Introduction

The employment relationship in Canada is governed by a wide variety of legislation, as well as the common law. The term, the "common law" in this context refers to the Court's jurisdiction to consider and remedy legal issues arising out of the employment relationship.

The legislation governing the employment relationship may be federally or provincially enacted. Whether the governing legislation is federal or provincial depends upon the nature of the business conducted by the employer. Employers engaged in "federal works or undertakings" are subject to federal jurisdiction and, therefore federally enacted legislation according to the Canadian Constitution. Examples of "federal works or undertakings" include such enterprises as:

• banks
• telecommunications companies
• interprovincial/international transportation companies
• railroads
• airlines
• broadcasters

Employers who are not engaged in “federal works or undertakings” are governed by Provincial labour and employment legislation. In Canada, the majority of employers are subject to provincial legislation. Despite the difference in jurisdiction, the federal and provincial statutory regimes address many of the same substantive aspects of the employment relationship, such as labour relations, minimum employment standards, human rights, and occupational health and safety.

Before turning to a discussion of the different types of claims for damages one might expect to see in an employment related action, it is helpful to understand the judicial process in Canada. The following is a brief summary.

A Word on Process and Forum in Wrongful Dismissal Actions

A non-unionized employee will generally litigate issues arising from the termination of his or her employment through the courts; however, there are specialized tribunals that exist through which a non-unionized employee may also litigate a claim. For example, the Ontario Ministry of Labour provides a forum for an employee who alleges that the Employment Standards Act has been breached by his or her employer. In addition, the Ontario Human Rights Tribunal provides a forum for employees who allege that their statutorily protected right to be free from harassment or discrimination has been violated.

Unionized employees are generally required to litigate issues arising during the course of their employment through the grievance procedure established by the collective agreement. Exceptions to this general rule do exist; for example, a unionized employee may seek access to the Ontario Human Rights Tribunal where they feel they have been discriminated against during the course of their employment by both the union and the employer, and are otherwise unable to seek redress through the grievance procedure established by the collective agreement.

Investigation Prior to Dismissal

Employers should investigate the facts before making a decision concerning discipline or termination. The focus of any investigation must be to identify as many relevant facts as possible and to obtain the version of events put forward by the employee who may be subject to discipline. In all cases, the employer's goal should be to determine the "who, what, where, when, why and how" of a workplace incident.

Employers should therefore interview the employee who may be subject to discipline, as well as other individuals who may have witnessed the event under scrutiny. If possible, the employer should take pictures of any accident scene, or damaged property or equipment, if such damage has occurred. An employee may have to be interviewed a second time, after other facts have been gathered that raise further questions about the incident.

Clear, accurate notes of interviews must be created at the time the interview occurs. Interviewees should have an opportunity to review the notes taken, and should sign the notes to verify their accuracy. Documenting interviews in this manner will allow the interview notes to be used to refresh a witness' memory at trial.

Prior to making any decision as to the discipline to be issued to the employee, the employee's version of events must be fully considered, along with all of the other evidence gathered during the course of the investigation.

In addition, a workplace investigation should include:

• Reviewing the employee's personnel file to determine whether there is any prior discipline on file.
• Examining the totality of the evidence gathered during the course of the investigation.
• Considering whether the incident was spontaneous or pre-meditated, whether the incident was out of character, and/or whether the incident occurred because of an external stressor in the employee's life which caused them to act atypically.
• Considering what penalties have been imposed on other employees for similar conduct.

Once an employer determines the appropriate level of discipline to be imposed (or decides that discharge is appropriate), a letter outlining the basic events, the decision reached, and the reasons for that decision should be provided to the employee.

Progressive Discipline

Progressive discipline is a concept more common in unionized environments but that is nonetheless recognized at common law.

Progressive discipline requires that performance concerns or behavioural problems be dealt with by the employer as they arise, in a way that will bring the employer’s concerns to the attention of the employee. Progressive discipline requires that the employee know of, and be given an opportunity to correct, deficiencies in performance or behaviour before the employment relationship is terminated for cause.

The manner in which the performance concerns are addressed may vary from a letter of warning to a suspension; however, the discipline must be proportional to the event in issue. An employer must therefore take the employee’s "record" of previous infractions into account, as well as his or her culpability for the events that have occurred. An employer does not need to follow a “set progression” of discipline. In fact, if the incident is serious enough, then the level of discipline can increase more rapidly toward discharge.

Discipline should always be given to an employee in writing and should contain sufficient detail so as to identify the nature and the severity of the transgression. Some proof that the discipline was, in fact, communicated to the employee should be obtained, if not by a signed employee acknowledgment then by a notation that it was given to the employee.

If a matter otherwise warranting discipline is not brought to the attention of the employee, it may be said to have been condoned by the employer. Condonation of an employee’s past poor performance (or behaviour) may prevent the employer from relying on that performance (or behaviour) as part of the employee’s "record" for the purposes of any future discipline or as a basis for a termination of employment.

Reasonable Notice

The most commonly litigated issue in Canadian employment law is the amount of reasonable notice (if any) to which an employee is entitled upon the termination of his or her employment.

The concept of "at-will" employment does not exist in Canada. Therefore, an employer must either give an employee their statutorily required notice of termination, or notice in accordance with the common law. Often employers will simply pay the terminated employee the amount of wages (including applicable benefits) equivalent to the notice to which they are entitled, rather than giving notice of termination.

In the absence of appropriate notice, an employer will be liable to pay an employee damages. These damages will be roughly equivalent to the amount of notice that the employee should have received. The amount of damages to which an employee will be entitled will be determined by a number of factors including: the character of the employment held by the employee, the employee's length of service, the age of the employee, and the availability of alternative employment having regard to the experience, training and qualifications of the employee.

The "character of the employment" is a reference to the nature of the responsibilities performed by the employee and the level within the corporate hierarchy at which those duties are performed. As a rule, the more senior the position held by the employee, the greater the notice period to which the employee is entitled. As a result, the jurisprudence has supported greater damages awards (representing longer notice periods) for managerial positions than for clerical positions, where all other factors are equal.

The employee's age and length of service have emerged as the two most significant factors in determining the amount of notice, and the corresponding amount of damages for failing to provide that notice, to which an employee is entitled.

The character of the employment, the age of the employee, and the employee's length of service influence the fourth factor in calculating the damages owed: the availability of suitable, alternative employment.

Canadian courts have avoided the temptation to establish a formulaic response to determining notice periods; as a result, there is no precision to the calculation of "reasonable" notice periods. Furthermore, it is clear that two reasonable persons might have different opinions about what constitutes reasonable notice in any particular case. However, certain patterns do emerge from the decided cases and it is possible to estimate liability based upon the common law factors.

Employer Obligation for Punitive Damages

In some circumstances, an employer may be liable to pay an employee punitive damages; however, awards of punitive damages are rare in wrongful dismissal claims.

Punitive damages may be awarded if:

1. There is an independent actionable wrong that was committed by the employer;
2. The employer’s actions are so malicious and outrageous that they are deserving of punishment on their own;
3. The employer’s actions are harsh, vindictive, reprehensible, malicious and extreme; and
4. The case is exceptional.

Punitive damages, as the name would suggest, are not compensatory, but rather, are intended to punish the misconduct in question and deter such future misconduct.

Additional Damages Based on the Manner of Dismissal

Where the employer successfully establishes that it had cause to terminate the employee, the employee is not entitled to any notice of their termination and will be denied an award of damages for failure to receive notice of the termination. Employers should be cautious, however, not to take a spurious position that cause exists when it clearly does not. The case law is clear that, where an employer asserts that it had cause to terminate an employee, and it is demonstrated that the position was taken without merit, the Court may award what are sometimes referred to as “Wallace Damages” or “Wallace-type Damages” in addition to what the court determines the damages in lieu of notice of termination to be.

Wallace Damages arose as a result of a decision by the Supreme Court of Canada (Wallace v. United Grain Growers Limited, [1997] S.C.J. No. 94) which established an obligation on employers to act in good faith and to deal fairly with employees with respect to the manner in which they are dismissed. Wallace Damages may therefore be awarded where:

1. The damage suffered is because of the manner of dismissal, not the dismissal itself;
2. The damage suffered was within the “reasonable contemplation” of the parties at the time the contract was formed; and
3. The manner of the dismissal caused quantifiable mental distress.

Wallace damages must be determined according to the same principles and in the same way as any other breach of contract. The damages are intended to compensate the aggrieved party for an actual loss. While it once was the case that courts would impose Wallace Damages by simply extending the period of reasonable notice awarded, the Supreme Court in the 2008 decision in Honda Canada Inc. v. Keays put an end to this practice. Now, Wallace Damages are quantified independently of the notice period awarded and are to reflect actual losses.

Wallace damages will not be awarded simply because an employee has been dismissed, since the employer has a contractual right to terminate the employee.

Constructive Dismissal

If the employer unilaterally changes a fundamental term of the employment contract without giving the employee reasonable notice of the change, then the employer has, in law, “constructively dismissed" the employee. As a result of the constructive dismissal, the employee is entitled to treat the employment relationship as having been terminated by the employer without notice, and entitled to receive damages in lieu of having received that reasonable notice.

An employee can also choose to ignore the change in the terms and conditions of employment and continue the employment relationship. After a period of time, the employee will be found to have accepted the change and be precluded from commencing an action for constructive dismissal.

By example, a constructive dismissal is likely to be found to have occurred where an employer demotes an employee, or changes the employee’s position in the organization so as to remove key responsibilities from the employee. While an employer is entitled to make some changes to an employee’s duties and responsibilities, an employer does not have an absolute right to rearrange the duties and responsibilities of employees unless a contract of employment expressly confers that right.

If the unilateral change implemented by the employer is rejected by the employee, or if adequate notice of those changes are not provided, then damages are calculated in the same manner as a regular dismissal without cause. Similarly, employees may claim that the circumstances of their termination should entitle them to aggravated or punitive damages.

Mass Termination

Most employment standards legislation in Canada will provide for increased minimum notice periods in the event of a mass termination. Mass terminations are generally defined by a minimum number of terminations within a stipulated period of time.

For example, the Ontario Employment Standards Act provides that the termination of at least 50 but less than 200 employees within a four (4) week period requires all employees (irrespective of length of service) to receive at least eight weeks’ notice of termination. Certain notices of mass termination may also have to be given to the Ministry of Labour.

As the definition of a “mass termination” and the corresponding obligations on the employer, vary between jurisdictions, legal advice should be obtained where there will be significant reductions in the workforce.

Types of Damages Awarded in Wrongful Dismissal

As indicated above, it is common for damage claims for reasonable notice of termination in a wrongful dismissal action to be accompanied by requests for two particular types of damages: aggravated or moral damages and punitive damages.

Aggravated/moral damages

Aggravated damages (sometimes referred to as “moral damages”) are compensatory damages. They take account of intangible injuries, such as distress and humiliation that may have been caused by the employer's insulting or inappropriate behaviour. Wallace Damages are a form of aggravated damages, which may be awarded where, for example, an employer asserts a false claim for cause when none existed. Unfounded allegations of theft, or other allegations which might impair the ability of the employee to find alternative employment in his field, will "aggravate" the damages caused by the employer’s failure to give proper notice of termination of employment.

Damages for mental distress generally fall under this head of damages. Usually to succeed in a claim for mental distress, the employee will have to provide medical evidence to show that he or she has suffered some form of damage.

Punitive damages

Punitive damages are designed to punish the employer for its conduct where that conduct is deserving of punishment because it is harsh, vindictive, reprehensible and malicious in nature. Punitive damages are not be awarded simply because an employee is upset by their termination from employment, but, rather, are awarded where the employee can demonstrate that the manner of dismissal was so unduly harsh, callous or reckless, so as to amount to a separate cause of action. As a result, punitive damages are rarely awarded in wrongful dismissal litigation.

Causes of Action Related to Wrongful Dismissal Actions

There has been an increase in the last few years in the number of tort claims being joined to or substituted for wrongful dismissal actions. Of course, to succeed in the tort claim, all elements of the tort must be established.

The following are some of the more common tort claims now argued in Ontario:

• intentional infliction of nervous shock
• conspiracy
• inducing breach of contract
• intimidation
• defamation
• libel and slander
• damage to reputation

No "Near Cause" Defence in Terminations

The Supreme Court of Canada has confirmed that an employer may not allege that it had "near cause" to terminate an employee.

The concept of "near cause", which was at one time accepted, allowed an employer to lessen its liability to pay damages if it could show that the employee's behaviour was significantly poor so that the employer should not be liable for an entire damages award, even though it failed to establish that it had cause for termination.

Where an employee's behaviour falls short of the expected standard, progressive discipline must instead be applied.

Mitigation of Damages

There is always a positive duty on an employee to take reasonable steps to mitigate damages arising from the loss of his or her employment. In an action for wrongful dismissal, this means that the employee must make reasonable efforts to secure suitable alternate employment. An employee who is dismissed but goes off to Tahiti for six months seriously jeopardizes his or her entitlement to damages by failing to take reasonable steps to avoid the accumulation of avoidable losses.

This principle applies to constructive dismissal claims as well, but with a sometimes difficult twist. The Ontario Court of Appeal has held that an employee claiming constructive dismissal may be expected, as part of the duty to mitigate, to remain in his or her employment to avoid incurring the damages that would otherwise be incurred if he or she left to seek alternative employment. The employee is at least expected to take a hard look at the changed employment circumstances prior to leaving his or her employment. However, if an employee remains in the new position for too long, they may be found to have accepted the changes.

Employees will not always be required to mitigate their damages by remaining in their changed employment. This may include, for example, where the employer refuses to allow the employee to stay, where the employment relationship is so fundamentally altered that a reasonable person would not be expected to stay (i.e. the diminution in responsibility will affect the ability of employee to carry out his other job duties), or where the constructive dismissal is based on the employer’s failure to address an allegedly poisoned work environment.

Employment Insurance Plan in Canada

All employers and employees in Canada are required to contribute to the Employment Insurance Plan. Contributions are made by employees through deductions from their pay cheques. The premium cost is shared between the employer and the employee on a 7/12th and 5/12th basis, respectively. Employers who provide sick leave benefits to their employees may apply for a reduction in the amount of premiums they are required to pay.

An employee who contributes to the Employment Insurance Plan is eligible to collect employment insurance benefits if he or she becomes unemployed through no fault of his or her own.

The employee's eligibility for benefits depends upon the number of hours worked (insurable employment) and the regional rate of unemployment: the higher the regional rate of unemployment, the lower the number of hours required to have been worked to meet the benefit threshold. For example, where regional unemployment (as defined in the Regulations) is 6% or less, the benefit threshold is 700 hours of insurable employment in the last 52 weeks.

The length of the benefit period varies with the length of insurable employment to a maximum of 45 weeks. The benefit period can be cut off if the employee does not remain available for work or otherwise fails to cooperate with the requirements of the Employment Insurance program.

Special benefits are available for pregnancy or parental leaves, and for employees who are unavailable for work by reason of accident, sickness or disability. Employment Insurance Compassionate Care Benefits are also now available to people who have to be away from work temporarily to provide care or support to a family member who is gravely ill with a significant risk of death.

Employment in Canada by an international organization, under an exchange program or by a foreign government does not qualify as insurable employment. Special rules also apply for employment outside of Canada.