SCC: Unjust Dismissal: Big Win for Employees

The Supreme Court of Canada has issued a landmark employment law decision.  The case of Wilson v. Atomic Energy of Canada focused on the definition of “unjust dismissal” under Part III of the Canada Labour Code.  In a nutshell, the Supreme Court has held that the vast majority of federally regulated employees can access the unjust dismissal provisions of the Code.  These employees can seek reinstatement or significant compensation on dismissal.

In other words, a Federally regulated employer, for example a bank or cable company, cannot simply dismiss an employee on a “without cause” basis and provide severance arrangements.  Dismissed employees in these circumstances can file unjust dismissal complaints and seek reinstatement.

The Wilson v. Atomic Energy decision considered the circumstances of a four and a half year employee with a clean disciplinary record.  The employee was dismissed on a “without cause” basis and provided with a severance package.  He challenged the decision and filed an unjust dismissal complaint.  Although successful at adjudication, the decision was overturned at the Federal Court and Federal Court of Appeal levels and worked its way up to the Supreme Court of Canada.

Writing for herself and five other Supreme Court justices, Abella J reviewed the history of the Canada Labour Code’s unjust dismissal provisions, which were enacted in 1978.  She concluded that the purpose of these enactments was to ensure that non-unionized Federally regulated employees would be entitled to protection from dismissal without cause.  Federally regulated employees, she concluded, enjoy “fundamental protection from arbitrary dismissal” even with pay.

Although there are certain exceptions including situations involving the “discontinuance of a function” or a “lack of work,” this Supreme Court decision makes it abundantly clear that employers in the Federally regulated sector cannot simply terminate the employment of most employees.

This decision could greatly increase the number of unjust dismissal complaints in Federally regulated workplaces.  For example, any non-managerial employee, with one year or more of service, working for a Canadian bank can seek reinstatement if the employee is dismissed on a “without cause” basis, even if a severance package is provided.  This would, of course, invalidate the minimum type severance provisions that some Canadian banks have tried to use in their employment contracts with employees.

Employees who have been dismissed by a Federally regulated employer must file the unjust dismissal complaint within 90 days of the dismissal.  If not, it appears from the decision that the employee loses the right to this statutory framework and is left with common law remedies alone.

Three of the Supreme Court justices endorsed a vigorous dissent in which they would have held that the Canada Labour Code is, essentially, procedural and does not override Canadian common law.  The minority interpretation would have gutted the Code of any real meaning for Federal employees.

The dissenting justices correctly highlighted the fact that a Federally regulated employee can lose his or her protection if the employee misses the 90 day timeline.  Perhaps a future court decision will enable employees to use the civil courts, if necessary, to enforce the unjust dismissal provisions if the deadline has been missed.  However, for now, dismissed employees and their counsel should ensure that they file an unjust dismissal complaint within the 90 day time period.

It is interesting that the Supreme Court, in both the minority and majority reasons, chose to comment on the common law standards of dismissal by way of obiter.  The court noted that, at common law, employers can dismiss employees “for whatever reason they want so long as they give reasonable notice or pay in lieu of notice.”  This suggests that, for the time being, the court is not about to add in a “good faith” obligation as a requirement for dismissing a non-federally regulated employee.

This decision reinforces the wide gap between employees in the Federal sector and employees in most other provincial jurisdictions.  An employee dismissed on a without cause basis in Ontario can file a wrongful dismissal complaint and sue for dismissal damages in the court system.  In some cases, the employee may also have a valid claim for other damages or remedies.  But reinstatement is not an option, nor is the court required to consider why the employee was dismissed, if the dismissal was on a “without cause” basis.

But in the federal sector, it is now clear that the vast majority of dismissed employees enjoy “union-like” protection.  They can file unjust dismissal complaints and seek reinstatement or significantly increased damages.  Non-managerial employees with more than one year of service who have been dismissed from Canadian banks, telephone and cable companies, radio stations and other industries have significant negotiating leverage and may demand reinstatement or negotiate significantly higher severance packages.

Damages under the Canada Labour Code can be exponentially higher since employees can be awarded reinstatement and compensated for the time that they were out work.  Overall, this is an extremely helpful decision for federally regulated employees.

 

 

 

 

 

Non-Competition Agreements Enforceable When Commercial: SCC

When will Canadian courts enforce non-competition agreements?  The latest Supreme Court of Canada decision in Payette v. Guay Inc. confirms that, in a commercial context, even wide-ranging, lengthy non-competition agreements may be enforceable.

Guay Inc. is a crane rental company.  It purchased a group of crane companies from Payette and his partner for $26 million.  To assist with the transition, Payette and his partner agreed to employment contacts, that contained five year non-solicit and non-competition agreements.  Four years later, Payette was dismissed by Guay and paid an agreed upon sum.  Shortly after that, he began working with a competing crane company and promptly hired seven former employees away from Guay.

Guay brought an application for an injunction to enforce the five year non-competition agreement and the five year non-solicitation agreement.  The Quebec Superior Court dismissed the application.  It held that the non-competition clause was overly brought since it sought to prevent Payette from working anywhere in Quebec, even though the business that had been sold had only operated in the Montreal area.

The Quebec Court of Appeal overturned the lower court ruling and imposed a permanent injunction against Payette.  It held that since the non-competition agreement arose from a commercial contract, its purpose was to protect the assets that Payette had sold to Guay.  The Court of Appel was therefore prepared to uphold a broad geographic scope and time period.  Payette appealed to the Supreme Court of Canada.

The Supreme Court released its decision on September 12, 2013.  It upheld the Quebec Court of Appeal decision.  It emphasized that there is a big difference between the enforceability of a non-competition agreement in an employment context versus in a commercial context.  The Court noted that there is an imbalance of bargaining power in most employment contract situations, which is a factor to be considered when assessing a non-competition agreement.  In a commercial context, however, there is deemed to be much less, if any, of a power imbalance.  The Court went on to say that “in a commercial context, a restrictive covenant is lawful unless it can be established on a balance of probabilities that its scope is unreasonable.”  The Court noted that factors to be considered should include “the sale price, the nature of the business’ activities, the parties experience and expertise and the fact that the parties had access to legal counsel and other professionals.”

Given all of these factors, including in particular the specialized nature of the business, five years was not viewed as unreasonable, especially since Payette was paid $26 million.  Further, even though the scope of the agreement might cover areas in which Guay did not operate, this was still permissible as Guay could operate in these areas.  The Court also accepted the submission that the non-solicitation agreement did not need a territorial restriction.  The Court emphasizes the need to enforce the intention of the parties and the need to uphold a fairly negotiated commercial arrangement.

In some ways, this case contrasts nicely with Shafron v. KRG Insurance Brokers (Western) Inc., another commercial type case in which the Supreme Court struck out a non-competition agreement that was overly vague.

Looking at these two decisions together and other Supreme Court of Canada cases, it is fair to say that Canadian courts will now be required to make significant efforts to enforce commercial non-competition agreements.  It also seems to fair to conclude that courts will continue to be wary of non-competition agreements in a purely employment context.  The interesting question will be the extent to which courts take this type of “commercially reasonable” approach when dealing with sophisticated executives and senior management personnel.  The emphasis on the assessment of each side’s respective bargaining power may cause courts to become more willing to enforce non-competition agreements where the employer can demonstrate something closer to equality of bargaining power on the part of an employee.

Gender Discrimination Class Action against Walmart is Struck Down by the U.S. Supreme Court

Gender Discrimination Class Action against Walmart is Struck Down by the U.S. Supreme Court

Can a large group of employees use the Class Action process to sue for discrimination in the U.S.? Yes, they still can, though they face significant hurdles. In a landmark decision, issued on June 20, 2011, the U.S. Supreme Court ruled against a group of present and former Wal-Mart employees who had brought a claim for gender discrimination. The members of the Court split along ideological and philosophical lines. The majority opinion, penned by Justice Scalia, rejected the use of the Class Action process for this type of claim. The Court held that there was insufficient commonality between the various plaintiffs who would be making claims of discrimination.

The plaintiffs were alleging that Wal-Mart’s policy of giving local supervisors discretion over employment matters resulted in a disproportionate negative effect on women who were promoted less frequently than men. Wal-Mart maintained that it had a policy in place banning gender discrimination. It also maintained that its policy of giving supervisors discretion was gender neutral. However, as the minority opinion pointed out, women fill 70% of the hourly jobs in Wal-Mart’s stores but make up only 33% of management employees. The plaintiffs also demonstrated that women are paid less than men in every region of the country in similar positions and that Walmart’s statistics were less favourable than other retailers.

Though the plaintiffs could not point to a specific policy directive that would violate anti-discrimination legislation or a specific person or group responsible for creating the discriminatory results, they were able to show that there was evidence of significant gender discrimination, across the country and it was not being addressed.

The Supreme Court majority rejected these arguments. It was of the view that the plaintiffs were seeking to “sue about millions of employment decisions at once. Without some glue holding the alleged reasons for all those decisions together, it will be impossible to say that examination of all the class members’ claims for relief will produce a common answer to the crucial question why I was disfavoured.” Politically, the voice of the Court majority is heard most clearly in its general assumptions about gender issues. As Justice Scalia writes, “…left to their own devices most managers in any corporation – and surely most managers in a corporation that forbids sex discrimination – would select sex-neutral, performance based criteria for hiring and promotion that produce no actionable disparity at all.” In other words, most of the male managers, who make up 70% of management, are not likely to discriminate in making promotion decisions about others even though the process by which they have been promoted may have been flawed and even discriminatory.

With an entirely different political and philosophical view, the minority naturally saw this issue differently. As Justice Ginsburg writes, “Managers, like all humankind, may be prey to biases of which they are unaware. The risk of discrimination is heightened when those managers are predominantly of one sex, and are steeped in a corporate culture that perpetuates gender stereotypes.” The minority would have permitted the case to move forward as a class action with sufficient commonality found in the issue of whether Wal-Mart’s pay and promotions policies result in unlawful discrimination.

As a result of this decision, litigants alleging discrimination will need to narrow their class definition to be able to rely on a specific policy or decision that affects all of the members of that class. This may well make it extremely difficult for large groups of employees to advance cases of systemic discrimination.

The Canadian legal landscape has a statutory and common law regime that makes Canadian employment law completely different from U.S. law. Although there have been changes to Human Rights legislation across Canada that now permit lawsuits to address discrimination in some jurisdictions instead of complaints with human rights tribunals, we have not yet seen a move to class action discrimination cases of this type.

If this type of case does it make it to the Supreme Court of Canada, it is likely that the decision will be as politically acrimonious among the Court’s members as it was in the U.S., particularly if the current Prime Minister further politicizes the Court by selecting nominees on the basis of ideology rather than competence as the U.S. has done for so many years.

Wrongful Dismissal: Punitive and Bad Faith Damages Scaled Back Dramatically: Keays v. Honda

Wrongful Dismissal: Punitive and Bad Faith Damages Scaled Back Dramatically: Keays v. Honda

In 2008, the fourth decision of the Supreme Court of Canada (as reviewed in this series of articles) was the most widely anticipated decision. Many employment lawyers and commentators were predicting that the Supreme Court would issue a wide ranging decision that would expand the availability of punitive damages for dismissed employees. Contrary to the expectations of many, the decision scaled back dismissal damages, changed the nature of “bad faith claims” and focused on the particular facts of the case that was before the Supreme Court.

Keays had worked for Honda for 11 years before being diagnosed with Chronic Fatigue Syndrome. He was off work for a period of time on disability benefits and then returned. He continued to require frequent absences from work. Honda followed up by asking Keays to meet with its own medical specialist. Keays refused because Honda would not provide an explanation of the specialist’s purpose, methodology and parameters of the intended meeting. Keays was worried that Honda was simply trying to use its own favoured doctor to assit Honda to force Keays back to work without a proper detailed review or understanding of the circumstances. After Keays continued to refuse to meet with Honda’s specialist, he was dismissed by Honda.

At trial, Keays was awarded 15 months pay for wrongful dismissal. The Trial Court also held that Honda had committed acts of discrimination, harassment and misconduct. It increased the notice period to 24 months and awarded punitive damages of $500,000, which would have set a new standard in Canadian employment law decisions. The Court of Appeal of Ontario reduced the punitive damages awarded to $100,000. Honda appealed to the Supreme Court of Canada.

In a 7-2 decision, the Supreme Court of Canada eliminated the bad faith damages and the punitive damages that had been awarded to Keays. It upheld a finding that Keays had been wrongfully dismissed and was entitled to 15 months’ compensation. However, it eliminated all other damages that Keays had been awarded at the Trial Court level.

The Keays v. Honda decision is very significant because it has redefined the damages that are available to dismissed employees. Since the Supreme Court of Canada’s decision in Wallace v. United Grain Growers in 1997, Canadian Courts have been awarding damages for bad faith conduct by employers in wrongful dismissal situations. Courts have awarded these damages by extending the notice period to which employees are entitled – where employees are treated in a bad faith manner. In Keays v. Honda, the Supreme Court has changed Wallace and has redefined when damages will be available.

The first noteworthy point is that the Supreme Court of Canada extensively reviewed the facts of the case. Although the Supreme Court has stated on numerous occasions that its job is not to review factual details of cases, Keays v. Honda is very much a decision in which the Supreme Court scrutinizes almost all of the factual findings made by the Trial Court and proceeds to reverse the Trial Court’s findings and conclusions. The Supreme Court defines the Trial Court’s findings as “palpable and overriding”. In using this wording, the Supreme Court cloaks itself with the judicial prerogative to make entirely different factual conclusions than those made by the Trial Court.

Essentially, the Supreme Court took a very different view of the manner in which Honda had treated Keays. It held that none of the “four foundations” for bad faith damages as held by the Trail Judge were valid. The Supreme Court went through its interpretation of the facts in detail. It concluded that Honda was trying to rely on expert advice and was not being “callous” or insensitive. It rejected the Trial Judge’s conclusion that Honda had set Keays up for failure or that Honda was taking a “hardball” approach. It also rejected the Trial Court’s conclusions that Honda had decided to stop accepting medical notes from Keays as a reprisal against Keays for seeking legal advice. Finally, the Supreme Court rejected the notion that Keays’ disability after dismissal was caused by the manner of his termination.

Once the Supreme Court came to such a dramatic reversal of the factual findings and conclusions of the Trial Court, Keays’ legal case had been eviscerated. With the Supreme Court’s factual findings that Honda had acted appropriately, there was no remaining basis for considering or discussing bad faith or punitive damages. Even so, the Supreme Court proceeds to analyze these types of damages and makes pronouncements that are intended to apply to future cases.

The Supreme Court makes a number of points:

Damages for mental distress should only be awarded where they were contemplated by the parties at the time the contract started. In most cases, employees expect to be dismissed eventually, so mental distress damages for hurt feelings should not be awarded simply because the employees have been dismissed.

Employers still have an obligation of good faith and fair dealing in the manner they dismiss employees. If employers breach this duty, then employees are entitled to damages – as long as they can prove that they have suffered actual damages. According to the Supreme Court, employees are no longer entitled to an extension of their notice period simply because of this type of bad faith treatment.

Punitive damages are only to be awarded where the acts by the employer are “so malicious and outrageous that they are deserving of punishment on their own”. Breach of the Human Rights Code, for example, is not sufficient on its own to warrant an award of punitive damages.

The crux of Keays v. Honda is spelled out by Justice Bastarache who accepts that the need of employers to “monitor the absences of employees who are regularly absent from work is a bona fide work requirement in light of the very nature of the employment contract and responsibility of the employer for the management of the workforce”.

The majority decision of the Supreme Court is devoid of any language that is empathetic to employees. Much like the Supreme Court’s other 2008 decisions in RBC and Hydro-Quebec, the majority focus is on the need for employers to be able to run their businesses efficiently. The Supreme Court in Keays v. Honda makes it dramatically more difficult for dismissed employees to obtain damages for bad faith – and even more difficult to ever obtain punitive damages.

Justice Lebel delivers a partial dissent to the reasons of Justice Bastarache. Surprisingly, Justice Abella sides with the majority even though she was the lone dissenting voice in both Evans and RBC. Only Justice Fish supports Lebel in the dissenting view. Justice Lebel concludes that the extended damages that had been awarded to Keays at the Trial Court level should have been upheld. Justice Lebel notes that the trial in this case lasted 30 days. The Trial Court heard extensive evidence and was best positioned to make factual findings and conclusions. Justice Lebel disagrees that the Supreme Court should overturn so many findings of fact that were “generally supported by the evidence”.

The most significant gap between the majority and the minority decisions in Keays v. Honda is the extent to which the judges are prepared to review and wholly revise factual findings and conclusions. Since Bastarache and Lebel come to such contrasting views of the factual background, it is not surprising that they have completely different approaches to the applicable law afterwards.

The minority agrees with the majority’s approach to redefining bad faith damages. However, the minority would have upheld the damages for bad faith that were awarded by the Trial Judge on the basis of Honda’s conduct and the harm it caused to Keays. The minority would have also left the door open for litigants to argue that breaches of human rights legislation can lead to awards of extended damages.

Conclusion – Effect of Keays v. Honda Yet to be Determined

The full effect of Keays v. Honda remains to be determined. The Supreme Court has dramatically altered the existing landscape. Courts should no longer award simple notice period extensions as a result of breach of the duty of good faith. But damages for breach of good faith are still available. In fact, it is arguable that the amount of damages that can now be awarded for breach of the duty of good faith may be much higher than the amounts that were previously being awarded. However, to get these damages, dismissed employees will have to have evidence to show that they have suffered losses as a result of their former employer’s actions.

Employer’s Obligation to Accommodate Disabled Employees is Limited: Hydro-Québec

Employer’s Obligation to Accommodate Disabled Employees is Limited: Hydro-Québec

In August 2008, the Supreme Court of Canada issued a relatively short and unanimous decision addressing the issue of frequent absences and discussing the obligations of employers in handling these absences.

This case originally came from an arbitrated dispute involving a union. The employee had a lengthy record of absences – missing 960 days of work over a span of 7 years. The employer had adjusted working conditions to try to meet the employee’s needs but these efforts had not been entirely successful. Eventually, the employee brought a physician’s note indicating that she would “no longer be able to work on a regular and continuous basis without continuing to have an absenteeism problem”. The employer dismissed the employee, who then filed a grievance. At arbitration, the arbitrator held that the employee was unable to work for the foreseeable future, as required, and the employer had no further obligations. The case made its way up to the Supreme Court of Canada after the Québec Court of Appeal overturned the lower Court decision and sided with the employee.

The Supreme Court of Canada discussed the concept of “undue hardship” when an employer is required to accommodate a disabled employee. Employers must be flexible in adopting a standard that is appropriate – to ensure that the employee can work. However, the employer does not need to “alter the essence of the contract of employment”. Employers should be required to offer their employees variable work schedules, lighten work loads or authorize shift transfers if these steps can be taken to accommodate the needs of disabled employees.

The Court noted that if an employee’s illness means that “the proper operation of the business is hampered excessively or if an employee with such an illness remains unable to work for the reasonably foreseeable future even though the employer has tried to accommodate him or her, the employer will have satisfied the test” and will not be required to keep the employee any longer.

The Supreme Court’s decision in this case is not strikingly different from existing case law dealing with disabled employees. Employers have never been required to provide that it is “impossible” to accommodate a disabled employee. Employers should not be required to create entirely new positions or put up with inappropriate levels of chronic absenteeism. Although this decision is another victory for employers, it was a unanimous decision of the Supreme Court of Canada which did not fundamentally change the law.

The one concern that employees may have however, is the absence of genuine empathy in the decision in reviewing the case history. Where Supreme Court of Canada decisions in the past have focused on “vulnerable employees” and the sheer gap in bargaining power between employees and employers, this Supreme Court of Canada decision is most concerned with employer needs to carry on business efficiently and productively.

Perhaps it is too early to assess the impact of this type of thinking on other factual scenarios, but this decision is one of a number of significant decisions issued by the Supreme Court in 2008. All of the decisions sided with employers. Looking at the language used in Hydro-Quebec and the results of the other decisions, employees in Canada certainly have cause to worry about what other decisions might be coming down the pipeline.

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