Wrongful dismissal cases generally deal with the amount of compensation owed to an employee when an employer terminates the employment relationship. There are four key areas that must be considered when examining a wrongful dismissal case:
- the terms of the employment agreement;
- the common law principle;
- the Employment Standards Act; and
- dismissal for just cause.
As a general principle an employer may terminate an employee at any time. However an employer is required to provide an employee with reasonable notice prior to the employee’s departure. Reasonable notice is intended to provide the employee with sufficient time to find comparable employment in a reasonable time period. Since employers find that it is often not productive to keep an employee working through the notice period, an employer will often let that employee go and then pay the employee for damages in lieu of notice. Damages in lieu of notice are intended to compensate the employee for all income and direct benefits he/she would have obtained had the employee continued to work throughout the notice period.
The Employment Agreement
The first step when investigating a wrongful dismissal case is to review the terms of the written employment agreement, provided one exists. The employment agreement may determine the notice period that is required to be provided to the employee upon termination. Provided that the language is clear and unequivocal and that it does not offend the minimum standards provided under the Employment Standard Act, RSBC 1996, c.113, the courts will uphold the notice period as an accurate basis to assess the period under which the employee’s income will be calculated.
The employment agreement may also cover other matters dealing with an employee’s rights and obligations upon termination. This may include the use of confidential information, non-competition agreements and non-solicitation clauses.
The Common Law Principle
The law dealing with employers and employees and wrongful dismissal has a long history of development through case authority. If the employment agreement is ambiguous or does not set out the notice period required to be provided upon termination, the court will look at previous cases to determine the appropriate notice period. Again, the guiding principle is to provide the employee with a reasonable period to find comparable employment. Four factors used to determine the reasonable notice period are:
- the character of the employment;
- length of service;
- age of the employee; and
- availability of similar employment.
These factors will be considered differently on a case-by-case basis, and one should always look to case authority to match the circumstances of the employee with previous case law. As a general rule, employment lawyers will apply the ‘rule of thumb’ of one month notice for every year employed. However, this can fluctuate depending on the circumstances. For example if a brain surgeon is terminated, one would expect there are only a handful of comparable employment opportunities in the entire country and so the notice period would increase. If an employee who is terminated were a simple laborer, one would expect they would easily find comparable employment and therefore the one month per year of service would decrease.
Employment Standards Act
The Employment Standards Act sets out the minimum length of notice that is required to be provided to terminate an employee. Any term of an employment agreement that attempts to reduce this notice period is unenforceable. An employee who is terminated has the right to resolve its dispute under the Employment Standards Branch, which is governed by the Employment Standards Act. Once an employee makes this election and commences proceedings with the Employment Standards Branch, he or she is acceding to the jurisdiction of the Branch and will forfeit their rights to claim a higher notice period as is permitted under the common law.
Under the Employment Standards Act, the employer will be required to give the employee notice or pay in lieu of notice when terminating the employee’s employment after three months of employment. The minimum notice period is statutorily mandated under section 63:
(a) one week’s notice after 3 consecutive months of employment;
(b) 2 weeks’ notice after 12 consecutive months of employment; or
(c) 3 weeks’ notice after 3 consecutive years of employment, plus one additional week for each additional year of employment, to a maximum of 8 weeks’ notice.
Notice must be in writing, and will have no effect if it coincides with a period during which the employee is on annual vacation, leave, temporary layoff, strike or lockout or is unavailable for work due to medical reasons. Notice is not necessary if the employee terminates the employment, retires from employment, or is dismissed for just cause.
The employer may also choose to pay the employee in lieu of notice. The minimum payment is also statutorily mandated under section 63:
63 (1) After 3 consecutive months of employment, the employer becomes liable to pay an employee an amount equal to one week’s wages as compensation for length of service.
(2) The employer’s liability for compensation for length of service increases as follows:
(a) after 12 consecutive months of employment, to an amount equal to 2 weeks’ wages;
(b) after 3 consecutive years of employment, to an amount equal to 3 weeks’ wages plus one additional week’s wages for each additional year of employment, to a maximum of 8 weeks’ wages.
The amount the employer is liable to pay becomes payable on termination of the employment and is calculated by totaling all the employee’s weekly wages, at the regular wage, during the last 8 weeks in which the employee worked normal or average hours of work, dividing the total by 8, and multiplying the result by the number of weeks’ wages the employer is liable to pay.
The notice period provisions of the Act do not apply to employees:
(a) employed under an arrangement by which
(i) the employer may request the employee to come to work at any time for a temporary period, and
(ii) the employee has the option of accepting or rejecting one or more of the temporary periods,
(b) employed for a definite term,
(c) employed for specific work to be completed in a period of up to 12 months,
(d) employed under an employment contract that is impossible to perform due to an unforeseeable event or circumstance other than receivership, action under section 427 of the Bank Act (Canada) or a proceeding under an insolvency Act,
(e) employed at one or more construction sites by an employer whose principal business is construction, or
(f) who has been offered and has refused reasonable alternative employment by the employer.
Summary Dismissal for Just Cause
Summary dismissal for just cause occurs when the employer terminates the employment contract without giving the employee due notice or wages in lieu because of the employee’s performance deficiencies. When the employee’s conduct repudiates the employment contract, the employer has the option of accepting the repudiation and bringing the contract to an end. Summary dismissal will be for just cause if, in all the circumstances of the case, the penalty of summary dismissal is “proportional” to the harm done to the employer’s business interests by the employee’s actions.
The contextual proportionality of harm is measured using the doctrine of corrective/progressive discipline, which holds that, save in cases of very serious misconduct or incompetence, dismissal cannot be invoked unless the employee has clearly been made aware of his or her deficiencies through a graduated series of penalties (normally a written warning followed by one or more unpaid suspensions) and has been given a reasonable chance to improve, with support from the employer where appropriate.
Where summary dismissal is for repeated instances of incompetent work performance, the employer must show that:
1. It has established reasonable objective standards of performance;
2. The employee has failed to meet those standards;
3. The employee has had clear warning that he or she has failed to meet those standards and that his or her position with the employer will be in jeopardy if he or she continues to fail to meet those standards;
4. Reasonable time was afforded to correct the situation; and
5. The employer made reasonable efforts to assist the employee to meet those standards.
As mentioned above, summary dismissal can sometimes be justified after an isolated act of willful and deliberate disobedience or serious misconduct or incompetence. Examples of when immediate summary dismissal is justified include theft, insubordination (especially by high echelon employees who are expected to provide a role model to other workers), competition with an employer’s business that results in financial harm to the employer, and sexual harassment. Once this kind of misconduct has been discovered, the employer must terminate the perpetrator’s employment within a reasonable amount of time, or the employer will be held to have condoned the employee’s behaviour.
The “culminating incident” doctrine allows the employer to summarily dismiss an employee on the basis of a combination of an act of misconduct or incompetence plus any prior disciplinary offences in the employee’s personnel file. By itself, the act of misconduct or incompetence might not be sufficiently serious to ground just cause for dismissal, but it operates as a “culminating incident” that brings into the balance the employee’s prior work record, and the combined weight of both does ground just cause for dismissal. Only those prior offences for which the employee was formally disciplined can be taken into account. The employee must be clearly warned that his or her behaviour was unacceptable and would jeopardize his or her job if it was repeated.
An employer cannot summarily dismiss an employee whose work performance, while unimpressive, still meets the minimum acceptable standard in the workplace. There must be gross incompetence in order to ground just cause. Employers must advance objective evidence of substantial harm resulting from an employee’s alleged incompetence. An employer’s subjective perceptions and unsubstantiated assertions of harm, even if genuinely held, will not ground summary dismissal. A single instance of incompetence will rarely ground dismissal unless it is extremely serious in nature. The employer must normally give the worker notice of his or her deficiencies and a reasonable opportunity to improve as part of the “corrective/progressive discipline” doctrine.
As a general rule, employers should only consider terminating for just cause if they have clearly established a record of incompetence and warning, or if the employee’s conduct is clearly repugnant.
Remedies for Wrongful Dismissal
Employees receive various forms of compensation as terms of their employment, which may or may not be compensated in a wrongful dismissal case.
Generally, the employee will recover wages and benefits that would have vested during the period of notice required to terminate the employment contract. Wage increases and performance productivity bonuses that would have fallen due during the notice period are generally compensated if the employee is contractually entitled to them.
Where an employee is paid, in whole or in part, on a commission basis (or some other form of profit sharing) such that the commission forms part of his or her regular remuneration due under the contract, the wrongfully dismissed employee will be compensated for the loss of the opportunity to earn a commission over the notice period. The burden of proving his or her losses is on the plaintiff employee. The employee must establish, on the balance of probabilities, that there exists a “reasonable chance”, or a “real possibility” that he or she would have earned the claimed amount, had he or she not been dismissed. In assessing this probability, the employee’s previous commission earnings over a sample period of his or her prior employment will be taken into account, as will any other relevant factors such as the state of the employee’s health and the actual or anticipated sales performance of the company during the notice period.
An employee will generally be compensated for benefits he or she would have been entitled to during the notice period he or she was deprived of. These include pension and medical benefits. The majority of courts have declined to award vacation pay that would have accrued during the notice period on the basis that the employer would have ordered the employee to take actual time off work, instead of paying him or her vacation pay on top of his or her actual wages, had the employee worked out his or her notice period. Some benefits, such as the use of a company, have been determined to be non-compensable.
Damages for mental distress for breach of an employment contract may be recoverable with respect to the manner of dismissal of an employee. The principle of reasonable foreseeablity applies so that damages will only be recoverable if the mental distress may fairly and reasonably be considered to have arisen either naturally from the breach of contract itself or to have reasonably been in the contemplation of both parties. Compensatory damages for mental distress caused by conduct in dismissal are to be distinguished from the ordinary psychological impact of the dismissal or the normal distress and hurt feelings resulting from dismissal, which are not recoverable. Such damages will only be awarded if the methods used by the employer were unfair or in bad faith. Examples of conduct in dismissal resulting in compensable damages include attacking the employee’s reputation at the time of dismissal, misrepresentation regarding the reason for the decision, or dismissal meant to deprive the employee of a pension benefit or other right. In the context of wrongful dismissal, punitive damages are only awarded in exceptional circumstances where the employer’s conduct is “deserving of punishment because of its shockingly harsh, vindictive, reprehensible and malicious nature”.
A wrongfully dismissed employee cannot recover compensation from the employer for losses that he or she could reasonably have avoided. The burden of proving that an employee has not fulfilled his or her duty to mitigate is on the employer. The employer is required to prove, first, that the employee failed to make reasonable efforts to find replacement work, and second, that the employee likely could have found replacement work had reasonable efforts been made. The duty to mitigate requires the court to deduct from the plaintiff’s loss any actual earnings from other sources during the period of due notice. The plaintiff is entitled to no damages if he or she has successfully avoided all loss. It must be shown, however, that the earnings in question would not have been obtained “but for” the wrongful dismissal. If the worker would have obtained the money in question had he or she not been wrongfully dismissed, it will not be deducted. The employee will not be required to mitigate if he or she has contracted in the employment agreement for a specified amount of severance in the event of termination. Where there is a contractual severance provision written into an employment agreement without an explicit provision to mitigate then the employee is entitled to the specified amount.
Wrongful dismissal cases are very fact specific. Although we as employment lawyers apply general rules of interpretation, one must always look to the circumstances of each case to, for example, interpret the terms of the employment agreement, to consider past case authority to establish the appropriate notice period and to assess the method of compensation for each employee to determine how to calculate their loss.
This paper was written by David Plunkett and Lindsay Williams, former lawyers at Whitelaw Twining.