Wrongful Dismissals

Introduction

In Reference Re Public Service Employee Relations Act (Alta),¹ a leading Supreme Court of Canada (the “SCC”) case, Chief Justice Dickson states: 

Work is one of the most fundamental aspects in a person’s life, providing the individual with a means of financial support and, as importantly, a contributory role in society. A person’s employment is an essential component of his or her sense of identity, self-worth and emotional well-being.

This statement by the highest court illustrates the importance of employment in one’s life. As a result, it is no surprise that employers are held to a stringent standard by the law when terminating employment. The overarching principle is that an employer may terminate non-unionized employees at any time without cause, except as limited by legislation, the common law, and contractual rights. These limitations present legal obligations that employers must follow and provide employees with certain rights when the employer/employee relationship is terminated.

Just Cause

Employers are legally entitled to dismiss an employee at any time with “just cause”. If there is “just cause”, the employee is not entitled to notice of termination or payment in lieu. Accordingly, damages owed by the employer cannot flow from a termination with “just cause”. “Just cause” terminations often occur in two situations: dishonesty and incompetence.

Dishonesty

In McPhillips v British Columbia Ferry Corporation, ² the court states that “dishonesty is always cause for dismissal because it is a breach of the condition of faithful service. It is the employer’s choice whether to dismiss or to forgive.” However, this broad statement has been narrowed in the following cases.

The main test for whether an employee’s conduct amounts to dishonesty is whether there was a breakdown in the employment relationship. The courts will take a contextual approach and look at the nature and degree of the employee conduct. It is important for employers to keep in mind that less serious sanctions short of dismissal may be more appropriate for less serious dishonest conduct.  The court may also look to various mitigating factors, which may include the employee’s history, how long they’ve been employed for, and whether the conduct was premeditated.

Incompetence

The court will use a proportionality test to determine if incompetence warrants a dismissal. This test seeks to strike an effective balance between the severity of an employee’s misconduct and dismissal. The longer an employee has been with you, the harder it will be to convince the court that you legally terminated the employment relationship for incompetence.  

In Kirby v. Amalgamated Income Limited Partnership,³ the court held that there were grounds to terminate for incompetence. The plaintiff helped start a mutual fund business and acted as the CEO. Here, the court looked at the cumulative effect of the plaintiff’s actions. Mere dissatisfaction and being a poor manager did not justify dismissal. The court stated four elements that must be met: 

1. The standard of job performance required must be communicated to the employee; 
2. Suitable instruction must be given to the employee to enable them to reach that standard; 
3. The employee must be incapable of meeting such standard; and
4. There has been a warning that failure to meet that standard would result in dismissal. 

However, many cases are decided the opposite way (see Nicholls v. Columbia Taping Tools Ltd.).⁴ Case law continues to show how difficult it can be to dismiss with cause on grounds of incompetence.

Constructive Dismissal

There are times when an employer treats an employee in such a way that the employee can argue that the employment relationship has been terminated. In essence, constructive dismissal refers to situations where an employee is dismissed without being formally dismissed. 

Constructive dismissal generally occurs in two situations:

1. When a single unilateral act breaches an essential term of the contract; or 
2. When a series of acts that, taken together, show that the employer no longer intends to be bound by the contract.

To establish an incident of constructive dismissal, the court must:

1. Identify an express or implied contract term that has been breached; and
2. Determine whether that breach was sufficiently serious to constitute constructive dismissal

3 common examples that could lead to constructive dismissal are:

1. Demotion
2. A change in remuneration
3. A significant unilateral change in responsibilities

Generally, courts will give employees time to determine whether they want to take the position that they were constructively dismissed. Like dismissal without cause, if a form of constructive dismissal is found to have occurred, the employer may be held liable for damages that result from the breach of their obligations discussed below.

Damages:

Notice of Termination

An action for wrongful dismissal is based on an implied obligation in the employment contract to give reasonable notice of an intention to terminate employment. If the employer does not have “just cause” for termination, then the employee is entitled to notice of termination or payment in lieu. If adequate notice is not given, the law will provide damages to the employee as compensation – generally determined by what the employee would have earned during the length of notice that the employee is entitled to. Consequently, there are both statutory and common law obligations employers must then consider to avoid claims for damages. 

In BC, under the Employment Standards Act, provincially regulated employers ⁵ are obligated to provide:

1. 1 week notice if the employee has provided 3 months of continual service;
2. 2 weeks notice if the employee has provided 12 months of continual service; or
3. If the employee has provided 3 years or more of continual service – an additional week of notice for each additional year of service, to a maximum of 8 weeks. 

Under the common law, if there is no express contractual term suggesting otherwise, it is implied that the employer must provide “reasonable notice of termination”. The common law requirement may be far more substantial than the requirements under the ESA, depending on the facts of the case. In Bardal v. Globe and Mail, ⁶ the court held that a strict formula is not applied when determining what constitutes reasonable notice. Rather, the court will look at several factors on a case-by-case basis, including the age, length of service, availability of comparable employment, and the nature of employment. 

There are two main differences between the statutory and common law obligations. First, parties can only contract out of the common law requirements in the employment contract. Second, under the common law, the employee has a duty to mitigate the financial losses resulting from termination. In other words, the employee must take reasonable steps to find comparable employment. Therefore, remuneration earned elsewhere during the notice period may be offset against damages awarded. 

Aggravated Damages

Employees may also be entitled to aggravated damages if an employer’s conduct throughout the course of dismissal amounts to being unfair or in bad faith. Aggravated damages are meant to compensate the employee for distress caused in the course of termination. In Wallace v. United Grain Growers Ltd.⁷ (Wallace), the SCC affirmed that an employer may be found to be acting unfairly or in bad faith “by being, for example, untruthful, misleading or unduly insensitive”.  Examples include:

1. False allegations of cause or incompetence;
2. Harming the employee’s reputation or causing embarrassment at the time of dismissal;
3. Harassment or sexual harassment prior to dismissal (which can also be a Human Rights claim)
4. Dismissal connected to disability (another Human Rights violation); or
5. Reprisals against an employee (i.e. for attempting to secure their rights)

Punitive Damages

Contrary to the compensatory nature of aggravated damages, punitive damages are meant to punish the employer for its reprehensible conduct. As affirmed in Honda Canada Inc. v. Keays,⁸ punitive damages are restricted to advertent wrongful acts that are so malicious and outrageous that they are deserving of punishment on their own, and are only awarded in exceptional circumstances. The employee must show:

1. The actions of the employer were an independent actionable wrong and that they were harsh, vindictive, reprehensible and malicious and generally departed to a marked degree from the ordinary standard of decent behaviour. The conduct should be such that condemnation or punishment is deemed appropriate by a court; and
2. Compensatory damages are insufficient to achieve the goals of retribution, deterrence, and denunciation

Conclusion

There are various ways in which employers can protect themselves from legal claims while concurrently treating their employees with fairness and respect. 

• Draft employment contracts that specifically deal with the employer’s obligations to a dismissed employee for a “without cause’ termination.
  This gives both parties clear contractual expectations, rights, and obligations in the event of a “without cause” termination. Ensure that the employee has ample time to review the agreement.
• Employers can limit their exposure for claims of notice or pay in lieu of notice beyond the statutory minimums by carefully drafting clauses that limit their liability.
  This might include terms that limit the notice period or aspects of remuneration paid for the notice period.
• Draft termination letters with a view of clearly and accurately identifying the employer’s obligations to the employee at the time of termination and providing information to employee’s that they may need in ending the relationship in an orderly fashion without additional stress or aggravation.
  Ensure that a plan is in place for a respectful, organized course of termination. This will also help prevent claims for aggravated damages.
• Ensure that the termination letters accurately reflect the employee’s statutory minimum and contractual entitlements and ensuring that the Employer provides those entitlements at the time of termination.
  This will help prevent any further legal costs that may arise from potential litigation, and any reputational harm that might result from it.
• Recognize that the employee is vulnerable as termination regardless of the cause is a stressful event.  Employers should ensure that terminated employees are treated with respect, dignity and transparency.
  The employment contract already leads to a substantial power imbalance between the employer and employee. Regardless of the reason for termination, this power imbalance is fully realized at the time of termination. 

As the court found in Wallace, the contract of employment often reflects substantial power imbalances. As a result, the law stands to ensure that employees terminated without cause are given reasonable notice or payment in lieu, and treated fairly and in good faith during the termination process. 

Nonetheless, many of the costly and time consuming legal issues that may arise as a result of a wrongful dismissal claim can be proactively addressed by forward-looking legal advice suited to the context of your business. If you are an employer with questions about wrongful dismissal, an employer who wishes to take further steps to protect their organization, or an employee with concerns regarding your legal rights, please contact any member of our Employment and Labour Group.  

This article is intended to be an overview of the law and is for informational purposes only. Readers are cautioned that this article does not constitute legal or professional advice and should not be relied on as such. Rather, readers should obtain specific legal advice in relation to the issues they are facing

[¹] Reference Re Public Service Employee Relations Act (Alta), [1987] 1 S.C.R. 313
[²] McPhillips v. British Columbia Ferry Corp., (1994) 45 B.C.A.C. 311 (CA)
[³] Kirby v. Amalgamated Income Limited Partnership. 2009 BCSC 1044
[⁴] Nicholls v. Columbia Taping Tools Ltd., 2013 BCSC 2201
[⁵] Federally regulated companies are governed by Part III of the Canada Labour Code, which imposes the following:

• Greater than 3 months service = 2 weeks of notice
• Greater than 12 months service = 2 days pay for every full year of service, or 5 days pay, whichever is greater

[⁶] Bardal v. Globe & Mail Ltd. (1960), 24 D.L.R. (2d) 140 (Ont. H.C.)
[⁷] Wallace v. United Grain Growers Ltd., [1997] 3 S.C.R. 701
[⁸] Honda Canada Inc. v. Keays, 2008 SCC 39