Termination and layoff
"Termination of employment" generally means the employer ends the employment, though it is sometimes used more broadly for any end to the relationship.
Layoff is sometimes used interchangeably with termination. Avoid this. Use "layoff" only for what Ontario employment standards call a "temporary layoff": active employment is suspended but not completely ended, and the person is still in an employment relationship with the employer.
With cause and without cause
There is no simple definition of "cause" for termination. But an employee terminated without cause is always entitled to notice, or wages in lieu of notice, under employment standards, as long as they have the required seniority. In Ontario, employees are entitled to notice after 3 months of continuous employment.
Generally, notice is required when the employee is not at fault for losing the job. For example, employees terminated because of economic conditions affecting the employer are terminated "without cause" and are entitled to notice. The contrast to "with cause" is "wrongful dismissal": an employee terminated without cause has been wrongfully dismissed.
Quitting, resignation and constructive dismissal
Quitting and resigning mean the employee ends the employment. Constructive dismissal is similar, in that the employee makes the final break. But constructive dismissal is to employees what termination for cause is to employers: in both, the party making the break says it was only in response to the other's actions, which made it impossible to continue.
For example, an employee who quits may claim that harassment by the employer was constructive dismissal, a breach of the employment contract so serious that staying was impossible. Similarly, an employer who terminates an employee for theft is saying the theft so broke its trust that the relationship was already over.
Payments on separation
The best single term for payments made to former employees is "payments on separation", or separation payments. The phrase comes from the Employment Insurance requirement to report all payments arising from the loss of employment on a Record of Employment (ROE). It doesn't, however, tell you the source deduction and reporting treatment required.
Employment income commonly paid on termination includes:
- wages in lieu of notice
- banked overtime
- accrued vacation pay
- statutory holiday pay for a substituted day not yet taken
- any other wages owed under the employment contract but not paid before termination
Payments on separation that are other income are either retiring allowances or death benefits.
A retiring allowance is a payment for long service on retirement, or for the loss of employment. In practice, a retiring allowance marks an employee terminated without cause: it is compensation or damages for wrongful dismissal.
That definition might seem to include wages in lieu of notice, but there are two differences. First, retiring allowances are owed under the common law, imposed by the courts or agreed in a settlement, while wages in lieu of notice are required by statute (the employment standards legislation). Second, retiring allowances are amounts paid for the loss of employment above what is required as wages in lieu of notice.
Some payments required by Ontario and federal employment standards are retiring allowances in addition to wages in lieu of notice. In both jurisdictions this is called "severance pay", but "statutory severance" is the better term, to separate its statutory source from the common law source of most other retiring allowances.
With one exception, amounts owed under the employment contract and paid because employment ended are employment income, including unpaid regular wages and accrued or banked overtime, statutory holiday and vacation pay. The exception is accrued sick leave credits: when paid out on termination, they are treated as a retiring allowance for income tax source deductions.
What is owed
When employees are terminated without cause, including through constructive dismissal, employers must give notice or pay wages in lieu of notice, depending on length of employment. Depending on seniority, a wrongfully dismissed employee may also be able to claim damages under the common law. That right may be limited by the employment contract, so check the contract before giving any answer.
In Ontario and the federal jurisdiction, statutory severance may also be owed. In Ontario, it applies to employees with at least 5 years' seniority where either 50 or more employees are let go within a 6-month period, or the employer's annual payroll, anywhere in the world, is at least $2.5 million. For this purpose, wages are as defined in the Ontario employment standards.