The following guest blog is provided courtesy of John-Edward C. Hyde. John is a Certified Specialist and a partner in the Labour and Employment Group at Blaney McMurtry LLP, providing legal services to clients in both provincially and federally regulated industries. With a background in Human Resource Management, and possessing both Canadian and U.S. law degrees, John works closely with clients in developing practical and cost-effective legal solutions. He advises management on all aspects of employment and labour law matters, including representation before administrative tribunals, collective agreement negotiation, arbitrations and human rights. John also assists clients in providing strategic legal and human resources advice on labour and employment matters arising out of complex mergers, acquisitions and the sale of businesses.

Overview

Generally, employees stand at top of the list of resources most important to any given company. They can be either the company’s greatest asset, or it’s greatest liability, depending upon how they are treated. Juxtaposed against this, is the personification of the employee’s role in a company and in society. Many of us define ourselves through not only what we do, but what we do for a living. Our work shapes our sense of self, our personal lives and the lives of our families. As the Chief Justice of the Supreme Court of Canada noted in the case of, Reference re: Public Service Employee Relations Act (Alta.), [1987] 1 S.C.R. 313:

“Work is one of the most fundamental aspects in a person’s life, providing the individual with a means of financial support and, as importantly, a contributory role in society. A person’s employment is an essential component of his or her sense of identity, but the manner in which employment can be terminated is equally important.”

Indeed, this philosophy has woven itself into the tapestry of the law of wrongful dismissal in Canada and forms the benchmark upon which employer’s actions in the face of terminations are measured.

The term “wrongful dismissal”, is used in common parlance, throughout the press and is universally recognized across Canada. Very few people however, appreciate what the term actually means. Are all terminations of employment wrongful? Most certainly are not.

A termination of employment can be “wrongful”, usually in one or two ways. Regrettably, however they are not mutually exclusive. First, a termination of employment may be “wrongful”, if there is insufficient notice of the termination or pay in lieu. Secondly, it may be wrongful in the manner in which it is carried out.

In Canada an employee’s employment may be terminated either without notice for just cause, or upon the provision of reasonable notice (without just cause). The root of this assessment goes to back to 1960, and the Ontario High Court decision of Bardal v. Globe & Mail. In that case, Chief Justice McRuer of the Ontario High Court stated as follows:

“There can be no catalogue laid down as to what is reasonable notice in particular classes of cases. The reasonableness of the notice must be decided with reference to each particular case, having regard to the character of the employment, the length of service of the servant, the age of the servant and the availability of similar employment, having regard to the experience, training and qualifications of the servant.”

All Canadian wrongful dismissal cases have in one way or another, looked back to the precedent-setting case of Bardal v. Globe & Mail, for guidance as to the assessment of reasonable notice. As the court has noted, there is no formula, but rather a flexible approach is taken, considering amongst other things:

1. Age;
2. Position;
3. Length of service; and
4. Availability of similar employment.

The Myth of the One Month Per Year Rule (“of Thumb”)

Many employees (and employers) believe that a terminated employee should be entitled to at least one month’s notice or pay in lieu thereof, per previous year of employment. This is simply wrong. Numerous short-term employees receive far greater than one month per year of service and the courts frequently view such assessment as a limitation upon the flexibility of the Bardal approach. In the case of Minnott v. O’Shanter Development Company Ltd. (January 7, 1999, Ont. C.A.), the Ontario Court of Appeal noted as follows:

“The rule of thumb approach suffers from two deficiencies: it risks overemphasizing one of the Bardal factors, “length of service”, at the expense of the others; and it risks undermining the flexibility that is the virtue of the Bardal test. The rule of thumb approach seeks to achieve this flexibility by using the other factors to increase or decrease the period of reasonable notice from the starting point measured by length of service. But to be meaningful at all, this approach must still give unnecessary prominence to length of service. Thus, in my opinion, the rule of thumb approach is not warranted in principle, nor is it supported by authority.”

While the determination of reasonable notice is not an exact science, consideration may be had to the Bardal factors, taking into account similar cases which have helped to guide employment lawyers and subsequent decision makers (the courts), throughout the years. That being said, there are an excess of 100 different “things” a court might consider in determining the appropriate reasonable notice (or pay in lieu) for any employee. These may include anything from whether the employee was recently induced to leave secure employment elsewhere (this is often the case where head-hunters are involved), whether the employee had to relocate to accept new employment or, whether there where negligent misrepresentations made prior to employment, for example, statements as to security of tenure.

In the final analysis, the termination of an employee without just cause can be an expensive undertaking. There are many cases where an executive, employed for merely for two years, has received between a six and twelve month damage award for the failure to provide reasonable notice of termination. Similarly, many long-term employees receive 24 to 26 months notice (or pay in lieu thereof), in response to their terminations.

Damages for wrongful dismissal

Damages for wrongful dismissal can be generally described as the payment to the employee, of all the money and further compensation he or she may have been entitled had he or she been given reasonable notice of termination. This includes base salary, bonus entitlements (unless completely discretionary), commissions where applicable (based upon company and/or employee performance), all perquisites and benefits. Damages for wrongful dismissal can however, exceed these amounts, particularly, as a result of the manner of termination. Accordingly, as noted above, a dismissal may also be “wrongful”, depending upon the manner in which an employee is terminated. Over the years, the law in this area has been in a state of “flux”, however more recently in a case called, Keays v. Honda Canada Inc. [2008] 2 S.C.R. 362, 2008 SCC 39, the Supreme Court of Canada brought some clarity to employer responsibilities in terminations and the failure to meet those obligations.

In Keays v. Honda, Kevin Keays was terminated from his employment by Honda Canada Inc., and subsequently sued for wrongful dismissal. At trial, the judge found that Mr. Keays was entitled to 15 months notice of termination of his employment and then considered additional damages based upon the manner of dismissal (called “Wallace damages”), and increased the notice to 24 months. In this case, Keays was terminated for on-going absences arising out of a diagnosis of chronic fatigue syndrome. Additionally, the trial judge awarded punitive damages against Honda in the amount of the $500,000, plus costs on substantial indemnity scale, with a 25% premium. The Court of Appeal unanimously upheld the finding of wrongful termination, yet ordered the cost premium to be reduced and the quantum of the punitive damages to be reduced from $500,000 to $100,000. Honda appealed to the Supreme Court of Canada. The Supreme Court of Canada allowed the appeal in part, setting aside the Wallace damage award, the punitive damage award and the cost premium. The Supreme Court held as follows:

1. There would not ordinarily be contemplation of psychological damage arising from the dismissal, since at the time of entering into an employment relationship, dismissal is a clear possibility. Thus normal distress and hurt feelings resulting from dismissal are not compensable.
2. Damages resulting from the manner of dismissal will be available if they result from the circumstances where the employer engages in conduct during the course of dismissal, that is “unfair” or is in bad faith by being, for example untruthful, misleading or unduly insensitive.
3. Employers have an obligation of good faith and fair dealing in the manner of dismissal. Employers must be “candidate, reasonable, honest and forthright with their employees, the failure to be so, can lead to foreseeable compensable damages”.
4. In cases were damages are awarded there should be no extension of a notice period but rather through an award that reflects actual damages.
5. With regard to punitive damages, the court stated, “damages for conduct in the manner of dismissal are compensatory and therefore, punitive damages are restricted to wrongful acts that are so malicious and outrageous that they are disserving of punishment on their own.”
6. Punitive damages should, “receive the most careful consideration and the discretion to award them should be the most cautiously exercised”; being awarded only in exceptional cases.
7. In assessing punitive damages, the courts must focus upon the defendant’s misconduct; not the plaintiff’s loss.”

Clearly, the cost of terminating an employee can be significant, and the results exceedingly detrimental (both financially and otherwise), particularly to smaller employers. Seeking legal advice prior to employee terminations (even if you believe “just cause” exists), is these days, an absolute imperative. Similarly, when hiring new employees, irrespective of level, a properly worded employment contract signed before the employee begins work, will save you significant grief and thousands of dollars.