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Posts tagged: wrongful dismissal

Wrongful Dismissal Update: Recent Case Law Increases Legal Uncertainty

By , January 8, 2019 10:04 am

Recently, it has become increasingly difficult for employment lawyers to assess an employer’s potential legal liability in connection with an employee termination. The law is pretty straightforward but predicting how a judge will apply the law to a specific termination is riddled with legal uncertainty.

A recent case involving a 54-year-old senior executive who earned about $275 000 a year who was terminated for just cause after 11 years service is a good case in point.

The Issues

The judge in this case decided three main issues; namely: (i) did Keddco Mfg. have just cause to terminate Scott Ruston’s employment; (ii) if not, how much notice of termination should he have received; and (iii) was Mr. Ruston entitled to any punitive damages or aggravated damages because of the way Keddco treated him?

The Law

When deciding whether an employer has just cause to terminate an employee and avoid paying termination pay, a trial judge is required to apply the test set out by the Supreme Court of Canada (the “SCC”) in a well-known 2001 case, as interpreted by the Ontario Court of Appeal in another well-known 2004 case.

If an employer cannot prove just cause, then the employee is entitled to receive reasonable notice of termination (or pay in lieu of this notice) unless the employee signed an employment contract with an enforceable termination clause. The test a judge applies to determine the appropriate reasonable notice period is set out in a 1960 court case.

Since the SCC clarified the law in 2008, trial judges have had jurisdiction to award employees punitive and aggravated damages.

The Decision

  1. Just cause: It is generally very difficult for an employer to prove just cause – especially for a long service employee with no prior discipline like Mr. Ruston. Alleging just cause and then leading very little, if any, evidence at trial really annoys judges. I believe unsubstantiated allegations of just cause results in longer reasonable notice periods, aggravated damages in some cases, and a higher cost award against the employer.
  2. Reasonable notice: Although the Ontario Court of Appeal has specifically directed trial judges not to apply the “one month notice per year of service” rule of thumb when determining the reasonable notice period, this rule of thumb has been a good place to start for employees like Mr. Ruston until the last couple of years. In this case, after an 11-day trial the judge concluded Keddco should have provided an 11-year employee with 19 months’ notice of termination or about 1.7 months per year of service.
  3. Punitive damages & aggravated damages: When the SCC issued its 2008 decision on punitive damages and aggravated damages, most employment lawyers believed it closed the door on these types of damages except in extraordinary cases. Now, however, there is much uncertainty as to whether a particular set of facts will attract punitive and/or aggravated damages. In this case, the judge awarded the employee $100 000 in punitive damages for a number of reasons including the fact that Keddco intimidated Mr. Ruston in the termination meeting,  threatened to sue Mr. Ruston for fraud, and led no evidence at trial to substantiate the fraud allegations. Keddco was also ordered to pay $25 000 in moral damages because, among other things, the employer failed to be candid in the termination interview as far as the reasons for his termination were concerned, made unsubstantiated allegations of fraud, and knew the fraud allegations would be very stressful for Mr. Ruston.

To my knowledge, this case has not been appealed.

Lessons to be Learned:

  1. Every employee should be required to sign an employment contract with a legally enforceable termination clause. In this case, the notice period could have been limited to 8 weeks in a contract, decreasing legal uncertainty. Mr. Ruston’s bonus accounted for about 41% of his total annual compensation. The termination clause can also restrict (or eliminate) the amount of bonus an employee is entitled to receive during the notice period, decreasing uncertainty. This kind of clause could have saved Keddco hundreds of thousands of dollars.
  2. An employer should not allege just cause unless it plans to lead credible evidence to substantiate the allegations. If just cause had not been alleged in this case, then the wrongful dismissal damages could probably have been decided by way of a summary judgment; not an 11 day trial. My guess is that if the parties cannot agree on legal costs, Keddco will be ordered to pay Mr. Ruston at least $100 000 in legal costs – although the cost order could be much larger.

  3. An employer should act in good faith when terminating a person’s employment. This should eliminate legal uncertainty and risk that a judge will order the employer to pay any punitive and/or aggravated damages, which totalled $125 000 in this case.  

For almost 30 years, Doug MacLeod of the MacLeod Law Firm has been advising employers on all aspects of the employment relationship. If you have any questions, you can contact him directly at 416-317-9894 or at [email protected]

The material and information in this blog and this website are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this blog or its links. No person should act or refrain from acting in reliance on any information found on this website or blog. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.

Doug’s Top 10 Employment Law Stories of 2018

By , December 27, 2018 9:36 am

In 2018 there were many new developments in the employment law world.

Here are my top 10 stories of the year:

1. Bill 148 Bit the Dust

Ontario’s Employment Standards Act received its last major update in 2000. During the last three years, the Liberal provincial government consulted widely and introduced comprehensive changes to this law by way of Bill 148. After this year’s spring election, the PC government reversed almost all of these changes. See here and here for blogs on the to and froing on changes to Ontario’s minimum employment standards law.

Bottom line: the time that employers, human resources consultants, and employment lawyers spent on this process was all for nought and a law that needed updating has not really changed.

2. The Ontario Government is Now Selling Recreational Cannabis

In October 2018, Canada became the second country in the world to legalize the sale of cannabis. When edibles start being sold by the Ontario government in 2019, it will be difficult to detect cannabis use or impairment in the workplace. As a result, we recommend that all employers introduce or update its substance abuse policy and we can draft one for you. Here and here are links to blogs on this issue.

3. #MeToo is Alive and Well

In 2018, several senior executives in a number of industries were fired for sexual harassment. The public and employers are keenly aware of this issue. So are employees and as a result the number of complaints have increased. Employees in Ontario can file a complaint at work or file an application with the Human Rights Tribunal of Ontario. See here and here for some of our blogs on this issue.

We recommend that every employer introduce a no-discrimination policy and we can draft one for you.

4. The Number of Workplace Harassment Complaints Has Skyrocketed

In the fall of 2016, Ontario’s health & safety law was amended to require Ontario employers to investigate any incident or complaint of workplace harassment and the investigator must be trained on how to investigate. Since that time, we have seen a significant increase in the number of complaints. Here is a link to a blog on this issue.

In 2018, the number of external, professional workplace investigators mushroomed and most are currently working at full capacity. We recommend that every employer make sure that one employee is trained on how to conduct a workplace investigation. We are offering a one day training session on February 14, 2019. For more information, contact Judy Lam at 647-204-8107.

5. The Uncertainty Around the Enforcement of Termination Clauses Continues

This story has been in my top 10 list for 3 years. Many wrongful dismissal cases involve a dispute as to whether or not the termination clause in the employee’s employment contract is enforceable. Despite numerous court cases on this issue (including several cases from the Ontario Court of Appeal) it is still difficult to predict whether a judge will enforce a termination clause in an employment contract. See here, here, and here for some of our blogs on this issue.

I sincerely hope our Court of Appeal will provide some clear guidance in this area in 2019. In the meantime, we can draft legally enforceable termination clauses for you.

6. Limiting Group Benefits for Seniors has Been Found to be Unconstitutional

There are provisions in Ontario’s human rights and employment standards legislation which permit employers to discriminate against employees who are 65 years old when it comes to providing coverage for some group benefits. Here is a link to a case which stated that these laws are unconstitutional.

We therefore suggest that you talk to your benefit provider to find out whether senior citizen employees are excluded from any of your group benefits.

7. Wrongful Dismissal Damages are Increasing for Older Workers

Since 1960, judges have been directed to take an employee’s age into account when determining the appropriate reasonable notice period. In 2006, mandatory retirement was eliminated in Ontario. Recently, a number of judges have suggested or implied that notice periods should be extended for employees over 60 years old and that these employees are not really expected to find alternative employment. Here is a blog on this issue.

8. Are Executives Entitled to Variable Compensation During the Applicable Notice Period?

Variable compensation makes up the majority of many senior executives’ compensation.  One issue that often arises when an executive is terminated is whether or not the employee is entitled to pay in lieu of this variable compensation during the applicable notice period. The employer says no because the employee has not done anything to achieve the results needed to trigger this compensation. However, Courts are not sympathetic to this kind of argument. See here, here, and here for cases where the employer’s argument was rejected by a judge.

The good news is that it is possible to draft contractual language that precludes an executive from receiving any variable compensation after his or her last day of active employment. Please contact me if you want to discuss how this can be accomplished.

9. Secretly Recording Conversations at the Workplace

Michael Cohen secretly taped Donald Trump and more and more employees are taping conversations in the workplace. In this age of social media and the use of a cell phone as a person’s appendage, I think this trend will continue. Depending on your perspective, doing so undermines the trust needed between employees and employers or is evidence that such trust does not exist. Managing this possible scenario is tricky. Here is a blog on this topic.

10. The Number of Employment Standards Act Audits is Increasing

In 2017, the Liberal government announced it was hiring 175 Employment Standards officers who would randomly visit 1 in 10 Ontario workplaces each year to make sure the employer is complying with the Employment Standards Act. As a result of the PC government’s hiring freeze not all of these people have been hired, however, these audits have begun on a more limited scale. A number of our clients have been randomly selected for an audit. If you receive notification that your organization has been selected for an audit we can help you prepare for the audit.

Fun Fact: In 2018 the MacLeod Law Firm was nominated as one of Canada’s top employment and labour law boutiques by the Canadian Lawyer Magazine and by the Canadian HR Awards.

For almost 30 years, Doug MacLeod of the MacLeod Law Firm has been advising employers on all aspects of the employment relationship. If you have any questions, you can contact him directly at 416-317-9894 or at [email protected]

The material and information in this blog and this website are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this blog or its links. No person should act or refrain from acting in reliance on any information found on this website or blog. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.

The Benefits of Failsafe Provisions

By , July 17, 2018 8:53 pm

The Ontario Court of Appeal recently released a decision on the enforceability of termination clauses in employment agreements that contain failsafe provisions.

Background

A “failsafe provision” is a portion of a termination clause that provides that, regardless of what the termination clause provides, an employee who is terminated on a without cause basis will always receive at least the minimum notice of termination, benefit continuation and severance pay the employee is entitled to receive under employment standards legislation.

Amberber v IBM Canada Ltd.

Mr. Amberber’s employment contract contained a termination clause that entitled him to notice of termination equal to the greater of (a) one month’s salary, or (b) one week of your current annual base salary, for each completed six months worked since his start date, up to a maximum of 12 months’ salary. This amount expressly included all payments to which the employee might be entitled under employment standards legislation and at common law. This part of the clause, which the motion judge termed as the “options provision,” was followed by a failsafe provision.

After he was terminated, Mr. Amberber sued IBM Canada Ltd. (“IBM”) for wrongful dismissal and claimed he was entitled to pay in lieu of notice at common law. At the motion, Mr. Amberber advanced three arguments. The motion judge only gave effect to one of the arguments: the termination clause failed to rebut the presumption of common law reasonable notice of termination.

The motion judge found that although the termination clause was one paragraph, it broke down into two parts. The inclusive payment provision immediately followed the options provision, so the motion judge interpreted that the provision applied to the first part. Because the inclusive payment provision was not repeated at the end of the clause, it was not clear that the inclusive payment provision was meant to apply to the failsafe provision. The motion judge found that the inclusive payment provision could just as easily have been included at the end of the paragraph and could have just as easily been specified to apply to both scenarios.

On appeal, the motion judge’s decision was overturned. The Ontario Court of Appeal found that the motion judge made a fundamental error when she subdivided the termination clause into what she regarded as its constituent parts and interpreted them individually. Rather, the clause must be interpreted as a whole, and when read as a whole, there could be no doubt as to the clause’s meaning. To hold that the inclusive payment provision applies to only one part of the clause but not the other, gave the clause a strained and unreasonable interpretation. The Ontario Court of Appeal reminded judges that the court should not strain to create an ambiguity where none exists.

The material and information in this blog and this website are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this blog or its links. No person should act or refrain from acting in reliance on any information found on this website or blog. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.

An update on mitigation: What happens when a wrongful dismissal case gets to court while the employee is still unemployed?

By , April 3, 2017 8:42 am

The Basics

A wrongful dismissal occurs when an employer does not provide enough notice of termination. An employee can claim damages equal to the remuneration the employee would have earned during the applicable notice period. During the notice period, an employee is subject to the “duty to mitigate,” which means they must look for alternative employment. Notice periods can be as long as 24 months, and even longer in exceptional circumstances. Increasingly, wrongful dismissal cases are getting to court before the reasonable notice period has expired. In these cases, the employee is still subject to the duty to mitigate for the balance of the notice period. In a recent case, the Superior Court of Justice had to answer the question of how the issue of future mitigation should be recognised in the calculation of damages given the fact that the period of reasonable notice had not yet expired.

Patterson v IBM Canada Ltd, 2017 ONSC 1264

In Patterson v IBM Canada Ltd., the hearing took place in February 2017, just over eight months after the Mr. Patterson’s employment was terminated. The judge found that the reasonable notice period in Mr. Patterson’s case was 18 months.

Mr. Patterson claimed that, given his job search history thus far, his prospects of finding alternative employment were low, and he should therefore receive the full 18 months’ pay. IBM suggested the court should discount any award of damages by 10% to reflect the possibility of future mitigation, i.e. that Mr. Patterson may obtain employment during the remainder of the notice period.

The judge noted that the courts have used several approaches in these cases, the two main ones being the “trust and accounting” approach (where the plaintiff is required to account to the defendant for future income if any is earned during the notice period) and the contingency approach (which is the approach IBM was suggesting).

In this case, the judge preferred the contingency approach, and reduced Mr. Patterson’s damages accordingly. The judge found that if the trust and accounting approach were to be applied, Mr. Patterson would have no incentive to continue in his job search. Furthermore, the contingency approach avoids the possibility of future legal entanglements between the parties.

Lessons to be Learned

There is no consensus on which approach an Ontario judge will follow when a wrongful dismissal case is decided before the end of the reasonable notice period. If you are planning on dismissing a long-term employee, it is important to consult with a lawyer to discuss whether a severance package with a built-in contingency approach can be offered, rather than leaving that decision to a judge after spending significant legal costs. The lawyer can also explain the extent of the employee’s obligation to mitigate (look for work) throughout the litigation process.

“The material and information in this blog and this website are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this blog or its links. No person should act or refrain from acting in reliance on any information found on this website or blog. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.”

Preparing an Employee Severance Package: Five Reasons to Hire A Lawyer

By , March 31, 2017 1:29 pm
  1. A lawyer can explain your obligations under the Employment Standards Act. Did you know there are employees who are not entitled to vacation pay, overtime pay, termination pay and severance pay under this law? For employees who do not work a regular work week did you know there is a formula to determine how to calculate termination pay?
  1. An employer can explain your obligations to provide reasonable notice of termination at common law. If the employee has not signed an employment contract with an enforceable termination clause then a lawyer can provide you with an idea of what is “reasonable” notice of termination in the circumstances. An lawyer can also inform you whether you are legally required to pay an employee who has received a bonus during the notice period.
  1. An employer can explain whether you are exposed to non-wrongful dismissal damages. For example, if the employee is disabled or has recently returned from sick leave or a pregnancy leave the employer may be exposed to damages under human rights legislation.
  1. A lawyer can suggest the best way to structure termination payments. Sometimes a lump sum payment is the best option and sometimes periodic payments are a better option. Another issue to carefully consider is which benefits to continue and for how long? Did you know that some insurers will not continue some employee benefit coverages after an employee is terminated?
  1. A lawyer can suggest ways to minimize the out of pocket costs associated with a termination. This includes steps you can take to help the employee find alternative employment which generally reduces an employer’s monetary exposure. For example, in what circumstances is it a good idea to offer the terminated employee a reference or outplacement counselling?

 

For over 25 years, Doug MacLeod of the MacLeod Law Firm has been advising employers on all aspects of the employment relationship. If you have any questions, you can contact him directly at 416 317-9894 or at [email protected]

The material and information in this blog and this website are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this blog or its links. No person should act or refrain from acting in reliance on any information found on this website or blog. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.

 

 

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