Wrongful Dismissal – Definition and Legal Issues

What is “Wrongful Dismissal?”

Being dismissed, fired, laid-off or restructured out of a job without reasonable notice or proper payment IS wrongful dismissal. It’s that simple. Hundreds of Canadians are wrongfully dismissed each week. If you are dismissed without proper notice or compensation – you can usually sue your employer for wrongful dismissal.

Are You Covered? Exceptions to Wrongful Dismissal:

Some employees may not be able to sue for wrongful dismissal because they fall into one of the exceptions. Here are just a few of the most common exceptions:

Unionized Employees

Employees in unionized workplaces cannot sue their employers for wrongful dismissal. Instead, they can often file grievances if they have been unfairly dismissed. Often, the union may be able to help the employee get his or her job back. If the union unfairly refuses to provide proper assistance, employees may be able to file an unfair representation complaint with the appropriate provincial or federal labour relations board.

Employees with a Written Employment Contract

If you have signed an enforceable employment letter or employment contract, you may have agreed to a set payment or amount of notice to be paid at the time of dismissal. In this case, you may not be entitled to anything other than the amounts set out in the original letter or contract. The amount of notice or payment in the contract must be at least the same amount that you would get under the Employment Standards Act or other equivalent provincial legislation. Otherwise, the term may be unenforceable and you may get reasonable compensation.

Similarly, if you have a fixed term contract – you may not be entitled to any notice of dismissal if the term ends. This is not always the case. If you have signed a series of contracts, one after the other, there may be ways to get around the fixed term and still get reasonable notice.

Interpreting written employment contracts can be complicated and very technical. There may be reasons why a court would allow you to get around the contract. Ken Krupat has drafted and interpreted hundreds of employment contracts for employees and employers. If you have any questions about your employment contract, you should contact Ken now.

What is “Just Cause?”

Employees who are properly dismissed for “just cause” may not be entitled to any payments when dismissed – other than salary and vacation pay owing up to the date of dismissal. Just cause is very serious conduct. It can include theft, serious dishonesty, sexual harassment, conflict of interest and other types of highly inappropriate conduct. It is very difficult in Canada to successfully prove just cause. Employers who improperly claim that they have just cause for firing someone may have to pay extra wrongful dismissal damages for making “bad faith” allegations.

What is Constructive Dismissal?

Constructive Dismissal occurs when the conditions of your employment change so much you feel as if you have been dismissed. Courts have called constructive dismissal “a fundamental change in the terms of employment.” If you are constructively dismissed, you are able to resign and sue for wrongful dismissal. This can be very risky. You should always obtain legal advice before making this decision.

Here are some examples of constructive dismissal:

Reduction in Pay:

A reduction in pay without advance notice is almost always a constructive dismissal – as long as the reduction is significant – usually more than 5-10%. If your pay is reduced and you have not been given enough (or any) advance notice, that may be a constructive dismissal.

Demotion:

If you have been demoted and are now required to perform a job that is clearly below the one you had, that may be a constructive dismissal. Similarly, if the company takes away a significant portion of your responsibilities, that may also be a constructive dismissal. Courts may look at the impact on your career, the perception of others in the company of the change and a range of other factors, including the short and long term financial impact on you.

Workplace Abuse:

If your employer creates – or permits – an intolerable work atmosphere, that may also be considered a constructive dismissal. Employees are entitled to be treated with dignity and respect in the workplace. If, at your workplace, you are faced with yelling, name-calling, humiliation and other similar types of behaviour, whether from a superior or a co-worker, you may have a case for constructive dismissal.

Constructive Dismissal is a very technical area. There are numerous decisions from courts across Canada on the definition of constructive dismissal and the available steps for employees. If you feel you may have been constructively dismissed, it is very important that you obtain proper legal advice as early as possible. If you wait too long, you may be considered to have accepted the situation.

How Much Notice or Severance Should You Get:

If you are dismissed without cause, you are entitled to a few different types of compensation. There are minimums required by legislation – and then there is the “common law.” Almost everyone is entitled to the minimum provided by legislation. Most employees are also entitled to “common law” damages.

Statutory Minimums:

Almost all employees are entitled to certain minimum amounts under Provincial legislation. In Ontario, the Employment Standards Act ensures that dismissed employees are given a certain minimum amount of notice – or pay instead of notice:

Notice Pay:

Less than 3 months service: Nothing required

3 months to 1 year: 1 week

1 year to 3 years: 2 weeks

3 years to 4 years: 3 weeks

Then – one additional week for each year worked – up to a maximum of eight weeks.

Severance Pay:

In Ontario, certain employees are also entitled to severance pay. This only applies to employees who have worked for more than 5 years for their employer – AND where the employer has a payroll of more than $2.5 million in Ontario. If you fall into this category, you are entitled to an additional week’s pay for each year worked, up to a maximum of 26.

The Common Law:

The common law is the real source of relief for most dismissed employees. The common law – is judge made law that applies in all of the Canadian Provinces – except for Quebec. Over the years, courts have determined that employees are entitled to reasonable notice of dismissal – or appropriate compensation instead of notice. During the notice period, dismissed employees are entitled to be compensated for everything that they would have had if they had continued to work – salary, benefits, club memberships, non-discretionary bonuses and other amounts. There is no set formula for determining the amount of notice. In trying to set the amount, courts look at a range of factors, including a person’s length of service with the company, age, position, level of responsibility, salary, likely difficulty in finding a new comparable position, what the person was doing before this job (i.e. whether he or she was lured away from a secure job to this new job) and the manner which the person was treated at the time of dismissal. These are only some of the factors that courts will consider in making their decision. The Ontario Court of Appeal has said that setting a notice period is an “art rather than a science.” For almost every dismissed employee, there is a range of possible notice periods, which means that there is almost always room to negotiate a proper severance package.

At the upper end of the range, there have been very few awards that have exceeded 2 years’ compensation. This type of notice period would usually be given to a member of senior management, with more than 20 years of service. At the other end of the range, few employees are likely to get less than one month – even employees who have been with their employer for only a short period of time. For many one year employees, the appropriate amount of notice is 3 to 6 months.

If you signed an enforceable employment contract when you first started work, you may be limited to the amount specified in the contract, as long as the contract provides you with the minimums required by Provincial legislation. Courts are willing to read contracts in a way that is favourable to employees. However, if the contract is properly prepared, employees may have no claim for wrongful dismissal.

What if you find another job?

If you are dismissed, you are required to mitigate your damages by looking for another job and taking reasonable steps to try to replace your lost income. You should keep track of your efforts by saving newspaper ads of jobs you have applied to, keeping a list of people that you have phoned, and saving web site ads for available jobs.

If you find a job that pays the same or more money than the job you lost, you have mitigated your damages. You may have no claim – other than for the minimum amounts required by provincial legislation. If you have come to an agreement with your employer – whether or not you continue to get paid after finding a new job will depend on your final agreement. However, if you have not come to an agreement and wind up taking legal action, you may end up with less than the company’s original offer.

One of the factors to consider in a wrongful dismissal situation is the likelihood of finding other work. This is difficult to do. Often, experienced counsel can assist you to increase your employer’s offer before you make a decision about new employment. Other times, it is better to wait and see what opportunities arise before proceeding with your claim.

These are the kinds of issues that you should discuss with Ken Krupat before signing any offer that you have been given.

Torts, Punitive Damages and Bad Faith

Torts

Most payments of wrongful dismissal damages are treated as income or a “retiring allowance” and are fully taxable. There are exceptions. If you awarded “general damages” against your employer, these damages may not be taxable.

It is very difficult to obtain these types of damages and usually requires you to prove that you have been subjected to very serious misconduct – not just dismissed.

Here are a few examples of the kind of conduct:

Negligent Misrepresentation:

Where the company knowingly made false promises to get you to join – and you relied on these promises and suffered damages.

Slander or Defamation:

Where the company or its employees slandered you by making public statements or producing documents that were false.

Conspiracy:

Where the company or at least two individuals worked together to cause you economic harm.

Intentional Infliction of Emotional Distress:

Where the company or its employees purposely try to inflict emotional suffering on you – and succeed.

There are numerous other examples – and the list of in appropriate conduct is always changing. It is rare for employers to agree that they have committed any of these acts in the course of settlement negotiations. However, in appropriate cases, employers may be willing to pay additional wrongful dismissal damages – or to allow for favourable tax treatment of damages – if there is a genuine case for these types of damages.

Punitive Damages:

Punitive damages can be awarded where the employer’s conduct is shocking and outrageous. However, that is not enough. Employees must also be able to show that employers committed some type of independent, additional wrong at the time of firing. Treating a person abusively and humiliating them may not be enough. Even it is, courts may only award $15,000-$20,000 in punitive damages – after a long and protracted fight.

The law continues to evolve in this area. In insurance cases, courts have concluded that insurance companies owe a duty of good faith to their policy holders. Breaching this duty has led to huge punitive damage awards of hundreds of thousands of dollars. For now, the Supreme Court of Canada has held that employers do not owe a similar duty to their employees. So these types of huge awards are not yet available.

Bad Faith Damages:

The Supreme Court has held that bad faith conduct at the time of dismissal can be the basis for a damages award.   Conduct that has been cited by courts across Canada has included – making false allegations of cause at the time of dismissal, refusing to pay the minimum amounts required by Provincial legislation and refusing to provide a reference letter as well as many other types of conduct. The decision of the Supreme Court, Wallace v. United Grain Growers, led to a rash of litigation over the definition of bad faith conduct. Many courts extended notice periods for a whole variety of reasons that they have defined as “bad faith.”  The Supreme Court has now revisited this issue and moved to a model of “general damages” in appropriate cases, rather than an extension of the notice period.  Plaintiffs must prove that they have suffered harm and are entitled to these damages.

How Does The Process Work?

If you have been dismissed, your first step should be to obtain legal advice about your situation. Ken Krupat can meet with you and discuss all aspects of your employment and dismissal with you. You will need to bring any documents that you have – including any employment contract that you might have signed – and any written documents that your employer has provided to you at the time of dismissal.

In some cases, the severance package that you have been offered will be so good that you will be advised to accept it – especially if you have found another job – or believe that you are about to be offered one. In most cases however, there may be room for the employer to move. Perhaps the amount of notice being offered is well below the appropriate amount – or it may be that the package has not provided for benefits, bonuses, outstanding compensation – or some other items that you should be receiving. Ken will provide you with honest advice about your realistic entitlement and whether it is worthwhile for you to proceed.

The next step is negotiation. Many cases are settled through written correspondence, phone calls or face to face meetings with your employer or its counsel. If you have obtained proper advice and the other side is represented by reasonable, knowledgeable counsel, you should have a good chance of resolving your situation at an early stage.

If your case cannot be solved early on, it may be necessary to take legal action. See the remedies section for more information. There are a variety of court options, depending on the value of your claim. There are also other options including human rights complaints, complaints to the labour board or other statutory bodies – and sometimes arbitration.

Very few cases actually go through the whole process – and wind up at a trial. By some estimates it is less than 5 in 100 – which is a good thing. After all, if most cases went to trial, that would be a sign that the law was either very uncertain – or that people were not very good at resolving their disputes.

Ken is quite experienced at using a variety of advocacy tools – including voluntary and mandatory mediation to make efforts at each step of the dispute process to try to reach a fair and reasonable resolution with the other side. Where this is not possible, and where appropriate, Ken will take your case to trial to ensure that you get the best possible outcome.

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