. In such cases, employees are entitled to notice of the termination of their employment, for which employers often pay compensation in lieu of notice, commonly referred to as a severance package.
But severance obligations can become extraordinarily expensive during large-scale layoffs. Which is why courts tend to look very carefully at situations where employers suddenly decide that dozens of employees all committed terminable misconduct at roughly the same time.
Can employers fire employees for cause to avoid severance?
No. Employers cannot simply label a termination as “for cause” in order to avoid paying severance.
Under Ontario employment law, termination for cause is reserved for serious misconduct that fundamentally damages the employment relationship. The legal standard is intentionally high because a successful for-cause termination allows an employer to avoid paying severance altogether.
That creates an obvious financial incentive for employers, particularly during workforce reductions.
If an employer improperly alleges cause without sufficient evidence, the employee may have a claim for wrongful dismissal and, in some cases, additional damages for bad faith conduct.
“For cause” terminations save employers money, which is why courts scrutinize them closely
Each individual employee has unique legal entitlements when it comes to severance. Employees are presumptively entitled to common law notice, which depends on factors such as:
- Age
- Length of service
- Position and seniority
- Availability of comparable employment
Some employees may also have enforceable employment agreements that limit or define severance obligations. Others may not.
In mass termination situations, this can create hundreds or thousands of potential wrongful dismissal claims. Employers often attempt to minimize that exposure by offering standardized voluntary separation packages, which are theoretically higher than the standardized packages that the company intends on paying out later, in order to make an early reduction in headcount. Others will offer standardized packages that are relatively close to common law entitlements, to minimize the threat of lawsuits.
And sometimes employers appear to attempt something far more aggressive: avoiding severance obligations altogether by alleging misconduct.
The Bell Canada example
BCE, the company that owns Bell Canada, recently fired dozens of employees for allegedly violating its workplace attendance policy.
According to the lawyer for several of the employees, the alleged misconduct was known to Bell for a long time and was used as a convenient excuse to disguise an economic layoff as a termination for cause, and therefore avoid any severance.
While it’s not possible to know what happened with these employees, it would hardly be surprising to see a company attempt to save itself a significant amount of money. This situation highlights a recurring issue in employment law: employers facing pressure to reduce labour costs may be tempted to characterize ordinary workplace issues as serious misconduct to avoid paying out large severance packages.
Should the Plaintiffs succeed in proving that Bell wrongfully alleged cause simply to reduce their workforce while avoiding a significant payout, it is likely that the company could face significant bad faith damages beyond the severance owed.
What happens if an employer wrongfully alleges cause?
Terminating an employee for cause is one of the most serious actions an employer can take. Beyond losing severance, employees terminated for cause may also face reputational damage and difficulty securing future employment.
Because of that, courts carefully scrutinize cause allegations.
If an employer falsely or recklessly alleges cause, employees may be entitled to:
- Wrongful dismissal damages
- Common law severance
- Additional damages for bad faith conduct
Courts have repeatedly held that employers owe duties of honesty and good faith during the termination process. Attempting to weaponize cause allegations during a workforce reduction can create substantial legal exposure.
Frequently asked questions
What are employee rights during a mass layoff in Ontario?
Employees terminated without cause during a mass layoff are generally entitled to notice of termination or severance compensation under Ontario employment law
Do employers have to pay severance during workforce reductions?
Yes. Employees dismissed without cause are usually entitled to severance or pay in lieu of notice, even during large-scale layoffs.
Can employers terminate employees for cause during layoffs?
They can attempt to, but employers must prove serious misconduct. Unsupported cause allegations can result in wrongful dismissal liability
What is a wrongful dismissal during a workforce reduction?
Wrongful dismissal occurs when an employee is terminated without receiving proper notice, or severance in lieu of notice.
Can severance packages be negotiated during mass layoffs?
Yes. Severance packages are often negotiable, particularly where the initial offer does not reflect the employee’s common law entitlements
Are standardized severance packages fair?
Not always. Each employee’s severance entitlement depends on individual factors such as age, role, and length of service. That is why it’s important to have it reviewed by an experienced employment lawyer.
What happens if an employer falsely claims cause?
An employer that wrongfully alleges cause may owe severance, wrongful dismissal damages, and potentially additional damages for bad faith conduct.
How Whitten & Lublin can help?
Mass terminations are a regrettable feature of large corporations, but employees do not lose their individual legal rights simply because a company is reducing headcount.
If you are facing termination during a workforce reduction, particularly where your employer is alleging cause or attempting to avoid severance obligations, the employment lawyers at Whitten & Lublin can help you assess your options and determine whether your rights have been violated.
Contact us online or call (416) 640-2667 to learn more.
