So You Think You Know Employment Law? The Truth Behind Some of the Most Common Misconceptions on Employment Standards and Practices
Employment law is an integral component of today’s workforce in Ontario and weaves together the rights and obligations of employers and employees. Yet, despite its significance, misconceptions about employment law are rampant, often leading to skewed perceptions and unfounded beliefs. From misunderstandings about the Employment Standards Act, 2000 (the “ESA”) to misinterpretations of common law concepts, these fallacies not only distort the legal landscape, but also impact the very fabric of workplace relations. This blog explores and debunks some of the most popular misconceptions in employment law.
#1. Eligibility for Overtime Pay
Misconception: Employees who are paid a salary are not entitled to overtime pay.
Truth: Under the ESA, many salaried employees are entitled to overtime pay. An employee is not disentitled to overtime pay simply because they are paid a salary.
Under the ESA, the salaries of employees who are eligible for overtime pay compensate the employees for all non-overtime hours worked up to and including 44 hours a week[i]. So, these employees are entitled to overtime pay for any time worked beyond 44 hours in a week.
However, there are some employees that work in certain industries or in a role that is exempt from overtime pay. For example, managers and supervisors do not qualify for overtime pay if the work they do is managerial or supervisory. So, it’s important to remember that how an employee is paid does not dictate whether they are entitled to overtime pay. Instead, the employee’s industry or job classification is what matters.
A related misconception is that employers might think that since a salaried employee’s weekly pay is fixed and doesn’t change each week, the employee is not required to track their hours. However, under the ESA, employers are required to record an employee’s hours worked in excess of the hours in their regular work week and the number of hours worked over 8 hours per day.
#2. “Severance” Pay
Misconception: Severance pay and termination pay are the same thing.
Truth: Termination pay and severance pay are in fact two separate and distinct entitlements under the ESA. While the term “severance” is widely used to describe the amount of pay in lieu of notice an employee may be entitled to, under the ESA, severance pay is not synonymous with pay in lieu of notice.
Severance pay is reserved for long-term employees and is meant to compensate such employees their investment of long service and for losses that occur when their employment is “severed” (which includes termination, constructive dismissal, or a lay-off beyond the permissible period). Employees whose employment is severed will only qualify for severance pay if the following conditions are met:
The employee has worked for the employer for a total of at least five years (whether or not employment was continuous or active);
The employer has a global payroll of at least $2.5 million, or the employer severed the employment of at least 50 employees in a six-month period because of a permanent business closure; and
The circumstances outlined in section 9 of this Regulation do not apply.
As a contrast, most employees who have been continuously employed for three months or more are entitled to notice of termination, termination pay, or a combination of the two.[ii] Termination notice is meant to provide employees with some minimum amount of advance warning of the termination of their employment so that the employee can make new arrangements for work. Termination pay is provided in place of the required notice that eligible terminated employees are entitled to receive, and does not depend on the employer’s payroll nor is it reserved only for employees with at least five years of service, unlike severance pay.
#3. Reasons for Termination
Misconception: Employers need a reason to terminate an employee’s employment and employees are entitled to know the reason.
Truth: In a non-unionized setting, employers can terminate an employee’s employment for almost any reason (see below) and are not required to give an employee a reason for the termination of their employment under the ESA.
However, employers cannot terminate an employee’s employment:
for discriminatory reasons, under the Human Rights Code;
upon the conclusion of an employee’s leave of absence under the ESA; or
because an employee is attempting to exercise or has acted on their rights under the ESA or the Occupational Health and Safety Act, e.g.:
for refusing to work in excess of the maximum hours outlined in the statute or for safety-related reasons; or
for taking a protected leave of absence.
Practically, there are times where an employer may want to provide a reason for termination to rebut the presumption of any of the above or give employees the courtesy of knowing why. Further, if an employee is being terminated without notice under the ESA, the employer should specify what behaviour the employee engaged in (or failed to engage in) that forms the basis for the employee not being provided a termination package.
However, for a termination without cause, so long as adequate notice or pay in lieu is being provided, non-unionized employers are not required to provide a reason for termination and can terminate for almost any reason, subject to the above. If an employer is providing a reason, it has a duty to be honest and forthright about the reason.[iii]
For a discussion about when an employer should detail the reasons for a termination, see my colleague Patrizia Piccolo’s blog post on this issue.
#4. Vacation
Misconception: Vacation time and vacation pay are the same thing.
Truth: Under the ESA, vacation time and vacation pay are two separate (though related) entitlements. Most people often conflate the two entitlements, especially when an employer’s practice is to provide “paid time off”. However, thinking about the two concepts separately is important to ensure that employers are not on the hook for more than what was intended.
For example, if employers do not have a properly worded vacation policy and simply indicate that employees are entitled to X number of weeks of paid vacation, an employee who is on an unpaid leave of absence could be accruing paid vacation even though they are not earning any wages during the leave of absence.
#5. The Timing of Vacation
Misconception: Employers cannot tell employees when to use their vacation time.
Truth: Under the ESA, employers have the right to choose when employees use vacation time. While many employers provide employees with the courtesy of scheduling their own vacation time, employers are providing employees just that—a courtesy.
Employers not only have the right to schedule an employee’s vacation time, but they also have an obligation to ensure that vacation time is taken and that the associated vacation pay is paid within 10 months following the end of the company’s vacation entitlement year. Scheduling an employee’s vacation time allows employers to ensure an employee is taking the minimum time required by the ESA and therefore, meet its statutory obligations.
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Employers in Ontario must navigate a complex employment law landscape, often clouded by prevalent misconceptions. It is crucial to recognize that these fallacies can lead to costly legal disputes and can undermine trust and morale in the workplace. My goal in writing this blog post is to provide clarity to employers by debunking some of those common misconceptions.
[i] Employers may have a different overtime threshold than what is set out in the ESA.
[ii] Employees prescribed in section 2 of O. Reg. 288/01 are not entitled to notice of termination or termination pay.
[iii] This premise was recently upheld by the Ontario Court of Appeal in Krmpotic v. Thunder Bay Electronics Limited, 2024 ONCA 332 (CanLII).
