An Employer's Guide to the Employee Termination Process

We get it.

Helping an employee ‘move on’ is one of the most unpleasant things you’ll ever have to do as an employer.

You’ll also want to make sure you protect your company from any potential litigation.

On that note, we’re here to help you understand what’s involved in the employee termination process, so you can respect their rights while protecting your business.

What’s the Correct Way to Terminate an Employee?

As an employer, you have the right to terminate an employee either with or without cause. However, according to the Employment Standards Act, employers must abide by certain guidelines.

Usually, employee termination requires sufficient notice given to the employee in writing. The amount of notice required depends on the employee’s length of service. 

If you do not want your employee to continue working during the notice period, you can provide compensation in lieu of notice.

The following applies when you provide compensation in lieu of notice:

• After three consecutive months of employment - you must provide one week of pay.
• After 12 consecutive months of employment - two weeks pay.
• After three consecutive years - three weeks pay, plus one week of pay for each additional year of employment, to a maximum of eight weeks.

However, common law often requires an employer to provide pay beyond the above time periods.  

Courts can increase compensation based on a variety of factors such as:

• the employee’s skill level.
• their ability to find new employment.
• their salary level.

A general rule of thumb is one month of severance for every year of employment for employees in skilled positions.

Exemptions to Providing Compensation

Neither written notice nor compensation in lieu of notice are required in certain cases. Here are some examples:

• The employee has not completed three consecutive months of employment.

• The employee quit or retired.

• The employee was dismissed for just cause.

• The employee worked on an on-call basis doing temporary assignments, which he or she could accept or reject.

• The employee was employed for a definite term.

• If a definite term or specific work is extended for at least three months past its scheduled completion, the definite term and specific work exceptions described above would not apply.

• The employee was hired for specific work to be completed in 12 months or less.

• It was impossible for the employee to perform the work because of some unforeseeable event or circumstance (other than bankruptcy, receivership, or insolvency).

• An employer, whose principal business is construction, employed the employee at one or more construction sites.

• The employee refused reasonable alternative employment.

We strongly advise that any employer considering terminating an employee consult your employee benefits advisor and a labour relations lawyer.

Offering Employee Benefits During the Severance Period

It’s a good idea to consider offering employee benefits during the severance period. However, each insurance carrier is unique and some may not allow you to do so.

Therefore, before offering benefits during this period, you must contact your insurance carrier for permission.  

Furthermore, it is advisable to contact your employee benefits advisor prior to contacting the insurance company.  

Your benefits advisor can provide advice as to the format of the request, which benefits may be continued, and what alternative arrangements can be made for benefits the insurer is unable or unwilling to offer.

If the insurance carrier allows the terminated employee to continue receiving benefits during their severance period, the health and dental are usually continued, occasionally the life insurance, but rarely the long term disability as the employee is no longer considered to be actively at work.  

Be aware that, as an employer, you can be sued if you don’t follow proper procedures around continuing employee benefits during the severance period.

Here are some actions you can take to protect yourself:

• Make sure you know how long an employee is covered after they leave and clearly communicate this to the employee.

• Ensure the employee’s coverage does not end before the stated time.

• Have terminated employees sign a waiver, which will help you avoid liability in the future. A waiver should contain:

• A thorough description of benefits packages of the terminated employee and their dependents.

• Information on how the terminated employee can convert to an individual benefits policy.

On Converting to an Individual Benefits Plan

Many employees are not aware they have the right to convert their employee benefits coverage to an individual policy in the event of termination.

Therefore, as an employer, it’s your responsibility to make it clear to them.

Conversion is rarely an option within an employer-sponsored Health and Dental program.  

However, many insurers offer terminated employees the opportunity to purchase an individual policy. An employee can apply without medical proof of health within 60 days of leaving their current plan.

Life Insurance and Long-term Disability

It’s important to note that life and LTD benefits must be converted within 31 days of termination.

Employers should clearly communicate this time-frame to the terminated employee to prevent future litigation.

Most group benefit plans have a built-in conversion option for employees who wish to continue their Life Insurance.

The Life Insurance under your employee benefits policy can be converted into a personal policy without medical proof of health, based on the design specifications of your insurer. 

Some disability contracts also have a conversion privilege as part of the LTD benefit.

Conclusion

Although terminating an employee is never easy, we hope this guide helps clarify how to correctly navigate the process from a legal standpoint.

To sum up, be aware of the situations in which you need to provide severance pay, and the appropriate levels based on length of service and job duties.

Become aware of your responsibilities around providing employee benefits during the severance period.

And be sure to educate a terminated employee about how they can convert their group plan to an individual employee benefits plan.

Once you do that, you can move on, start fresh, and get back to focusing on your business.

Wondering what makes a great employee benefits advisor? How can you choose the best fit for your company and employee needs?

Find answers in this interview with one of our experts: