Employee Rights When Company Closes Down

While many businesses have temporarily shut down due to the COVID-19 pandemic, others have gone out of business altogether. We discuss the rights that employees have when a non-unionized business shuts down in Ontario.

What happens to employee rights when a company closes?

Employment rights when a business ends operations will vary depending on the circumstances. The extent and ability to recover unpaid wages or severance will be impacted by whether the business shuts down altogether, is bought out and continues to operate, or goes into bankruptcy or receivership.

When a company shuts down altogether, it may be liable for outstanding wages, vacation pay, termination pay, and severance pay.

Am I owed severance pay or termination pay? What is the difference?

You may be entitled to termination pay and/or severance pay if your employer shuts down the business for reasons other than going into bankruptcy or receivership. While these terms are often used interchangeably, they are separate legal entitlements in Ontario. Entitlement to termination pay and severance pay are not dependent on one another. Speaking to an employment lawyer is the best way to determine your maximum entitlement.

Working Notice and Termination Pay

Under the Ontario Employment Standards Act, employees who have worked between one and eight years for the same employer are generally entitled to one week of working notice for each complete year of employment with their employer. For example, if an employee worked 6 years and 8 months, they should receive notice that the company is shutting down 6 weeks before it is set to occur and should continue their regular work during that time. Employees who have worked less than one year are still entitled to one week of notice and entitlement caps at eight weeks, even if you worked more than eight years for the same employer.

If your employer does not give you notice, they must pay you regular wages for that time instead. If you receive proper notice, you are not entitled to termination pay. It is also possible to receive a combination of working notice and pay in lieu of notice, so long as the total meets the requirements of the Employment Standards Act.

Severance Pay

Beyond termination pay, certain employees are eligible for severance pay under the Employment Standards Act. When a company shuts down, you must have worked for your employer for at least five years and your employer must meet one of two criteria:

  1.  the employer’s payroll is $2.5 million or more or
  2. the employer discontinues part or all of their operations at an establishment and ends the employment of 50 or more employees within a six-month period.

An employment lawyer can assist in determining whether your employer meets one of these criteria. Other exceptions may also apply. Unlike termination pay, if an employer is liable for severance pay, they cannot give notice instead of paying.

What if my severance package seems unfair?

The Employment Standards Act sets out only the minimum entitlements in Ontario. You may be entitled to common law damages beyond the minimum standards. Notice or pay in lieu of notice can be much higher depending on factors such as the nature of the position, the person’s skill level, age, length of service, and availability of similar positions (including pandemic considerations!). As such, a severance package may be higher than what is set out in the Employment Standards Act. At the same time, the contract you signed when you were hired may set out different terms. You have the right to seek independent legal advice before accepting a severance offer and a lawyer can help determine if the offer is fair in your specific circumstances.

What if I’m laid off when my employer shuts down?

Ontario passed legislation which protects employers during the pandemic from having to pay the severance and termination pay which they would normally be required to if they drastically changed an employee’s hours or continued a lay off for longer than is allowed under the Employment Standards Act. However, if you have not been recalled from a layoff when a company shuts down, you would still have rights similar to those of otherwise terminated employees.

What are my rights if the company goes into bankruptcy or receivership?

Your entitlement and ability to recover may differ if the company goes into bankruptcy or receivership. If you are owed wages at that time, you may be eligible for the Wage Earner Protection Program. This is a federally run program which is limited to unpaid wages, vacation pay, termination pay, and severance pay that the employee earned or became entitled to in the six months before the bankruptcy or receivership.

Accessing the Wage Earner Protection Program does not preclude making claims for certain unpaid wages. The directors of the company may be liable for unpaid wages and an employment lawyer can assist in making such claims.

What are my rights if a business is sold?

If a business is sold and continues to operate, the new business may offer you to keep your job and work for the new company. In these circumstances, you would not receive termination or severance pay when your first employer shuts down, but that service should be included in determining your entitlement when your employment ends with the subsequent employer.

Can I apply for unemployment if my employer goes out of business?

You may be eligible for employment insurance benefits if your employer shuts down as this would constitute losing a job through no fault of your own. However, there are hours of work requirements for eligibility that vary depending on a worker’s circumstances. It is important to consult the government of Canada resources for the most accurate and up to date information about employment insurance eligibility.

What else affects my rights?

If you work in certain industries, such as transportation and communication, your work may be governed by federal employment legislation, rather than the Ontario Employment Standards Act. If your workplace is unionized, rights upon shut down may be set out in your collective agreement.

When many workers are terminated at once, it is tempting to compare severance offers. However, each employment circumstance is unique, and an employment lawyer can assist in maximizing your package, irrespective of what others are offered.

Employment Lawyers at Monkhouse Law specialize in Employment Law, Human Rights Law, and Disability Insurance Law. We serve employees, independent contractors and employers, and strive to get optimal results for every client through skilled advocacy and research on each matter. We have successfully represented clients before all levels of court in Ontario, including the Superior Court, the Divisional Appeals Court, and the Court of Appeal and have also appeared before the Supreme Court of Canada.

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