SMASHING THE REASONABLE NOTICE CEILING: THE SEQUEL

The previously assumed 24-month "ceiling", or cap, for reasonable notice of termination continues to be smashed. In an earlier post  I reviewed a number of cases in which the Canadian courts smashed the ceiling over the years. Recently, the Ontario Superior Court of Justice in Abrahim v. Silwin [1] rejected any maximum or cap -- whether it be 24 months for managerial employees or 12 months for non-managerial workers.

In Abrahim there were numerous plaintiffs each "employed in a non-managerial position, in a relatively unskilled job, at a low rate of pay". The plaintiffs were of varying ages and had different lengths of service. Their lawyer suggested  "the following formula be used in calculating the plaintiffs' damages, subject to mitigation:

 

(a) one months' pay for each year of service;

 

(b) subject, in any event, to a cap of 24 months."

 

Interestingly, while the Court disagreed with counsel's formula, it was still prepared to honour the request for a 24-month cap. However, in rejecting the idea of a ceiling for damages generally though, Gray J. wrote that  "two of the plaintiffs had worked for one or more of the defendants for at least 35 years, and were 63 years of age or older. I might have decided to award more than 24 months' pay had such a request been made."

 

The decision in Abrahim should be read with some caution: Firstly, the Court was dealing with a motion for default judgment and, thus, there was no lawyer present arguing for the defendant employers. In addition, Gray J's comments with regard to two of the plaintiffs, quoted above, could be considered obiter (something said in passing and not actually part of the Court's ruling).

Nevertheless, Abrahim reflects a growing trend and both employers and employees should take reasonable notice -- pardon the pun!

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[1] 2012 CarswellOnt 13870; 2012 ONSC 6295

Mitigation: Say What You Mean

Is an employee who is terminated without cause required to mitigate losses when an employment contract provides for a fixed term of notice or pay in lieu, but is silent with respect to the issue of mitigation? The Ontario Court of Appeal was recently faced with this issue.

Mitigation refers to a terminated employee’s obligation to make reasonable efforts to seek an alternative income source. As a result of the employee’s duty to mitigate, the employer is normally entitled to a credit for any income earned by the employee during the term of common law reasonable notice or credit against damages for failure to provide such notice. Nevertheless, amounts due to the employee upon termination under the Employment Standards Act are not subject to the employee’s duty to mitigate.

However, in Bowes v. Goss Power Products Ltd., 2012 CarswellOnt 7721, the employee, Mr. Bowes, and his employer had entered into a written contract in which they agreed that Mr. Bowes would receive six (6) months’ notice or pay in lieu thereof if his employment was to be terminated without cause. The contract, which was prepared by the employer, did not mention the employee’s duty to mitigate.

Approximately two (2) weeks after his employment was terminated without cause, Mr. Bowes found a new job at the same salary. The employer only paid Mr. Bowes three (3) weeks’ salary as required by the Employment Standards Act. Mr. Bowes subsequently sued for the six (6) months’ pay required by the contract, despite the fact that he had now mitigated his loss by obtaining alternate employment. While the Ontario Superior Court denied his claim, the Court of Appeal allowed the relief he sought. According to the Chief Justice Winkler,

“An employment agreement that stipulates a fixed term of notice or payment in lieu should be treated as fixing liquidated damages or a contractual amount. It follows that, in such cases, there is no obligation on the employee to mitigate his or her damages…damages for contractually stipulated notice or pay in lieu should not be analogized directly to damages for common law reasonable notice. The parties specifically contracted for something different; it is an error to simply equate the two”.

He added that,

“…while it is indisputable that the parties could have specifically agreed that mitigation did apply, no presumption exists in law necessitating that it must be contracted away expressly”.

Therefore, since there was no mention of mitigation in the contract, no obligation to mitigate existed.

The moral of the story: Always say what you mean.

Don't forget the statutory severance pay!

Aside from higher than expected common law notice periods, employers should turn their attention to their possible obligation to pay statutory severance pay upon termination of employment.

For example, in  Ontario, the Employment Standards Act ("ESA") requires payment of up to 26 weeks of regular wages to terminated employees in certain circumstances. Most commonly, the severance pay obligation arises where the employer has a payroll of at least $2.5 million and the terminated employee has been employed for at least five years. Severance pay is payable in addition to any amount otherwise due to the employee by virtue of the ESA or an employment contract.

An employer is entitled to set-off and deduct from its ESA severance pay obligations certain amounts, such as "an amount paid to an employee for loss of employment under a provision of the employment contract if it is based upon length of employment, length of service or seniority". Therefore, the Divisional Court held in 2005 that "where the common law notice period is more generous than the ESA, the common law amount is awarded, but not both" [1].  

However, employers must exercise caution when providing working notice of termination.  For example, an Ontario Court was recently faced with an 26-year employee who claimed 26 weeks of severance pay despite her employer having provided 54 weeks of working notice of termination followed by a gratuitous payment of two months' salary [2].

While the employer argued that the combined effect of the working notice and the additional payment exceeded the 34-week ESA obligation (eight weeks of termination pay plus 26 weeks of severance pay), the Court disagreed and found that the two employment standards are "diferent and distinct" and could not be combined. While the employer met the eight week termination pay standard, the lengthy working notice period could not be used to offset the severnace pay oblgation. Accordingly, the Court awarded the employee 26 months of salary less the gratuitous eight-week payment. The decision was not appealed.

Therefore, employers governed by the ESA must take care to properly structure termination packages  to ensure that severance pay obligations are met. This is so even where employers are "very generous", the precise words used by the Court to describe the defendant in the case above.

[1] Boland v. APV Canada Inc., [2005] O.J. No 510.
[2] Mattiassi v. Hathro Management Partnership, 2011 CarswellOnt 11431 (Sm. Cl. Ct.)

Smashing the Reasonable Notice Ceiling

It is widely, but wrongly, assumed that common law reasonable notice of termination never exceeds 24 months. Yet Canadian courts have smashed the 24-month "ceiling" on  several occasions.

For example, last year an Ontario court awarded a 26-month notice period to a 65-year old assistant warehouse supervisor who had been employed for 35 years [1]. A decade earlier, the Ontario Court of Appeal upheld a trial decision of 27 months for a 60-year old senior manager of 35 years [2].

In 2003 a New Brunswick court went further when it awarded 28 months of salary to a pair of 31-year papermill supervisors ages 51 and 52 [3].  Seven years earlier, that province's highest court ruled that a 57-year old executive sports editor employed for 36 years was also entitled to 28 months [4]. 

It is important to note that none of these decisions involved a finding of bad faith or other objectionable behaviour on the part of the employer.[5]

The morale: Whether you are firing or have been fired, don't make assumptions. Instead, call an employment lawyer.

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[1] Hussain v. Suzuki Canada Ltd., 2011 CarswellOnt 12251
[2] Cowper v. Atomic Energy of Canada Ltd., 2000 CarswellOnt 1745
[3] Walsh v. UPM-Kymmene Mirimachi Inc., 2002 CarswellNB 533 (Q.B.), affd. [2003] N.B.J. No. 166 (C.A.)
[4] Donovan v. New Brunswick Publishing Co., 1996 CarswellNB 601 (C.A.)
[5] The Supreme Court of Canada ended the practice of extending notice periods to punish bad faith on the part of an employer, commonly known as a "Wallace bump-up". See Honda Canada Inc. v. Keays, [2008] 2 S.C.R. 362.

The Truth About Reference Letters

Employees should seek positive verbal and written references from their former employers upon termination.

Except where the employee has been fired for just cause, employers should provide a former employee with a positive reference.

Positive references help employees find new employment. The faster an employee obtains new employment, the less an employer may have to provide for pay in lieu of common law notice.

Nevertheless, an employer does not have a legal obligation to provide a positive reference letter. However, a simple letter confirming employment is generally required if the employee requests one.

A reference letter myth exposed

A recent newspaper article suggests that employers may be sued if they provide reference letters for employees who underperform at their next jobs. However, no such legal liability exists in Canada.

Nevertheless, the article does illustrate the need to "go behind" a reference letter when seeking to hire a new worker. Hence employees should secure a former employer's written promise to provide a positive verbal reference consistent with the reference letter.

WHAT IS CONSTRUCTIVE DISMISSAL?

If an employer alters a fundamental term or condition of employment,
 both employer and employee must proceed with caution.

In previous posts I have dealt with termination of employment in the context of where an employer explicitly intends to dismiss an employee. However, there are situations where an employer may not form an intention to dismiss an employee but, by its actions, is deemed at law to have done so. This is known as constructive dismissal.

According to the leading Supreme Court of Canada decision on constructive dismissal, Farber v. Royal Trust Co. [1]:

A constructive dismissal occurs when an employer makes a unilateral and fundamental change to a term or condition of an employment contract without providing reasonable notice of that change to the employee. Such action amounts to a repudiation [rejection] of the contract of employment by the employer whether or not he intended to continue the employment relationship. Therefore, the employee can treat the contract as wrongfully terminated and resign which, in turn, gives rise to an obligation on the employer’s part to provide damages in lieu of reasonable notice.

Note that the Supreme Court was referring to an “employment contract” in the broadest sense of the concept, as in the terms governing a particular employment relationship whether or not those terms are actually contained within a written contract. I will be using the same meaning of “contract” in this post.

What constitutes a “unilateral and fundamental change” depends on the terms of each employment contract, and, therefore, no hard and fast rules can be applied. The following is a non-exhaustive list of actions that an employer might take and which are frequently considered by the courts to be “unilateral and fundamental changes” giving rise to constructive dismissal depending upon the unique circumstances of each case:

1.                  Reduction in pay of 10% or more

2.                  Temporary layoff

3.                  Relocation

4.                  Demotion

5.                  Workplace bullying

6.                  Forced resignation

7.                  Unpaid suspension

8.                  Denial of benefits (if benefits were promised by the employer)

If an employee believes that he or she has been constructively dismissed then, according to the 2008 decision of the Ontario Court of Appeal in Wronko v. Western Inventory Service Ltd.[2], the employee has three options:

Firstly, the employee can condone the change through words or actions and, therefore, he or she relinquishes the right to sue the employer for damages for wrongful dismissal.

Secondly, the employee may clearly communicate to the employer that he or she rejects the change in the terms of employment. If the employer persists and makes the change anyway, then the employee may sue for damages and not return to work for the employer.

Thirdly, the employee may clearly communicate to the employer that he or she rejects the change and demand the enforcement of the original term or terms. The employer can respond by terminating the employee’s employment, but only after proper notice or pay in lieu of notice is provided, and then offer employment on fresh terms. Alternatively, if the employer allows the employee to continue to be employed then the employee can still insist that the employer is bound by the terms of the original contract until proper notice or pay in lieu of notice is provided to the employee.

In 2010, as a result of an Ontario decision called Russo v. Kerr Bros. Ltd.[3], a constructively dismissed employee was granted a fourth option: The employee can clearly communicate to the employer that he or she will not accept the unilateral change imposed by the employer but, instead of leaving the workplace, the employee may stay on the job while suing the employer for damages.

It is important to note that like all terminated employees, a constructively dismissed employee is obligated to mitigate his or her damages. In other words, the employee must make reasonable efforts to locate alternate employment. In fact, according to a 2008 decision of the Supreme Court of Canada in Evans v. Teamster Local Union No. 31 [4],

….in some circumstances it will be necessary for a dismissed employee to mitigate his or her damages by returning to work for the same employer. Assuming there are no barriers to re-employment….requiring an employee to mitigate by taking temporary work with the dismissing employer is consistent with the notion that damages are meant to compensate for lack of notice, and not to penalize the employer for the dismissal itself….Where the employer offers the employee a chance to mitigate damages by returning to work for him or her, the central issue is whether a reasonable person would accept such an opportunity. In 1989, the Ontario Court of Appeal held that a reasonable person should be expected to do so "[w]here the salary offered is the same, where the working conditions are not substantially different or the work demeaning, and where the personal relationships involved are not acrimonious".

In light of the Evans decision, a constructively dismissed employee must be cautious before exercising the second option described above.

Finally, there is a fifth option. However, it is not a good one. When faced with what the employee believes to be a constructive dismissal, an employee can simply resign. However, by doing so, the employee may be severely compromising any claim for damages against the employer.

Constructive dismissal is one of the more uncertain areas of employment law. An employer wishing to impose a unilateral change to an employee’s terms of employment would be wise to obtain legal advice before moving forward in order to minimize the chances of a successful claim by a disgruntled employee for damages for wrongful dismissal. Similarly, an employee who is faced with such a unilateral change needs to move quickly, with the assistance of a lawyer, in order to properly exercise one of the options available to him or her in the face of a possible constructive dismissal.
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[1] [1997] 1 S.C.R. 846, 145 D.L.R. (4^th) 1.

[2] 292 DLR (4^th) 58 (Ont. C. A.), leave to appeal to S.C.C. refused 295 D.L.R. (4^th)  vii.

[3] 2010 CarswellOnt 8373 (S.C.J.).

[4] [2008] 1 SCR 661, 292 DLR 4^th 577.

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WHAT IS JUST CAUSE?

When can an employee simply be shown the door?

My last post was about notice or pay lieu of reasonable notice, which employers must provide to employees if their employment is terminated without cause. However, what if there exists just cause for termination?

According to the common law, just cause may relieve an employer from having to provide an employee with notice or pay in lieu of notice of termination (however, earned wages, vacation pay and pension benefits may still be due and owing).

Canadian courts have referred to just cause as “the capital punishment crime of employment law"[1] and for good reason. In addition to being denied working notice or termination pay, an employee who has been dismissed for cause could:

• be denied Employment Insurance benefits, 
• find it difficult to become re-employed, and
• suffer a serious psychological blow, which, in some cases, can lead to medical problems.
  

Not surprisingly, the burden of proving just cause to the court's satisfaction falls on the employer’s shoulders.

Since Canada did away with actual capital punishment in the criminal law context long ago, it should come as no surprise that its civil courts will “sentence” employees to the employment law equivalent only in the most extreme circumstances. This area of the law is challenging for employers, especially because there are few hard and fast rules. Consider the following cases:

•       Poor performance, generally speaking, in absence of clear performance standards, a history of progressive discipline, written warnings and employer guidance and support will not constitute just cause. [2]
•        In considering whether a dismissal for just cause is warranted for reasons of dishonesty, the Supreme Court of Canada “favour[s] an analytical framework that examines each case on its own particular facts and circumstances."[3] Accordingly, while dishonesty in the form of intentional embezzlement of money would likely be considered just cause, this is not the case where an employee with a long and excellent performance record recklessly misrepresents his expenses. [4]
•       As for criminal behaviour outside the workplace, while purchasing small amounts of marijuana from a fellow employee at home might not constitute just cause[5], the situation may be different if an employee is criminally charged with possession of child pornography.[6]
•        An employer may wish to think twice before dismissing an employee with body odour -- even if employed as a fragrance demonstrator.[7]
•        Engaging in harassing and threatening behaviour with one’s co-workers and using foul language may not constitute just cause in certain circumstances.[8]
•        Even when an employer may be able to establish just cause according to the common law, that may not be enough to characterize an employer’s offending conduct as “wilful misconduct, disobedience or wilful neglect of duty” for the purposes of provincial minimum standards legislation such as Ontario’s Employment Standards Act. This occurred in a recent decision where a worker had been disciplined for taking extended breaks, arriving late, shoddy workmanship and where he had a careless attitude towards his misconduct despite numerous coaching sessions. The Court held that the employee should still receive his entitlements under the Act even if he is denied common law damages for wrongful dismissal.[9]

Employers and employees also need to be aware that there may be applicable human rights legislation and contractual considerations that can come into play.  These can further restrict an employer’s ability to terminate an employee for just cause.

Employers should take care not to unwittingly become the target of wrongful dismissal litigation should they improperly dismiss an employee for cause. Not only can the plaintiff employee potentially walk away with a judgment for lost wages and legal costs, where an employer unsuccessfully alleges just cause the employee may be awarded additional damages, such as for mental distress. This is not surprising when one considers the potential harm to an employee who is dismissed for cause.

Employers and employees require the assistance of experienced employment lawyers when navigating through the just cause minefield.  Employers should speak with counsel before firing an employee for alleged cause or even before disciplining him or her for perceived misconduct. Similarly, employees who are fired for cause, suspended, given warnings or even placed on performance improvement plans should quickly seek legal advice.

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[1] Echlin J.  as cited in Tong v. Home Depot of Canada Inc. (2004), 38 C.C.E.L. (3d) 59 (Ont. S.C.J.) at para. 1.

[2] Wood v. Canadian Marconi Co. (1995), 9 C.C.E.L. (2d) 174 (Ont. Div. Ct.) and Russell v. Molson Breweries (Ontario) Ltd. (1995), 8 C.C.E.L. (2d) 277 (Ont. Gen. Div.).

[3] Mc Kinley v. BC Tel (2001), 9 C.C.E.L. (3d) 167 (S.C.C.) at para. 57.

[4] Leitner v. Wyeth Canada, 2010 CarswellOnt 456 (S.C.J.).

[5] Rhodes v. Zehrmart Limited, [1986] O.J. No. 2631 rev’d [1986] O.J. No. 2631 (Div. Ct.).

[6] Kelly v. Linamar Corp., [2006] O.J. No. 4899 (S.C.J.).

[7] Bagnall v. Calvin Klein Cosmetics (Canada) Ltd. (1994), 5 C.C.E.L. (2d) 261.

[8] Poulos v. Toronto  & Region Conservation For The Living City, 2009 CarswellOnt 8989 (S.C.J.).

[9] Oosterbosch v. FAG Aerospace Inc., 2011 CarswellOnt 1702 (S.C.J.).

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