Building services providers and termination pay

Certain types of contractors may be required to compensate people they have never employed
Tuesday, November 4, 2014
By Doug MacLeod

George has been working as head of security at the local shopping mall for the last five years. However, a new security company has just taken over the mall’s security services and has decided not to continue his employment. He doesn’t know what to do. He feels like he is at a dead end. Well, it turns out that he’s not. It turns out that the situation is more nuanced than he, and perhaps most people, might expect. The new security company is likely required to pay George termination pay, even though it has never employed him.

The legal context

Section 75 of the Ontario’s Employment Standards Act (ESA) states that a building services provider (including a condo corporation that decides to bring these services in-house) is generally required to pay termination pay to certain individuals it has never employed — individuals like George.

So, what exactly is a “building services provider?” Think SWAT Security Services or ACME Property Services. Under the ESA, a building services provider is defined as a person who provides building services for a premises and includes the owner or manager of a premises if the owner or manager provides building services for premises the person owns or manages.

This special termination obligation for a provider applies to the following types of employees:

  • Those who are employed with respect to food, security and cleaning services in a building;
  •  Those who are employed in connection with the operation of a building’s parking garage or parking lot; and
  • Those who are involved in property management services relating exclusively to a particular building.

Two common scenarios

1. Property management service corporations

Imagine George, the security guard, again. This is how his situation plays out. A property owner, such as a shopping centre owner, will sometimes contract out the security services to an outside provider (Provider 1), and will do so using a Request for Proposal (RFP). The RFP may result in a fixed-term contract. At the end of the term, the property owner may decide to change providers (to Provider 2).

In this scenario, Provider 2 may not hire all of Provider 1’s employees, such as George. If not, Provider 2 must provide George with termination pay — unless a statutory exemption applies.

2. Condominium corporations

A condo corporation may decide to contract out property management services to an outside provider. After a few years the condo corporation may decide it is cheaper to hire its own employees to perform these services and terminate the contract with the provider. In this case, the condo corporation is required to pay termination pay to the provider’s employees it does not hire — again, unless a statutory exception applies.

Although this kind of restructuring may seem unfair to employees, it is often the result of an informed decision. New building service providers have the right to demand information about current employees, including details such as wages, benefits, seniority, hours worked, etc. This information is used to evaluate the person as a prospective employee and to determine termination pay owing should the provider not hire the employee.

How to minimize termination costs

1. Require all employees to sign an employment contract with a termination clause

Building services providers can curtail significant termination costs by taking one simple step: requiring all employees to sign an employment contract with a termination clause before the person commences employment. This reduces the amount of termination pay that a provider pays an employee to the minimum standards set out in the ESA, which is eight weeks for employees with more than eight years of service. This can be contrasted to the provider’s obligation to pay an employee up to 104 weeks (or more) in termination pay if no termination clause exists.

2. Carefully consider whether a statutory exemption to section 75 applies

To minimize the amount of termination pay to individuals a building services provider does not hire when it takes over a building services contract, the provider should carefully consider whether any statutory exceptions apply. These exemptions are set out in a regulation under the ESA. For example, section 75 does not apply to an employee who does not work during the 13 weeks prior to the changeover date.

3. Negotiate a provision in contracts with property owners to have property owners share, or assume responsibility for, termination costs

Finally, in addition, the provider can try to negotiate a provision in the contract with the property owner that requires the owner to pay some (or all) of the termination costs that the provider incurs with respect to employees that it does not hire.

The objective of section 75 of the ESA is to encourage the continuation of employment, and to minimize disruption when termination occurs. But change is inevitable in this kind of scenario. An understanding of section 75 allows providers to manage this change proactively, in a cost-effective manner.

Doug MacLeod of the MacLeod Law Firm limits his law practice to employment law. He has been advising Ontario employers including property managers for over 25 years. He can be reached at 416 317-9894 or doug@macleodlawfirm.ca.