82008 SCC 54, [2008] 3 S.C.R. 79, 2008 SCC 54 (CanLII) • 298 D.L.R. (4th) 1.
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TeRminATiOn
For our purposes the most important aspect of the law of master/servant relates to the termination of that employment and the notice that must be given, usually by the employer (see Figure 6.4). The employment contract itself sometimes contains terms with respect to the ending of the employment relationship, including duration and how much severance is to be paid if any. Otherwise, under the common law an employer must give the employee reasonable notice of the termination, unless there is just cause, which is discussed below. Most of the litigation with respect to wrongful dismissal involves disputes over the adequacy of the notice to terminate given to the employee. Note at the outset that it is notice, or pay in lieu of notice, that must be given. In appropriate circumstances working notice can be given where the employee must continue to work during that notice period. These disputes may involve other issues, including harassment, human rights abuses, defamation, and even assault, but these arguments almost always arise after termination and are included as part of the litigation associated with that termination and the amount of compensation to be paid.
The Supreme Court of Canada in the Keyes case discussed below stated that notice requirements in employment should be based on the following factors:
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.9
LO 4/LO 5
Employment contract may be for specific period or specify notice
Reasonable notice or pay in lieu of notice required
for violating his implied contractual duty of good faith, which had been overturned on appeal, should be reinstated by the Supreme Court of Canada. Those dam-ages were the direct result of the almost complete col-lapse of the Cranbrook office caused by the mass departure of the employees and the subsequent move-ment of clientele. The Court of Appeal found that these lost profits were too remote and not reasonably foresee-able, but the Supreme Court of Canada reinstated them, finding that had the parties put their minds to it, they
would have realized that this was exactly the type of consequence to be expected from a breach of this nature. Delamont had breached his duty of good faith as a manager of the Cranbrook office to run it to the benefit of his employer and was liable for that breach.
This case emphasizes that an ordinary employee has no duty of good faith nor duty not to compete once they leave, but that a manager has a duty of good faith and the violation of that duty, especially if done while still employed, can have serious consequences.
Common law notice period may be up to 2 years if long employment
Statutory period is less but common law prevails
Contract provision is void if less than statutory period, otherwise it prevails over common law
Figure 6.4 notice of Termination of employment
9Honda Canada Inc. v. Keyes, 2008 SCC 39 (CanLII) (2008), 66 C.C.E.L. (3d) 159. Paragraph 28.
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The longer the service and the more important the job, the longer the notice period must be although the nature or status of the employment becomes less important in the mix. Where long-term employment is involved, the required notice can approach two years although there is no set upper limit. A very rough rule of thumb is one month for every year of employment, but remember that other factors may affect the amount of notice required and there are several cases where courts have required significant notice period, even where relatively short periods of employment were involved. The employ-ment standards acts in place in most Canadian jurisdictions set out a minimum amount of notice that must be given by an employer when terminating an employee. This ranges usu-ally from one week up to a maximum of eight weeks in British Columbia and Ontario, for example, depending on the length of employment. However, those statutes make it clear that if there are higher standards, either in other statutes or at common law, those higher standards will prevail. Note as well that the amount that must be paid in lieu of notice is more than just the actual wages that would have been earned; it also includes benefits such as dental, medical, and disability insurance premiums; pension contributions; and even bonuses when they are normally paid to all employees and are not based on merit.
It would be a mistake for an employer to assume that the higher common law amounts must be offered to all terminated employees. Often the employee will be willing to settle for less, since he or she will get the money right away, avoid the costs of litigation and lawyers’ fees, and will avoid having his or her payout reduced by income from other employment (the obligation to mitigate). Still, if the matter does go to court, it is impor-tant to consider that judgments involving considerable amounts are a potential outcome.
Of course, the best way to deal with termination of an employee, including the amount of compensation or notice to be given, is to specify the entitlement in the employment con-tract. So long as the amount specified is clear and greater than the minimum specified in legislation (the Employment Standards Act), the contractual agreement will prevail. This is the essence of the decision of the Supreme Court of Canada in the Machtinger case, where it was determined that the contractual notice period of two weeks was void, as it was in conflict with the statute, which required four weeks. Then, since the contractual notice period no longer applied, and since the common law notice (reasonable notice) was higher than the statutory minimum, the Supreme Court applied the higher standard, restoring the trial court’s award of 7 months’ notice for Machtinger and 7 1/2 months’ for Lefebvre.10 The case illustrates how important it is to at least exceed the statutory mini-mum in the employment contract. Had that been done that provision would have been applied with considerably less expense to the employer. It is also important to make the parting of an employee as painless as possible, not just to avoid confrontation and poten-tial lawsuits, but because it is the right thing to do. Great care should be taken not to add to the trauma of the terminated employee, but to provide assistance in counselling, upgrading, and in finding alternate employment. Human resources departments today should have specialists in place to assist in this process.
Just Cause An employer is not required to give any notice of termination where there has been just cause on the part of the employee. If the employee has stolen from or otherwise been dishonest with the employer, has acted immorally, or has been convicted of some crime that will interfere with his or her ability to perform the job or otherwise
Good practice to negotiate termination
Notice requirement may be set out in contract but must be more than statutory minimum
10Lefebvre v. HOJ Industries Ltd.; Machtinger v. HOJ Industries Ltd (1992), 91 D.L.R. (4th) 491 (S.C.C.).
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harm the employer, has disobeyed a lawful instruction, or has committed some actionable wrong while on the job, such actions can amount to just cause supporting immediate dis-missal without notice or other compensation. Where an employee lies on a résumé and the employer finds out, that destroys trust and also amounts to just cause. Even a conflict of interest such as taking gifts from clients or suppliers can constitute just cause. Remember that accusations are not enough, and before termination the employer should investigate such claims of wrongful conduct, making sure that the employee is given an opportunity to explain his or her side of the matter. Terminating an employee on unsubstantiated allega-tions can result in expensive litigation and substantial damage payments for wrongful dis-missal. Note also where such wrongful conduct has been ignored in the past without reprimand, there is less likelihood that that a renewed occurrence will constitute just cause.
The employer also has to be careful to make sure the conduct complained of actually does amount to just cause. Not every falsehood, argument, or immoral act will constitute just cause. The wrongful conduct must be egregious, and a single lapse committed by a long-term employee will not generally be enough to amount to just cause. It has been said that termination is akin to “capital punishment in employment law” and such punish-ment must be proportional to the wrong committed. For example, in Asurion Canada Inc.v. Brown and Cormier,11 two employees were found to have received pornographic emails on their computers at work. These had not been solicited by them nor were they distributed to others. Still, the company had a zero tolerance to pornography and termi-nated their employment claiming just cause. Both employees had worked for the company for over eight years and had an unblemished record. The trial court and court of appeal found that this single incident was not enough to constitute just cause.
Employee incompetence can also constitute just cause, but employers often lose the right to dismiss an employee on this ground because of their own past conduct. For example, where they have given annual raises or bonuses to the employee, they have led that employee to believe that the level of performance was adequate. In the process employers lose the ability to claim incompetence. Before such a problem arises, employers should establish a clear policy that when faced with such a problem, the manager will clearly inform the employee of his or her shortcomings with respect to the job and give the employee a chance to improve before proceeding to termination. Hopefully, some form of regular employee evaluation will identify problems before they become too serious. The employee will then be invited to participate in making a plan to overcome that problem or shortcoming, including making concrete attainable goals such as taking courses, sensi-tivity training, and the like. When the employee follows through and overcomes the problem, the business has regained a valuable employee. But when that employee fails to meet the goals after being given the opportunity and help to improve, the employer is on much more solid ground when the employment is terminated.
The same principle applies where a person has committed some less serious form of unacceptable conduct such as minor theft, lying to supervisors, erratic behaviour, and the like. Often the conduct, while serious, may not be enough to constitute just cause and a cautious employer, after carefully determining the exact nature of the inappropriate con-duct, will provide for some program of progressive discipline. Providing a reprimand or other form of discipline and counselling after a first offence, and in the process making sure the employee understands what is and is not acceptable, should be part of such a
No notice required where just cause
Regular evaluations used to establish pattern of incompetence
112013 NBCA 13 (CanLII).
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program. Giving the employee a second chance will often produce a better employee.
With each repeated offence the discipline can become progressively harsher, eventually leading to termination. The repeated offences establish a pattern of wrongful conduct that will support a much stronger case of just cause for termination. Of course, very serious misconduct may support immediate termination.
Historically, illness that prevented an employee from working also constituted just cause for dismissal. Although this is not the fault of the employee, if he or she can no longer do the job, the employment contract has been frustrated. Today, human rights legislation requires that the employer make all reasonable efforts to accommodate a disa-bled employee. If that employee can do some work, the employer should find the indi-vidual a job that he or she can do—even if it is part time—providing it doesn’t place an unreasonable burden on the business. If the disability causing the interruption in the employee’s ability to work is only temporary, this will not support termination of employ-ment. Only where the disability results in a permanent incapacity to return to work will the employment contract be terminated by frustration. Today, long-term disability plans and pensions go a long way to overcome the dilemma posed by sick employees who can no longer work. Lack of work because of a downturn in the economy does not amount to just cause for dismissal. That is not to say that an employer cannot terminate employees when the need arises, but the employer must provide reasonable notice and satisfy other statu-tory requirements. Often such conditions prompt a layoff where the employment is sus-pended until there is more work to do. Note that the employee may be entitled to treat such lay-offs as constructive dismissals, which triggers the above-mentioned employer obligations of notice and severance pay if permitted in the applicable employment stand-ards legislation. Note, however, that in Ontario at least if the temporary layoff is done in accordance with the provisions of the Employment Standards Act, no claim for construc-tive dismissal will be considered.