What is Wrongful Dismissal?

Posted in: Labour and Employment Law- Jun 20, 2012 Comments Off

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Wrongful Termination of Employment

by Karen Zvulony, Toronto Employment Lawyer

Karen Zvulony, Employment LawyerThe following article provides a general overview of wrongful dismissal law in Ontario. The information provided is not applicable to unionized employees and may not apply to employees who work for a federally regulated employer.

Termination of Employment

In general, an employer is permitted to terminate employment without just cause, provided they give an employee reasonable notice or compensation instead of reasonable notice. An exception to this is if an employer has violated an employee’s human rights or violated certain parts of the Employment Standards Act (i.e. failure to reinstate an employee after pregnancy leave). Employees who work for a federally regulated employer, such as a bank or airline may have a statutory protection against unjust dismissal, even if notice is given.

There is an implied term in every contract of employment that an employer will provide an employee with reasonable notice of termination. This presumption may be rebutted with a valid and enforceable termination clause (this will be expanded on below). Absent an enforceable and valid termination clause, an employer must provide an employee with reasonable advance notice of termination or payment in an amount equivalent to all salary and benefits that would have been earned by the employee during the reasonable notice period. The ‘wrongful’ in wrongful dismissal, refers to the failure of an employer to provide an employee with reasonable notice and does not refer to the dismissal itself.

Reasonable Notice Entitlements

A common point of contention in most wrongful dismissal disputes is usually in determining the length of the reasonable notice period and what employee benefits should be included during this period. Although permissible, it is unlikely that an employee will be given “working notice”, as many employers opt to, and prefer to provide terminated employees with compensation in lieu of actual working notice. This is largely because employers do not want to continue to have a terminated employee in their employ that may have little incentive to be productive and may hold some animosity towards them as a result of their termination. If an employee has been given working notice, the employer has an obligation to continue to employ the employee in their similar capacity and provide them with the same compensation. An employer cannot unilaterally change the employees’ roles, responsibilities, and compensation in a substantial way during the working notice period.

The Employment Standards Act only provides minimum notice periods (usually one week for every year of service up to a maximum of 8 weeks). An employee can be entitled to a notice period beyond the statutory minimum, depending on a number of factors which the courts will consider in determining the appropriate notice period. These factors include: length of employment; training and experience required to fill the position; responsibility attached to the position; availability of equivalent alternative employment;  employee’s relevant education, training and experience; the employee’s age; and if there was inducement to leave another job.

Bad Faith

If an employer has acted unfairly or in bad faith at the time of termination, an employee may be entitled to an increase in the amount of notice they are entitled to. Some examples of an employer’s unfair conduct and bad faith conduct include, but is not limited to; making allegations of fraud or sexual harassment at the time of firing were there is no reasonable basis for such allegations; firing an employee without warning and with no opportunity to explain his/her conduct; and failing to provide any reason for the firing. An employer should afford an employee some procedural fairness to be able to tell their side of the story and employers have a positive obligation to be forthright, candid and honest in the manner in which the employee is terminated.

Reasonable Notice – What is Included?

After determining the reasonable notice period the next issue that typically arises is what employee benefits should be included during the reasonable notice period. The goal of the Courts in awarding damages in wrongful dismissal actions is to place the employee in the same position he or she would have been in had reasonable notice been given. As such, employees are generally entitled to the continuation or replacement cost of all employee related benefits that they normally would have received had they been given reasonable notice.  This usually includes the continuation or value of all heath, medical, and dental benefits. The employee is also entitled to be compensated for all other benefits that they normally enjoyed as an employee and would have received during the reasonable notice period. For example, non-discretionary bonuses should be paid for the period marked by reasonable notice and the employer should continue to contribute to the employee’s pension plan or match the employee’s RRSP contribution (if applicable). Other damages typically awarded in wrongful dismissal actions include, damages for scheduled across the board salary increases that would have been implemented during the reasonable notice period; insurance coverage; damages for loss of the use of a company car; loss of accruing vacation pay; loss of stock options; and reasonable costs for searching for new employment.

Termination Clauses

As mentioned above, there is an implied term in every contract of employment that an employer will provide an employee with reasonable notice of termination. This presumption, however, may be rebutted with a valid and enforceable termination clause in an employment agreement.

Employers are increasingly looking to minimize their exposure to common law notice periods (i.e. notice periods that are awarded by the Courts depending on the factors listed above) by inserting a termination clause in their employment agreement with their employees. A termination clause is an unambiguous, statutorily compliant, clause that outlines the amount of notice an employer will provide an employee if they are terminated without cause. For example, the Ontario Court in its decision in the case of Lloyd v. Oracle Corp. Canada [2004] O.J. No. 1806 upheld a termination clause that read as follows: “Oracle may terminate your employment at any time, without cause, upon giving prior written notice in accordance with the Ontario Employment Standards Act, or any similar legislation which is in force in the province within which Oracle’s offer of employment is accepted”. The Court reasoned that the termination clause was sufficient to rebut the common law presumption of reasonable notice and the clause met the minimum requirements of the Employment Standards Act

In the majority of instances when a termination clause is present, the termination clause will provide for a notice period that is less than what an employee would have received under the common law presumption of reasonable notice. It is for this reason that many employees seek to challenge the validity and enforceability of these clauses. Some arguments that are usually put forth to challenge these clauses include, misrepresentation, lack of consideration, duress and unconscionability. Employees also tend to challenge the specific content of these clauses. In this regard, the employee will argue that the clause is too vague and ambiguous or that it fails to comply with the minimum notice periods required by the applicable employment legislation in the province.

Every termination clause must, at the very least, comply with the minimum statutory requirements in the jurisdiction of employment. A termination clause that fails to satisfy the minimum statutory requirements will be void. For example, a clause that states that in the event of termination without cause an employer will provide the employee with “2 weeks notice or pay in lieu of” will likely be struck and held unenforceable because it fails to, or has the potential to fail to comply with the minimum notice periods set out in the relevant employment standards legislation. More precisely, the clause outlined above fails to comply with the Employment Standards Act, because an employee that has been employed for 4 years would be entitled to a minimum of 4 weeks notice or pay in lieu of. This is more than the 2 weeks provided for in the employment contract. The clause therefore fails to meet the minimum standards set forth in the Act. In addition, although an employee who has only been employed for 1 year would only be entitled to 1 week notice or pay in lieu of pursuant to the Employment Standards Act, the above clause would still likely be held to be void because it has the potential to fail to meet the statutory minimum. If a termination clause is held to be void and unenforceable, the common law presumption of reasonable notice will not be rebutted and the employee will be entitled to rely on the common law presumption of reasonable notice.

Mitigation of Damages

An employee has a duty to lessen their damages. That is, an employee has a positive legal obligation to try and find alternate employment. This does not mean that an employee must accept a job that is substantially different or a job that pays significantly less. The obligation is to look for and accept alternate employment which is in the employee’s own best interest. Should the parties not agree on the reasonable notice period and the matter proceeds to litigation, the employer bears the onus on a balance of probabilities to prove that the employee has failed to lessen their damages.

In the event an employer has not provided an employee with reasonable notice and/or severance in accordance with their minimum entitlements under the Employment Standards Act, the employee has the option of pursuing a claim under the Employment Standards Act or through the civil courts. An employee cannot elect to pursue a remedy under both. If an employee elects to pursue a remedy under the Employment Standards Act, any award will be limited to the maximum allowed under the Act. Alternatively, if the employee feels that they are entitled to a reasonable notice period beyond the statutory minimum, the employee would have to pursue a claim in the civil courts.

Alternatively, if an employer has ‘just cause’ to fire an employee, they typically do not have to provide an employee with notice or compensation. It bears repeating that the onus is on the employer to establish ‘just cause’.

Conclusion

It is important to remember that no two individuals are alike and every employee’s circumstances are different. The above information is provided as a source of general information only and is not meant to replace the advice of a lawyer.  In order to determine if your employer has offered you a fair and reasonable severance package, it is advisable that terminated employees have an employment lawyer review their severance package prior to them accepting or signing a release of liability. Far too often, an employer’s first offer is usually just that, their first offer.

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