Originally published in May 2006
Understanding and assessing the possible legal issues raised by a termination of employment is fundamental to human resources management and avoiding costly legal disputes. Through a series of recent judgments of the Supreme Court of Canada, the law has been clarified regarding the standards expected to be met by employers and the consequences of not adhering to the legal standards created.
In the absence of an express contractual term regarding notice for termination of employment, Canadian Courts have held that there is an implied term that an employer will give an employee reasonable notice of termination of employment in an indefinite term contract of employment. This applies to all employees regardless of whether they have a written contract or not. In many cases, this notice will be in excess of the statutory notice requirements. The failure to provide what the common law says is reasonable notice in the circumstances, will result in a claim for damages for breach of that obligation, typically loss of wages and any benefits that would have been provided during the period of reasonable notice.
No notice is required, either by statute or common law, where there is "just cause" for dismissal. Just cause has been defined by the Supreme Court of Canada as follows:
"If an employee has been guilty of serious misconduct, habitual neglect of duty, incompetence, or conduct incompatible with his duties, or prejudicial to the employer’s business, or he has been guilty of willful disobedience to the employer’s orders in a matter of substance, the law recognizes the employer’s right to summarily dismiss the delinquent employee."
However, Canadian Courts have established a very high threshold to be met by employers in establishing just cause. The Supreme Court of Canada in McKinley v. BC Tel held that dismissal for just cause was appropriate in limited circumstances. Mr. Justice Iacobucci stated that the general approach to the determination of just cause is as follows:
"Underlying the approach I propose is the principle of proportionality. An effective balance must be struck between the severity of the employee’s misconduct and the sanction imposed. The importance of the balance is better understood by considering the sense of identity and selfworth individuals frequently derive from their employment… I favour an analytical framework that examines each case on its on own particular facts and circumstances and considers the nature and seriousness of the dishonesty in order to assess whether it is reconcilable with sustaining the employment relationship."
It is necessary to distinguish between the statutory requirement to provide notice and the requirement to provide additional notice depending upon a number of non formulaic factors that are derived from the common law in nine provinces and the Civil Code in the province of Québec. Despite the difference in the legal systems between Québec and the common law provinces, employees may be entitled to notice well in excess of statutory notice requirements in all Canadian provinces. Employment standards legislation in each common law province and the Labour Standards Act in Québec include a formula for payment of an amount of severance where employment is terminated without notice and without just cause. Generally speaking, this legislation, which is different in each province, provides for payment of a maximum amount of eight weeks of wages.
Although there is no Court decision that expressly limits the implied term of notice to two years, there are only a few decisions where Courts have awarded more than two years notice in extraordinary circumstances. The most important factors that are considered by Canadian Courts in determining how much notice is reasonable for a particular employee are age, length of employment, nature of responsibilities and the availability of alternative employment. Other factors, such as whether an employee was induced to leave other employment to take the position, may also influence the determination. These factors were established in various decisions by Canadian Courts.
In recent years, the nature of responsibilities has been less emphasized in the decisions of Canadian Courts. Although an employee with supervisory responsibilities will be typically entitled to a longer notice period than a clerical employee, there has been a narrowing in the difference in awards based upon the nature of the position held. Employees who are 50 years of age or older are typically given longer notice periods on the assumption that it is more difficult for them to secure alternative employment. Local economic factors are relevant in determining the length of the notice period. A recession or negative economic factors in an industry will lengthen the notice period. Not all employees are entitled to notice in excess of statutory requirements. An award of damages is subject to a deduction for amounts earned by an employee in mitigation of their damages.
In Wallace v. United Grain Growers Ltd., the Supreme Court of Canada held that employers have an obligation to be fair and honest with employees at the time of termination of employment. If the employer exhibits bad faith in the manner of termination of employment, an extension of the notice period for as much as an additional six months is appropriate.
In the most serious cases, the Court may also award damages for mental distress and punitive damages arising from the termination. Awards of punitive damages are reserved for the most serious cases of employer misconduct. For instance, such an award may be made where there are false allegations of dishonesty by an employer.
The termination of employment of employees in Canada requires a careful assessment of not only the statutory requirements regarding notice but the obligation to give considerably longer notice in many circumstances. The unique or special circumstances involved in each case are relevant because they may be the basis for additional possible claims against an employer including human rights complaints. Employers need to carefully assess the risk and potential liability resulting from the termination of an employment relationship in light of the recent developments in this area of the law and the high standards expected to be met by employers.
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.