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Did you know employment termination packages are subject to pre-approval by the Ministry? Guest Blogger: Maria McDonald

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Calling all family health teams in Ontario.  Here’s something you should know!

This blog was written by Maria McDonald from McDonald HR Law

Did you know that section 4.1 of the standard family health team (FHT) funding agreement with the Ministry of Health and Long Term Care (MOHLTC) requires FHTs to obtain written pre-approval from the MOHLTC before paying an employee termination pay or severance in excess of the Employment Standards Act, 2000 (the ESA)?

4.1 reads as follows:

The Recipient shall ensure that the terms and conditions of any employment contract that the Recipient enters into for the purposes of this Agreement, shall not, in any way, contradict the terms and conditions set out herein unless otherwise consented to by the Ministry in writing. In no case shall the Recipient negotiate termination payouts and severances with any Recipient Personnel which are greater than the minimum requirements set out in the Employment Standards Act and the Common Law unless otherwise consented to in advance and in writing by the Ministry. The Recipient shall obtain the Ministry’s prior written approval before making any settlement offers to any Recipient Personnel which exceed the minimum requirements set out in the Employment Standards Act.

What does that mean?

It means two things –  FHTs are:

  1. Prevented from agreeing to termination payouts and severances which exceed the Ontario ESA minimum or common law (common law is much more generous that the minimum ESA provisions) and
  2. Required to obtain the MOHLTC’s prior written approval before making any settlement offers to an employee which exceed the ESA

Ok, so what does it really mean? What are the practical implications of section 4.1?

The first requirement under section 4.1 (not to exceed the ESA or common law) is not an issue as rarely if ever would a FHT pay out more than common law entitlements to a terminated employee.

The second requirement is more problematic as there are numerous situations where it would be reasonable to pay out termination pay in excess of the ESA. For example:

  1. The employee’s contract does not have a termination provision, or it does not limit termination payouts to ESA minimums. Therefore, the employee has a claim for common law notice and the FHT negotiates a settlement package that provides more than ESA but less than the common law.
  2. The FHT negotiates a termination package in an employment contract more generous than ESA minimums to recruit a desirable employee. The FHT is legally obligated to honor that contractual provision.
  3. The FHT pays a terminated employee more than ESA to obtain a release for other potential legal claims (Human Rights, Harassment)
  4. The FHT is only obligated to pay ESA minimum but wants to pay an extra week or two to assist the employee during the transition period
  5. 4.1 requires FHTs to obtain written pre-approval from the MOHLTC before making any payments in excess of the ESA in the above scenarios.

Why are we talking about this now?

Section 4.1 has been part of FHT/MOHLTC funding agreements for many years. Quite frankly, the provision seemed to be largely ignored by FHTs and the MOHLTC.

However, since the Provincial election in June 2018, the MOHLTC appears to be more intent on enforcing its power of pre-approval via section 4.1. In recent discussions, the MOHLTC advised it wants to be consulted on termination arrangements. It wants to ensure the FHT has done its due diligence, which includes seeking legal advice prior to agreement to a termination payout which exceeds ESA minimums.

What’s a FHT to do?

If you are planning to offer either of these two things – pause:

  1. An employment contract (at the beginning of the relationship) with a termination provision which exceeds the minimum ESA termination provisions, or
  2. A termination package (at the end of the relationship) that exceeds the ESA termination provisions

Before you act – take the following steps before making the offer of the employment contract or termination provision:

  1. Obtain legal advice
  2. Be prepared to justify why this contract of employment or termination package should exceed ESA minimums
  3. Reclassify payments that are designed to settle other matters (such as human rights, harassment claims etc.) as something other than termination or severance payments
  4. Consult with the MOHLTC program manager before presenting the offer of employment or the termination package to the employee

I expect the MOHLTC will be reasonable in administering its powers of pre-approval. This is an exercise in fiscal accountability.  It will be necessary in complex employment situations to frame the termination package in way that demonstrates its reasonableness to the MOHLTC. The goal of section 4.1 is fiscal responsibility. The job of the FHT will be to demonstrate to the MOHLTC how its proposed termination package meets that goal.

Maria McDonald is a guest blogger. She can be reached at maria@mcdonaldhrlaw.com   

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