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title

Changes to the Employment Standards Act in the Wake of the Mount Sinai Decision

DATE

February 15, 2006

EXPERTISE

Employment and Labour

As a result of recent changes to the regulations under the Employment Standards Act, 2000, employers in Ontario are now required to pay both statutory notice and severance to employees whose employment has been terminated due to frustration of contract arising from illness or injury.

On May 4, 2005, the Ontario Court of Appeal unanimously affirmed the Divisional Court's decision in Ontario Nurses' Association v. Mount Sinai Hospital[i] that an employer may not avoid paying statutory severance to an employee who is terminated in circumstances where the employee becomes unable to attend work due to disability. The decision struck down a previously permitted exemption to the payment of severance under subsection 58(5)(c) of the former Employment Standards Act. Although the legislation had been amended while the case was before the Court, the employment law and labour relations community generally accepted that the similarity of the old provision with section 9 of Regulation 288/01, the Employment Standards Act, 2000 ("ESA 2000"), likely rendered the continued exemption unconstitutional as well.

In our earlier newsletters of March 2004 and May 2005, we outlined the Court's reasoning in these matters and advised that, while these decisions probably did not preclude the termination of an employee for innocent absenteeism or frustration of contract, they likely prohibited an employer from refusing to pay statutory severance in respect of such a termination. Whether similar reasoning also affected the exemption in respect of notice under the ESA 2000 in such circumstances remained in question. First, the Charter issues regarding the notice exemption had not been addressed by the Court. Second, the traditional basis for the payment of severance and notice was different. Severance was considered to be an earned cash benefit arising from past service, while notice was meant to help the employee transition into new employment.

Prior to the Legislature's holiday break, changes were made to Regulation 288/01, which came into force when printed in the Ontario Gazette on November 12, 2005. Although quietly introduced by the government, the changes codify the decision of the Ontario Court of Appeal. The list of permitted exceptions to the payment of severance no longer includes circumstances where the employment has been terminated due to impossibility of performance or frustration of contract that is a result of an illness or injury suffered by the employee.

More importantly, however, Regulation 288/01 has also been amended in respect of statutory notice. An employee whose contract of employment has been terminated as a result of innocent absenteeism or frustration of contract due to illness or injury is now also entitled to statutory notice or pay in lieu thereof. Given that an employee absent due to an illness or injury cannot attend work, in most cases, these employees will be entitled to pay in lieu of working notice. This additional change, while possibly more controversial, now makes Regulation 288/01 more consistent with other provisions of the ESA 2000, which require an employer to pay regular wages to an employee during a working notice period even though that employee may be absent for a portion of that working notice period due to illness or injury.

Employers must therefore be aware that while they may still be entitled to terminate an employee whose contract of employment has been frustrated, additional costs have been imposed as a result of changes to Regulation 288/01 which protect the employee's full entitlement to both statutory severance and notice or pay in lieu thereof.

[i]. (2005), 75 O.R. (3d) 245 (C.A.) affirming (2004), 69 O.R. (3d) 267 (Div. Crt.).

The purpose of this document is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of Ogilvy Renault LLP or any member of the firm on the points of law discussed.

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