Canada: Employee Notice Period Greater Than Length Of Service!

Like many management side labour lawyers, I often advise employers and their human resources professionals on the appropriate amount of notice or termination/severance pay an employee should receive upon dismissal without cause. I often remark that there is no "rule of thumb" or formulaic approach. Instead, in determining an employee's notice period at common-law, the Courts have listed a number of factors to consider, including an employee's age, length of service, position, compensation and the availability of comparable employment. While the application of these factors provides some guidance (e.g. junior/younger employees are generally entitled to less notice than more tenured/older employees), there are few "notice period truisms" that can be stated with 100% certainty. Well, except for the fact that an employee's notice period at common-law cannot be more than his/her length of service, right?? Wrong‼

In Cao v. SBLR LLP [2012] O.J. No. 3328, a probationary employee employed for only 1 month as a tax accountant was awarded 4 months' pay in lieu of notice of termination. This was despite the fact that:

(a) Under the Employment Standards Act, 2000, the employee was not entitled to any notice of termination given that she had been employed for less than 3 months; and

(b) The Court found that the employee was NOT induced to leave secure employment.

While the case was decided in Small Claims Court, it is still important as it reinforces a few very important principles:

Lower Standard of Just Cause

The Court rightly acknowledges that a lower standard of "just cause" applies to probationary employees.  However, the Court also confirmed that employers have the onus of showing that there exists some reason for the dismissal of the probationary employee and that the decision was reasonable and arrived at in good faith.  In other words, there has to be some objective performance deficiency or evidence of the employee's unsuitability.  In Cao, the Court was not impressed that the employer had not provided any warnings about the employee's alleged poor performance. The Court's conclusion – which a Court could "cut and paste" into a decision on a non-probationary employee – is noteworthy:

On a balance of probabilities I find that the plaintiff was not given a reasonable or fair opportunity to demonstrate her fitness for the position for which she was hired. Had the defendant had any reservations, it should have related these to the plaintiff and had given her an opportunity to improve, as was provided in the appropriate documents of the employer such as the Handbook and the Contract. The employer failed to do this. Calling her into a meeting for the first time only to inform her that she would be terminated and not offering her an opportunity to improve was tantamount to her termination not to have been in good faith.

Employers Must Assert Just Cause at Time of Dismissal

The Court confirmed that an employer must rely on "just cause" at the time of termination in order to rely on it during litigation (unless "after acquired" cause exists – i.e., the employer did not reasonably know of the misconduct at the time of termination). In this case, the employee's termination letter (and Record of Employment) made no reference to "just cause". The Court found this very problematic and further evidence that the employer had not acted in good faith.

Determining Reasonable Notice for Probationary Employees

The Court stated that the same method of determining common-law notice applies to probationary and non-probationary employees. Given that length of service is only one factor in the analysis, this case confirms that even very short service employees (who are not induced to leave a previous employer) may still be entitled to notice periods measuring months, not just weeks!

Employer Take-Aways

This case demonstrates that care needs to be taken, when dealing with probationary employees. Written employment contracts should be entered into with employees specifying the amount of notice required upon termination and that the purpose of the probationary period is for the employer to assess suitability and evaluate performance.

Whether contracts are entered into or not, to minimize risk, employers should ensure management is acting reasonably and in good faith in evaluating probationary employees. If the employee is found unsuitable after being warned during the probationary period, given the lesser standard of "just cause" applicable, it is unlikely that an employee would be successful in challenging the dismissal. Like in Cao, Courts will not be pleased if the employee was blindsided by the decision to terminate.

For unionized employers, a Union may generally challenge the dismissal of a probationary basis on the grounds that the decision was arbitrary or made in bad faith. Clearly setting out performance expectations and meeting with employees prior to dismissal to provide feedback will be favourably received by an Arbitrator hearing a grievance of a probationary employee's dismissal.

Finally, this decision is a very good example of why employers should AVOID small claims court. Remember, that with the jurisdiction of the Court at $25,000, it makes sense for many wrongful dismissal cases to be brought in this forum. From the employee's perspective, there is minimal cost and the process is fairly quick. In fact, to the employee's advantage, the case may get to trial soon after the dismissal. If the employee is not re-employed at that time, the Court may be more inclined to award a lengthy notice period.

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