A.
Introduction
The dismissal of an employee is never
an easy or pleasant task. However, in these difficult economic
times, the dismissal of an employee may be necessary to
maintain the economic viability of your organization. The
purpose of this Charity Law Bulletin (the “Bulletin”)
is to set out the legal requirements for dismissing an employee
and the risks and costs associated with a wrongful dismissal
claim. Finally, the Bulletin will provide some guidance
on how to decrease the risk of facing a wrongful dismissal
claim by a former employee.
B.
The Legal Relationship Between Employer and Employee
The basic principle of wrongful dismissal
law is that there is a contractual relationship between
the employer and the employee. Therefore, the parties are
free to negotiate the terms and conditions that will govern
the employment relationship, including the termination of
the relationship. However, these terms and conditions may
not be incompatible with the relevant statutes in your jurisdiction,
such as the Employment Standards Act, 2000 (Ontario),
and the Human Rights Code (Ontario). Neither the
employer nor the employee may enter into an employment contract
which would violate the standards set out by these statutes.
While there are advantages to having
a written employment contract, the fact remains that the
majority of employment contracts are not written. Whether
the employment contract is written or oral, unless the parties
otherwise agree, it is implied in all employment contracts
that they are of indefinite duration and are subject to
termination by the employer only for “just cause” or by
giving reasonable notice of termination or pay in lieu of
that notice. Where an employer terminates an employment
contract without just cause, or without giving reasonable
notice or pay in lieu thereof, the employer is considered
to have breached the contract of employment and wrongfully
dismissed the employee. In those circumstances the employer
may be liable to the employee for monetary damages.
C.
Statutory Requirements
In Canada, all provinces and territories
have employment law statutes setting out the minimum level
of entitlements that an employee must receive upon dismissal
without just cause. In Ontario, the Employment Standards
Act, 2000, provides that employees are entitled to:
¨
one week’s notice if employed
between three months and a year;
¨
two week’s notice if employed
between one and three years; and
¨
one week’s notice per full
year of service, up to a maximum of eight weeks, if employed
more than three years.
It is also important to note that employers
must continue benefit plan contributions during the statutory
notice period. The employer is also required to provide
“severance pay” where the employer’s payroll exceeds $2.5
million, and the employee has completed at least five years
of employment. The severance pay owing is one week’s pay
for each year of service, up to a maximum of twenty six
weeks pay.
It is important to emphasize that these
statutory payments are minimums to which an employee dismissed
without cause is legally entitled. Depending on the circumstances,
he or she may also be entitled to additional pay in lieu
of notice under the common law, as discussed below.
D.
Common Law Notice
Common law notice is much different than
statutory notice, in that it is not determined by a particular
statutory formula based upon the number of years of employment.
However, over the years, Canadian courts have determined
that an employee’s reasonable common law notice must be
determined by a number of factors. The Ontario judgment
most often cited with respect to these factors is Bardal
v. Globe and Mail Ltd. (“Bardal”), a 1960 case
of the Ontario High Court (as it was then called). In Bardal,
the court set out the following factors that determine the
applicable notice period:
¨
the character of the employment
(i.e. the position held by the employee);
¨
the length of service;
¨
the age of the employee;
and
¨
the availability of similar
employment, have regard to the experience, training and
qualifications of the employee.
The purpose underlying these factors
determining the length of notice is to provide sufficient
opportunity for the dismissed employee to obtain alternative
comparable employment. Therefore, in many instances, the
longer the length of service, and the older the employee,
the longer the notice period will need to be. Courts have
imposed a rough upper limit on common law notice of twenty
four months. While there have been a few cases exceeding
that period, these are quite rare. Many of the disputes
that end up going to court deal with what the reasonable
notice ought to be in the circumstances, along with the
compensation to be properly included in the termination
package.
Formerly, some judges applied a so called
“rule of thumb” that an employee is entitled to roughly
one month pay in lieu of notice for each year of service
to the employer. While this rule of thumb has been rejected
by the courts, it is still fairly regularly applied by employers
in practice as a fair starting point to establish a reasonable
notice period. Moreover, there are many reported judicial
decisions where wrongfully dismissed employees have been
awarded roughly one month of pay for each year of service.
E.
Additional Common Law Damages for Wrongful Dismissal
Unlike statutory notice, an employer
who wrongfully dismisses an employee is required not only
to pay the former employee’s regular pay over the notice
period, but also may be required to pay the following additional
amounts:
¨
any bonuses or commissions
that would have likely accrued during the notice period;
¨
the value of any benefits
that the employee would have enjoyed during the notice period,
such as car allowance, etc;
¨
the replacement value of
the employee’s health benefit plan;
¨
the value of any stock options
that the employee could have exercised during the notice
period or any increase in value during the notice period
of shares that the employee owned, which he or she was required
to redeem at the time of dismissal;
¨
the increased value of the
employee’s pension during the notice period.
The above items are the most commonly claimed
as monetary damages in wrongful dismissal cases. Additionally,
an employer who dismisses an employee in an unnecessarily
callous manner may be required to pay additional damages
in light of the decision of the Supreme Court of Canada
in Wallace v. United Grain Growers Ltd., [1997] 3
S.C.R. 701, and more recently, Honda Canada v. Keays,
2008 SCC 39. If the employee can establish that
the employer engaged in bad faith conduct, or unfair dealing
during the course of dismissal, injuries such as humiliation,
embarrassment and damage to one’s self worth and self-esteem
might well be deemed worthy of compensation. This additional
compensation to the employee does not flow from the fact
of dismissal itself, but rather from the manner in which
the dismissal was carried out. If the court finds that the
employer’s conduct was particularly egregious, an award
of punitive damages may also be made. Punitive damages awards
are rare, but not unheard of in employment situations.
F.
The Right to Reinstatement
Common law claims for wrongful dismissal
are for monetary damages only, and the law does not allow
for reinstatement. However, an employee who was dismissed
in breach of the anti-discrimination provisions of the Human
Rights Code (Ontario) may proceed with an application
to the Ontario Human Rights Tribunal. If there is a finding
of unlawful discrimination, the Tribunal has powers under
the Code to order reinstatement, with full back wages.
Additionally, the Canada Labour Code
provides a limited statutory right to reinstatement. The
Canada Labour Code applies only to federally regulated
industries, such as banks, marine shipping, air transportation
and railway and road transportation that involves crossing
provincial or international borders. For a list of these
federally regulated business and industries to which the
Canada Labour Code applies, you can search the Federal
Human Resources and Skills Development website at www.hrsdc.gc.ca.
Under “Division XIV – Unjust Dismissal”,
employees meeting certain criteria can apply for an adjudicated
determination of whether the employer had just cause to
discharge them and, if the employer did not, to seek extensive
monetary remedies, as well as reinstatement. Those criteria
are:
1. they are not managers (s.167(3));
2. they have completed twelve months of continuous employment
(s.240(1)(a));
3. they are not subject to a collective agreement, which
has its own procedures for addressing whether discipline
and/or discharge were imposed without just cause (s.240(1)(b));
and
4. they were not terminated because of lack of work or the
discontinuance of a function (s.242(1)(3.1)).
G.
Termination for Cause
The employer is always entitled to dismiss
an employee without notice or termination pay for just cause.
However, the onus is on the employer to prove that cause
exists. The employer must prove incompetence or misconduct
and not just dissatisfaction with performance or concern
about potential misconduct. The question of just cause has
been reviewed many times in the jurisprudence. In a 1967
Ontario case, the Ontario Court of Appeal stated the following
with respect to just cause:
