Employment law

Quantifying notice is an art not a science. The major factors a Court will use to determine appropriate notice are your age, position, years of service and the availability of alternate employment taking into consideration your education and training. However, there can be literally hundreds of other factors that may be relevant in determining notice in any particular case. The Supreme Court of Canada has stated that notice will be determined by the facts of each case. Therefore, it is important that you obtain legal advice to assess notice in your matter taking into consideration all of the factors relevant to your particular case.

Termination can be one of the most traumatic experiences in yourlife. An added stressor in a termination meeting may be a demand by the former employer that you agree to terms of a severance package at the meeting. The easy response is to sign on the dotted line, accept whatever the employer is offering, and move on. However, like most things in life, the easiest option may not always be the best.

Having practised employment law for more than 18 years, I can say without hesitation that the biggest mistake that a terminated employee can make is to sign the initial offer either because it is easy, or there is pressure placed on them by the employer to do so. The best advice I can give is to seek legal advice on the offer before you sign. If the offer is reasonable, it will likely be there after you have obtained advice. The more pressure that is put on you by the employer to sign, the greater is the likelihood that the offer is unreasonable. It is understood that seeing a lawyer is as much fun as going to see a dentist. However, in both cases they are necessary.

Many people assume that any severance package received is reasonable, and that their employer would never try to take advantage of them. This ignores the fact that the employer is running a business and it makes business sense to pay less rather than more. Using that basic principle, it is rare that the opening offer will be its best offer. There is however a certain level that an employer cannot go below. These payments are referred to as statutory termination and severance pay pursuant to the Employment Standards Act. Termination pay is equal to one week per year of service up to a maximum of eight weeks, and severance pay is the equivalent of one week per year of service (or part thereof) up to 26 weeks. Severance pay under the Act is only paid if the payroll of the employer exceeds $2.5 million and the employee has more than five years of service.

An employer cannot offer less than minimum statutory payments or base payments. But what if the employer adds a few weeks to the ‘base’ payment? To the layman, it may appear that the employer is being generous, when in fact it is not. To use an example, take a five-year employee who is entitled to severance and termination pay in the equivalent of 18 weeks. In that situation, the employee is entitled to 18 weeks pay at an absolute minimum and without signing a release. If the employer seeks a release of common law entitlements in exchange for 20 weeks, the employee would receive only two weeks over Employment Standards minimum payments and in exchange for giving up rights to common law damages which could represent 12 months pay or more. Common law entitlements to notice are based on several factors including the person’s age, position, years of service, and the availability of alternate employment taking into consideration the employee’s education and training. Unlike statutory notice, common law notice is not fixed but is based on what a Court believes is reasonable in the circumstances. In monetary terms, an employee could be leaving tens of thousands of dollars on the table.

It should be understood that Employment Standards minimum payments are payable without an employee having to sign any release whatsoever. In other words, the employer would be obligated, in the above example, to pay 18 weeks pay and the employee would retain the right to bring a civil claim.

It is therefore extremely important that an employee understand what minimum (base) payments they are entitled to. The closer the offer is to the base, the worse the offer. The quantification of common law damages is in most cases significantly greater than base payments and which can only be assessed by a qualified lawyer.

An employer who dismisses an employee without cause is obliged to provide notice of termination or pay in lieu thereof. Minimum notice periods/payments for provincially regulated employers are set out in Ontario’s Employment Standards Act (the ‘Act’). For federally-regulated employers, statutory obligations upon termination are set out in the Canada Labour Code. In addition to notice, employees with five years or more of service and who are either part of a mass termination or were employed by an employer with a payroll of $2.5 million or more, will be entitled to severance pay.

These payments are mandated by statute and must be made within seven days of termination or by the employee’s next pay date. These payments however, do not exhaust the rights of a dismissed employee under the common law or by operation of other statutes such as the Ontario Human Rights Code. Further remedies however, may and often do require the commencement of a civil or court action for wrongful dismissal or a complaint to the Ontario Human Rights Commission if discrimination is at issue.

At termination, the employer may offer the employee a ‘termination package’. The termination package, usually described in the letter of termination, sets out the payments, benefits or other offers such as a letter of reference the employer is prepared to provide upon termination. Termination packages are often made conditional upon the signing of a Release by the employee. The Release is a contract which spells out the payments and any other consideration to be provided by the employer in exchange for a release by the employee of any further legal claims he may have against the employer with respect to his employment and/or termination of employment. Put simply, if an employee signs the Release, he is accepting the employer’s offer in full and final satisfaction of any claims he may have and will therefore not be able to pursue any further legal action against the employer.

The Release typically contains the type of jargon familiar to lawyers but not to most employees confronted with the document. Given what is a stake, employees are always advised to refrain from signing a Release until they have obtained legal advice. The value of the offer is dependent upon a whole host of factors such the damages for wrongful dismissal the employee can obtain as well as the other remedies he can pursue. Few employees have the legal expertise to make a proper assessment on their own of the offer contained in a Release. Pressure to sign on the spot should immediately raise suspicions that the employer is seeking to have the employee agree to an unequal bargain and should be resisted at all costs.

No action is required by an employee and specifically, no forms must be signed in order to obtain employment standards notice or severance payments from an employer. An employer therefore has no right to a Release in exchange for employment standards payments. Unfortunately, this will not stop some employers from making such payments conditional upon a Release in order to avoid or at least discourage legal action on the part of a terminated employee. There is therefore no benefit to an employee in signing a Release under these circumstances as the employer is obliged to make payment of employment standards entitlements even if the employee refuses to sign.

(While the following discussion of termination packages applies to all terminated employees, employment standards referred to in the article are those set out in the Act.)

If terminated for cause and without any payment whatsoever, it is a natural instinct to contact the Ministry of Labour. The Ministry of Labour will be able to provide information as to the statutory severance and termination payments owing if appropriate cause cannot be proven. However, there are several reasons why filing a claim with the Ministry of Labour could prove to be a disaster.

WHAT YOU SEE IS NOT WHAT YOU GET

Assume that during the initial communication with the Ministry of Labour one is advised that they are entitled to 20 weeks severance/termination pay commensurate with a 12-year employee in a company with a payroll in excess of $2.5 million. Assuming an annual salary of $52,000.00, this payment represents $20,000.00. Common sense would dictate that if you bring a claim with Employment Standards and there is found to be no validity to the employer’s allegations of cause, that one would be entitled to payment of $20,000.00. This assumption is wrong. The Employment Standards Act contains a provision which limits the amount of any Order for wages (which term includes severance and termination pay) to $10,000.00. Therefore, unless the employer voluntarily pays severance/termination, the Labour Board only has authority to Order it to pay up to $10,000.00.

ADDING INSULT TO INJURY

To make matters worse, if an employee files a claim with Employment Standards for severance or termination pay, there is also a provision of the Act which would then preclude the employee from bringing a civil action for wrongful dismissal. Given that wrongful dismissal damages are almost always significantly greater than Employment Standards minimums (base payments), one can see the significant prejudice in filing an Employment Standards claim. Not only would the employee be limited to $10,000.00, but the employee would also be giving up a right to common law damages which can be tens of thousands dollars more than base damages.

It appears that the Employment Standards Act gives with one hand and takes away with the other. In fact, the Employment Standards Act as is presently formulated, is designed to deter individuals from filing claims for severance or termination and directs them to the civil courts. If one pursues a claim with Employment Standards, that person must understand that they are limiting their claim for wages to $10,000.00 and are giving up any claim for wrongful dismissal damages. For these reasons, few people in fact file Employment Standards claim for severance and termination. When an employee does file such a claim, they may in fact be helping the employer by limiting their liability to $10,000.00 from what would otherwise have been a significantly greater sum.

With that in mind, one should understand that filing an Employment Standards claim should only be made in very limited circumstances. It is important in all cases to seek legal advice before any action is taken.

Guiding Principle of Underlying Employment Law

The fundamental principle underlying an award of damages for wrongful dismissal is that the employee should be put in the same economic position the employee would have been in had he worked to the end of the reasonable notice period.

Effect of Group Life Insurance

A terminated employee may also be entitled to convert group life insurance to a private plan without having to undergo the medical examination which is often required for private coverage. The conversion privilege is a time-limited opportunity available to the terminated employee. The employer has an obligation to advise the employee of this opportunity at the time of termination.

The Courts must determine whether the conduct in question constitutes a “fundamental breach or repudiation” of the employment contract. Whether a change amounts to a fundamental breach will depend upon the extent and nature of the changes in question, the surrounding circumstances, and an assessment of the above, not from the perspective of the “injured” employee, but from that of a “reasonable” employee.

Where changes introduced by the employer to an employee’s working conditions would permit the employee to terminate the employment relationship by quitting his job and then treating himself/herself as having been wrongfully or constructively dismissed. This will almost certainly be the case where the changes involve substantial reductions to an employee’s responsibilities, authority and/or remuneration. Such changes may involve reduction in salary or hourly wage or pay freezes, reduction in working hours, loss of existing additional remuneration such as bonuses or commissions or benefits, reduced responsibilities such as loss of management or supervisory functions, more onerous duties, reduced advancement opportunities, and forced retirements where no mandatory retirement policy was in place at the time of hire.

With respect to the former situation, the Court in Saunders v. Chateau Des Charmes, found that the plaintiff had been constructively dismissed where he was exposed to hostile, aggressive, profane, rude, demeaning and intimidating behaviour from his supervisor. Over time, the supervisor’s conduct escalated and the plaintiff suffered additional verbal attacks. While the Court recognized that the plaintiff may not have been performing as expected, managers are not permitted to discipline employees in the manner the plaintiff had experienced. On these grounds, the plaintiff was found to have been constructively dismissed.

The conduct of a co-worker may also result in a constructive dismissal. In Stamos v. Annuity Research and Marketing Service Ltd., the employer’s failure to intervene where the plaintiff had been subjected by a co-worker to verbal harassment, unjustifiable attacks on her performance, unreasonable demands, sexist and bigoted language, and hostility towards her as a woman, led to a finding of constructive dismissal.

Although an employment contract can be oral it is recommended that a written employment contract be used to set out the terms and conditions of an employee’s employment in order to minimize the possibility of future “he said, she said” disputes between the parties over key terms of employment.

A court will imply terms into the employment contract if the employment contract is silent regarding those terms. For example, if the employment contract does not contain a termination clause the court will find that there is an implied term in the employment contract that the contract may only be terminated by the employer without cause by providing the employee with reasonable notice of notice of dismissal.

A significant percentage of employment contracts in Ontario contain clauses that will not be enforced by a court. It is a mistake to assume that just because an employment contract sets out an employer’s entitlement or an employee’s obligation that a court will enforce the term of the contract. The employee may enjoy a much greater entitlement than that set out in the contract.

If the language in an employment contract is open to several interpretations the court will interpret the employment contract in the way most favourable to the employee

Employment contracts containing termination clauses should be reviewed by an experienced employment lawyer. Many termination clauses will not be enforced. An employment lawyer who understands the relevant legislation and who is up to date with the latest decisions of the court can usually quickly determine whether the clause will be enforced.

Termination of employment in Ontario can occur in two different ways: (i) termination without cause; or (ii) termination for cause. An employee who has been terminated without cause is presumed to be entitled to reasonable notice of dismissal or pay in lieu of notice of dismissal (a.k.a. a severance package). In contrast, an employee who has been terminated for cause because of a serious act of misconduct is not entitled to notice of dismissal or a severance package.

The majority of terminations of employment in Ontario are without cause. The employer does not need a good reason to end the employment relationship and, therefore, is not required to prove that the employee did something wrong in order to justify its decision to dismiss the employee. Instead, the employer simply exercises its right to end the employment relationship by providing the employee with reasonable notice of dismissal.

An employer who terminates an employee without cause is required to ‘make the employee whole‘ during the period of reasonable notice. In other words, the severance package should be designed to ensure that throughout the employee’s notice period the employee will continue to receive all the compensation and benefits that he or she would have enjoyed if still actively employed with the employer.

If the employee’s employment contract contains an enforceable termination clause the termination clause will rebut the presumption that the employee is entitled to reasonable notice of dismissal and the employee will only be entitled to the notice or payments specified by the termination clause. Significantly, approximately 30% of termination clauses in Ontario employment contracts have not been properly drafted and will not be enforced by a court because they breach the minimum standards of the (“ESA”). If the termination clause is void the dismissed employee will be entitled to reasonable notice of dismissal.

It is not unusual for a severance package offered by an employer to be less than the employee’s legal entitlements. If this is the case the former employee has the right to commence a wrongful dismissal action and ask the court to order the employer to pay damages for failing to provide proper notice. Dismissed employees should have their severance package reviewed by a lawyer whose legal practice is focused on employment law to ensure that the severance package offered is fair.

Calculating the Reasonable Notice Period

An employee’s entitlement to reasonable notice of termination of employment should not be confused with the employee’s entitlements to notice and severance set out in the Ontario Employment Standards Act (“ESA”). The ESA in enforced by the Ministry of Labour and only provides the employee with the minimum notice and severance payments allowed by the law. The right to reasonable notice will, in most cases, entitle the employee to a much larger severance package than that provided by the ESA.

Determining a reasonable notice period for a dismissed employee is more of an art than a science. It involves conducting an individualized assessment of dismissed employee’s circumstances. A court will consider the following factors when determining the notice period to which a dismissed employee is entitled:

A longer notice period may be awarded if:

Being terminated for cause has been described as the capital punishment crime of employment law. Sometimes referred to as termination for just cause, the employee is not provided with notice of dismissal or a severance package. The dismissed employee may also be ineligible to collect employment insurance benefits and is likely to find it more difficult to find new employment. Being terminated for cause is often a humiliating experience that may result in the dismissed employee suffering from depression and other forms of mental distress. Nevertheless, it is an appropriate response by the employer if the employee has engaged in serious acts of wrongdoing and has not responded appropriately to attempts at progressive discipline.

In practice, an employer has a high hurdle to get over to successfully establish that it had cause to dismiss an employee. A court will only find that an employer had cause to dismiss an employee if the employer is able to prove that the act(s) or omission(s) of the employee are so significant that the effect was that the employee’s misconduct or incompetence repudiated the contract of employment. The employee’s misconduct must be incompatible with the employee’s duties or prejudicial to the employer’s interests. The employer must prove that not only the alleged misconduct took place but also that the misconduct was sufficiently serious to disrupt the employment relationship to the point where it can no longer continue.

A wrongful dismissal occurs when an employer either: (i) terminates an employee without cause but fails to provide the employee with sufficient notice of dismissal; or (ii) terminates an employee for cause without providing any notice of dismissal in circumstances when the employer did not have just cause to dismiss the employee.

A wrongful dismissal is a breach of contract.

It is called a “wrongful dismissal action” when an employee commences litigation against his or her former employer seeking monetary damages because the employer failed to provide the employee with proper notice of dismissal. This includes situations where the employee has been constructively dismissed.

The term “wrongful dismissal” is often misunderstood. It does not mean that the employer’s decision to dismiss the employee was improper or unlawful. Both the employee and employer have the right to terminate the employment relationship for any lawful reason as long as the other is provided with sufficient notice. All that needs to be reasonable is the length of the notice.

A constructive dismissal is defined as follows: if an employer makes a substantial change to the terms of an employee’s employment without the employee’s consent or demonstrates an intention to not longer be bound by the terms of the employment contract the employee has the option of treating his or her employment as having been terminated. The departure of the employee will not be considered to be a resignation but, instead, will be a termination of employment.

An employer found to have constructively dismissed an employee will be required to provide the employee with a severance package.

To be considered a constructive dismissal the change(s) to the terms of employment must go to the very heart of the employment contract. Minor changes will not trigger a constructive dismissal. Indeed, an employer has the right to make reasonable changes to an employee’s job duties and responsibilities in order to properly manage its business and adapt to changing market conditions.

Significantly, an employee who is not able to prove that he or she was constructively dismissed will be found to have resigned from his or her employment. Having resigned, the employee will not be entitled to a severance package. Given the risk involved an employee should not quit and claim constructive dismissal without first seeking legal advice from an experienced employment lawyer.

The duty to mitigate requires a plaintiff who has suffered a loss as a result of a defendant’s breach of contract to take reasonable steps to lessen or alleviate that loss. In the employment context this means that an employee who has suffered a termination of employment has a legal obligation to take reasonable steps to attempt to find new employment. A court will reduce any monetary award made to the former employee by the amount of employment income the employee earned from other sources during the reasonable notice period.

Termination of employment can be emotionally devastating. However, a dismissed employee is not entitled to receive moral damages for mental distress that he or she may suffer as a result of the dismissal. This is because at the time the employee accepted the offer of employment both parties understood that the other party had the right to terminate the employment relationship at any point in the future, subject to the obligation to provide notice of the termination.

However, if the manner by which the employer dismissed the employee was in bad faith causing the dismissed employee to suffer from mental distress, the employee may be entitled to an award of damages for bad faith dismissal. The award would be in addition to the employee’s entitlement to wrongful dismissal damages.