Canada: Key Issues in Canadian Employment Law

Last Updated: September 21 2005
Article by Malcolm MacKillop and Christina Hall

Originally published in July 2005

American businesses continue to expand north of the border, with the result that many American companies now have employees working in Canada. While the strong political, economic and cultural ties that bind Canada and the United States permit American companies to draw on their domestic business strategy when operating in Canada, the same cannot necessarily be said about American legal strategy. This is particularly true in the area of employment law. Many American companies are surprised to learn of the statutory and common law protections that are afforded to employees under the Canadian legal system.

This article serves to summarize two important cases decided by the Supreme Court of Canada in recent years that have dramatically affected Canadian employment law. These decisions will be of interest to American companies operating in Canada as they continue to manage their employment relationships north of the border.

Employee Misconduct

It has been well established in Canadian law that an employer is entitled to summarily dismiss an employee if the employer has just cause to do so. Traditionally, a single incident of serious misconduct was often sufficient to justify terminating an employee without cause. However, over the last two decades courts have moved away from this principle and have sought an approach that recognizes and corrects the power balance that exists between employers and their employees. The 2001 decision of the Supreme Court of Canada in McKinley v. BC Tel 1 represents one of the most recent, and perhaps the most dramatic, manifestations of this policy.

In this case, Martin McKinley had taken a leave of absence from work due to heart problems after 16 years of service. He expressed an interest in returning to a less stressful position, but BC Tel never offered him alternative employment. Instead, BC Tel eventually terminated him and Mr. McKinley sued for wrongful dismissal. Initially, BC Tel resisted Mr. McKinley's claim by saying that it had offered him a reasonable compensation package and that it had used its best efforts to locate an alternative position for him. However, once the trial began, BC Tel discovered a letter from Mr. McKinley’s physician, which stated that he could have returned to his former position at BC Tel if he had taken a certain medication. BC Tel then took the position that Mr. McKinley had lied about his medical condition and the treatments available for it. It alleged that this dishonesty was sufficient for just cause for termination. Mr. McKinley denied the allegations of dishonesty. Thus, the issue before the Supreme Court of Canada was whether the alleged dishonesty was of a degree that undermined the employment relationship.

The Supreme Court of Canada reviewed two historic lines of cases in Canada: one which held that the circumstances of dishonesty must be considered in order to determine whether cause existed, and another which seemed to indicate that any degree of dishonesty constituted cause for dismissal. Ultimately, the court found the first line of cases to be more persuasive. It concluded that the proper approach was to recognize that only some forms of dishonesty would justify dismissal without notice. It held that the specific form of dishonesty had to be considered in each case: "specifically, the test is whether the employee’s dishonesty gave rise to a breakdown in the employment relationship"2. This has since been referred to in Canada as the ‘contextual approach’.

The contextual approach involves a two-step process. The first step is a determination of whether the evidence establishes the employee’s dishonest conduct on a balance of probabilities. If so, the second step is a determination of whether the nature and degree of the dishonesty warrants summary dismissal. This second step involves evaluating the surrounding circumstances of the misconduct, its level of seriousness, and the extent to which it detrimentally affected the employment relationship.

The impact of McKinley on wrongful dismissal jurisprudence in Canada cannot be underestimated. Not only has it changed the way that courts deal with employees accused of dishonesty, the contextual approach it created has now been applied to virtually all other forms of employee misconduct; including insolence, insubordination, poor performance and even sexual harassment.

Bad Faith Dismissal

There is no actionable tort for bad faith dismissal in Canada. However, in the 1997 case of Wallace v. United Grain Growers Limited, 3the Supreme Court of Canada recognized a remedy for employees who were dismissed in bad faith by introducing a new doctrine - that of the ‘bad faith discharge’.

In this case, Jack Wallace left a secure job of 25 years with one of United Grain Grower’s ("UGG") competitors, based on assurances by UGG that he would work with the company until his retirement, as long as he performed as expected. Mr. Wallace did indeed perform well, and he was consistently the top salesperson at UGG. However, 14 years later, when Mr. Wallace was in his late 50s, he was summarily discharged by UGG without explanation. When Mr. Wallace retained counsel, UGG alleged that it had cause to terminate him and it maintained that allegation until the eve of trial. This allegation made it very difficult for Mr. Wallace to secure alternate employment. He declared bankruptcy and suffered from depression.

The Supreme Court of Canada ultimately held that employers ought to be held to an obligation of good faith and fair dealing in the manner of dismissal so as not to exacerbate the negative effects of termination. On behalf of the majority of the court, Justice Iacobucci stated that:

The obligation of good faith and fair dealing is incapable of precise definition. However, at a minimum, I believe that in the course of dismissal, employers ought to be candid, reasonable, honest and forthright with their employees and should refrain from engaging in conduct that is unfair or is in bad faith by being, for example, untruthful, misleading or unduly insensitive.4

The court went on to state that an employer who engaged in bad faith conduct or unfair dealing in the course of terminating an employee would be subject to an increased notice period. However, the court did not set any specific parameters on such an increased notice period. Rather, it commented that it would be for the trial judge to examine in each case, the nature of the bad faith conduct and its impact in the individual circumstances. In the case of Mr. Wallace, the Supreme Court of Canada restored the trial judge's initial decision and awarded 24 months’ notice to Mr. Wallace.

Since the Wallace case, these increased notice awards have become known as ‘Wallace damages'. Courts have subsequently elaborated upon the context of the obligation of good faith and applied it to various types of employer behaviour. For example, courts have considered how this obligation relates to an employer's actions during a termination interview, when drafting a termination letter, and when structuring a settlement offer. Examples of conduct that has attracted Wallace damages includes: conveying notice of termination in a fashion designed to humiliate or punish the employee, dismissing a disabled employee without attempting to accommodate his or her disability, refusing to provide information or documentation necessary for the employee to apply for employment insurance benefits, and lying to the employee about the reasons for dismissal and/or deliberately sullying his or her reputation in the business community.

Another important aspect of Wallace damages is that courts have suggested there is no obligation to mitigate these damages - unlike damages arising from an employer's failure to provide an employee with reasonable notice. As a result, most plaintiff's counsel seek Wallace damages in every case.

As the law in this area continues to evolve, some trial judges have demonstrated their willingness to place more emphasis on the obligation of fair dealing than previously. However, for the most part, Wallace damages have not been awarded in the absence of bad faith or malice on the part of the employer.


1. [2001] 2 S.C.R. 161, (2001) 200 D.L.R. (4th) 385.

2. Ibid., at para. 48.

3. [1997] 3 S.C.R. 701, (1997) 152 D.L.R. (4th) 1.

4. Ibid., at para. 98

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
23 Oct 2018, Other, Toronto, Canada

Dentons and SheEO are coming together for an evening of #radicalgenerosity on October 23, 2017. Meet Vicki Saunders, Founder of SheEO, and learn about how SheEO is changing the landscape for female entrepreneurs.

23 Oct 2018, Seminar, Montreal, Canada

Dentons is pleased to invite you to join us for a breakfast seminar as part of the Les Matinées Dentons series on issues relevant to you and your business.

24 Oct 2018, Other, Toronto, Canada

If you build it, claims may come. Join the Dentons Construction group for breakfast and an informative discussion on current topics in construction law.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions