Just in time for the new millennium, Canadians have received some encouraging economic news that will undoubtedly boost perceptions of job security. Unemployment in Canada has reached a low of 6.9%, the lowest jobless rate in decades. The Canadian economy has been booming, leading to the creation of almost 400,000 new jobs over the past year. Many employers have begun hiring for new full-time positions after years of cutbacks.

The U.S. economy has been fueling much of this growth. In the U.S., the jobless rate hit 4.1%, a remarkable low. Although these figures are calculated differently in the U.S., the low unemployment rate is quite impressive.

The recent unemployment rates sound promising but they do not provide the complete picture. Even in times of relative prosperity, more than one million Canadians are still without work. For those out of work, fewer are eligible to collect Employment Insurance benefits as a result of the 1997 changes enacted by the federal government.

For those who are working, signs are encouraging. Canadians are far more optimistic about their jobs than they were in the mid-90s. Although some Canadians feel that their skills are underutilized, recent studies show that Canadians have a greater sense of security about their jobs than do their American neighbours.

One of the primary reasons for the higher job morale in Canada is the legal system. Canadians in non-unionized jobs know they will be given reasonable notice of termination unless their employer can show “just cause” for dismissal. Although there is no set formula to calculate the amount of notice required, the law provides some assurance of fair treatment.

U.S. employment law is completely different. In most U.S. States, employees are employed “at will.” They can be let go at any time without notice or pay, for any reason. Although there are many ways around this general rule, the end result is that American employees can usually be dismissed with much less notice or pay than their Canadian counterparts.

While Canadian employment law appears far more compassionate than U.S. law, other countries provide even greater protection for employees. Many Canadians do not realize that, even at the end of the twentieth century, an employer does not need a reason for firing an employee, as long as proper notice is provided. This comes as a great surprise to many who have been terminated. Even though they have been offered a package, and maybe a reference letter, they cannot understand why they must suddenly begin a job search.

Jack Wallace faced this difficult life experience. He worked for the United Grain Growers for 14 years. He was the top sales person in the company. Without any justification, the company fired him and then refused to provide him with a fair settlement. Wallace’s case went all the way to Supreme Court of Canada and has become one of the most important decisions of the 1990s.

The Supreme Court of Canada rejected the idea that Canadians have an unconditional right to be treated fairly by their employers. Companies may make the decision to terminate for any reason. As long as there has been no discrimination, the decision cannot be questioned. The only requirement is that the company pays the employee the proper amount and treats the employee fairly during the dismissal process.

Canadians can take some comfort in having a greater sense of job security than Americans but many still feel that the system falls short. For example, the United Nation’s Universal Declaration of Human Rights includes the right to work and the right to protection against unemployment.

Some Canadians have legal protection that approaches this U.N. standard. Unionized workers can only be fired for just cause. Otherwise, job security increases over time with seniority. Although Unionized employees face difficulties such as strikes and labour disputes, a unionized job includes a higher measure of protection.

Canadians who work in federally regulated industries such as banks or airlines also have special protection. They can file an unjust dismissal complaint under the Canada Labour Code. After a hearing, they can even be returned to their old positions. In some ways, this also approaches the U.N. standard.

For the majority of Canadians, there is no right to a job. Job security depends on many factors such as performance, the economy and the good faith of the employer. Canadians are still vulnerable. After years of loyal service, employees may still be dismissed suddenly for no reason other than “reorganization.” This uncertainty leads to ever increasing workplace stress.

The level of legal protection we enjoy greatly affects our sense of job security and our stress levels. As we move into the new millennium, legal protection of job security will evolve. Fairness and good faith must become part of every employment relationship. This dramatic change will enhance our job security and elevate our overall sense of self-worth.

Downsized. Right-sized. Laid-off. Let-go. Whichever words are used, there is never really a good time to lose a job. But legally speaking, is it worse to be fired just before the December holidays? It may be. December terminations can create a number of special problems in wrongful dismissal cases.

First, there is the timing itself. In many jobs, December is a time of networking. Calendars are filled with invitations to seasonal parties. These can include industry get-togethers, client affairs and of course, the annual company holiday party. In some industries, this is a crucial time of year for developing new business. It can also be a time for rekindling friendships with old clients and other contacts.

Losing these networking opportunities can be devastating. Attending these functions after being dismissed can be difficult and disheartening. Since many of us define ourselves to some degree by our work, unemployment creates a loss of part of our identity. The Supreme Court of Canada has recognized this problem, referring to work as an essential component to our sense of identity, self-worth and emotional well-being.

In a landmark decision in 1997, Canada’s highest court ruled that employees must be treated honestly and fairly when being dismissed. If a person is treated in a “bad faith” manner at the time of dismissal, the bad faith treatment can extend the person’s wrongful dismissal damages. Since the “Wallace decision,” as it has become known, courts across Canada have listened carefully to evidence about conduct that might justify these extra damages. Refusing to give a reference or to pay wages and vacation pay amounts owing are examples of conduct that has been cited. Giving false reasons for dismissal is another example. Firing pregnant employees or employees on sick leave has also met the test. All told, being fired just before the holidays alone may not be mean extra damages. But a court might consider the poor timing as one of the factors in determining whether the employer acted in bad faith.

In one recent case, decided by an Ontario Court on October 18, 2002, Robinson Group Limited had decided to hold back three weeks’ wages when it dismissed Mary Black in December 2000. The Court called the Robinson Group’s actions “unconscionable” and awarded an extra two months’ pay to Ms Black on top of her twelve-month notice award.

Even if there is no bad faith in the way a person is fired, December dismissals can still lead to longer notice periods. Most employees dismissed in Canada are entitled to reasonable notice or payment instead of notice. There is no set formula. The Ontario Court of Appeal has called the process of setting notice periods an art rather than a science. Courts award these notice periods based on a person’s length of service, age, position and other related factors. The goal is to estimate the expected time needed to find a new similar job. Since few employers are actively recruiting in December, employees may need additional time if dismissed this time of year.

Another difficulty is the loss of a bonus. Bonuses are often paid either just before Christmas or just after the New Year. Some are calculated to year-end but paid later. If an employee is dismissed just before the holidays, can the employee still collect the year-end bonus?

Here the answer is usually easier. During the reasonable notice period, employees are entitled to be compensated for everything that they would have had if they had continued to work. So if a bonus would have been paid, dismissed employees should still be entitled to it. This might not mean getting the annual Christmas present but at least it is some consolation.

Employees who are let go this time of year should put together a careful record of everything they are missing as a result of the timing; parties, bonuses, presents and networking opportunities. It may all be relevant evidence for a judge to consider in setting a notice period.

For employers, it often seems easier to get expenses off the books before the end of the year. Starting out with a clean slate, especially after a rough year, can be attractive. But before jumping too fast, employers should weigh the human toll of ill-timed terminations. Although waiting one more month might make things more difficult from an accounting viewpoint, accounting is only one part of the equation. Any steps that employers can take to help their dismissed employees to get resettled and find new work are steps that can save money on severance pay. Handling dismissals in an honest, professional and compassionate manner is sound business practice. It fits the Supreme Court’s guidelines on dealing with employee dismissals. It may save money. And more often that not, it means letting employees enjoy their holidays and dealing with reorganizations early in the New Year.

The City interviewed Gismondi for three different jobs but decided not to offer him any of them. Instead, after 20 years, he was downsized. Gismondi was offered a severance package of 80 weeks pay. He refused the offer and sued, claiming that he had been treated unfairly.

Since the 1997 landmark decision of the Supreme Court in Wallace v. United Grain Growers, dismissed employees across Canada have been awarded increased severance packages for “bad faith” treatment. Grismondi argued that his case met this standard and an Ontario Superior Court agreed. In February, 2002, Grismondi was awarded more than two years’ pay, almost nine months more than the City’s original offer. Justice Gans held that the City harmed Gismondi by treating him “differently” from other candidates and by trying to be “diplomatic.”

The City appealed and the Ontario Court of Appeal released its decision on April 29, 2003. The decision was bad news for Gismondi, whose severance package was reduced back down to the eighty weeks that the City had originally offered. The Court of Appeal ruled that there was no reason why Gismondi should get more than eighty week’s pay.

Even though the City had been “sloppy” and had not properly followed its own procedure, this was not enough to convince the Court of Appeal to give Gismondi an extended notice period. There was no evidence of intent, malice or blatant disregard for Gismondi that is required in a bad faith case.

In its decision, the Court of Appeal set out a shopping list of conduct that can really land an employer in hot water. Here are some examples:

• Falsely alleging just cause when firing an employee
• Falsely telling an employee that the dismissal was for performance reasons
• Spreading word in the industry that an employee was terminated for dishonesty or for doing something “reprehensible”
• Refusing to provide a letter of reference
• Firing an employee right after a return from disability leave

All of these acts can cause humiliation, embarrassment and damage to the self- esteem of a dismissed employee. The appellate Court confirmed that employees should be compensated for these misdeeds even if the employer’s conduct did not affect their ability to find other work. The City had not done anything like this to Gismondi.

For most dismissed employees, the Gismondi decision is not really bad news. It reinforces the importance of treating employees fairly and honestly at the time of dismissal. Employers should provide a reference letter and a reasonable severance package in most cases. They should only allege just cause if they have a really strong case of misconduct and they should deal with dismissed employees fairly during the litigation process. This means that the severance package offered should take into account the person’s age, length of service, position, level of responsibility and expected difficulty faced in trying to find other similar work. An employer that designs a severance package with these factors in mind is not usually going to face an accusation of bad faith.

If employers do not meet these standards at the time of firing, dismissed employees can sue for an extended notice period. Extended damages have been awarded by courts across Canada for bad faith conduct. In one case an employee received extended damages when the employer falsely alleged forgery. In another case, the company refused to provide a Record of Employment and held back on commissions owing. Extended damages were also ordered when an employee was purposely fired just before his wedding. He was asked to accept a lowball offer and told that could not work elsewhere while receiving the payments.

None of this means that the average downsized employee is likely to get a better package these days, although there has been an upward trend since the Wallace decision was released in 1997. But employers are certainly more likely to exercise caution when letting staff go. If the employee has really been involved in serious misconduct, a just cause defence can still work, even though it is usually an uphill battle for employers to win. Otherwise, the Wallace decision can still be used by good counsel to get mistreated employees better settlements.

The decisions are likely to generate a high volume of litigation as employees and their former employers struggle to demarcate the new boundaries over some significant issues. The challenge for dismissed employees will be to find creative ways of getting around some of the implications of these decisions, while ensuring that their own conduct does not run afoul of the technical requirements of some of these cases.

This four part series of articles reviews and comments on these decisions.

Evans v. Teamsters Local Union No. 31 – Forced to Return to Work after being Wrongfully Dismissed

The Supreme Court’s 6-1 decision in Evans v. Teamsters is one of the harshest, pro-employer decisions issued by this Court in quite some time. Although the particular facts in this case probably narrow the implications of the decision, the Supreme Court nevertheless provides some comments which will concern many dismissed employees.

Evans had worked for the Teamsters for more than 23 years as a business agent in Whitehorse. He was dismissed following the election of a new union executive, which he had opposed during the union’s election process. The union terminated Evans’ employment and then asked to open negotiations. When the parties could not come to a deal, the union insisted that Evans return to work for 24 months of “working notice”. Evans refused to return to work. The union took the position that he had failed to “mitigate his damages” by refusing to return to work for the notice period.

The majority of the Supreme Court indicated that the appropriate question in this circumstance is whether a reasonable person would agree that the dismissed employee should be expected to return to work for his or her employer in all of the circumstances after being dismissed. The Court cited the requirement to consider work atmosphere, stigma and loss of dignity as well as nature and conditions of employment. However, the Court held that these questions should all be resolved by looking at an “objective” standard rather than a “subjective one”.

In this particular case, Evans had a number of concerns that would seem to have justified his concerns about returning to the workplace. After all, he had been dismissed by a newly elected union executive after siding with the losing side in a hotly contested election. He had what appeared to have been genuine concerns that the workplace would have been poisoned for him. These issues were all reflected in findings by the Trial Court.

Instead of accepting the Trial Court’s findings, the Supreme Court and the Court of Appeal overturned these factual findings even though that is generally not the focus of an Appellate Court. In particular, the Supreme Court focused on a letter that Evans had written in which he had said that he was willing to return to work if certain preconditions were met. Ultimately, the Supreme Court made a factual finding that “the relationship between Evans and the Union was not seriously damaged” and, “given that the terms of employment were the same, it was not objectively unreasonable for him to return to work to mitigate his damages”.

Justice Abella was the lone dissenting judge – and the lone glimmer of hope for dismissed employees facing this type of situation. She highlighted the fact that the Trial Court Judge had found nine reasons why it would be unreasonable for Evans to return to work and that generally it is not an appellate court’s role to overturn these types of facts.

For Justice Abella, the major issue here was whether or not it would be reasonable for Evans to be required to return to work. Justice Abella noted that employees cannot be forced to work against their will – and to continue to be required to work in an atmosphere not conducive to appropriate “personal relations” would be inconsistent with the law as it currently stands.

The end result as summarized by Justice Abella was that Evans was in effect fired twice. First he was fired without cause, which should have meant providing him with a reasonable notice period. Then he was dismissed with cause and not paid anything for refusing to return to work for the employer that had chosen to dismiss him. The conclusion is that a 22 year employee is left with no compensation because of the way he was dismissed and manipulated by his former employer.

As a practical matter, it may well be true that few employers will want to have their dismissed employees return to work for a lengthy notice period – especially where they have already chosen to issue a notice of dismissal instead of providing the employee with a period of working notice. However, employers may be able to use the Evans decision as a bargaining lever by threatening to recall employees to work out a notice period if they refuse to accept severance arrangements. Dismissed employees will have the obligation of showing why it would be objectively unreasonable to have to return to work for the employer that has just dismissed them

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.

If you have been dismissed, you may be entitled to significant compensation. This can include severance pay, outstanding bonus, compensation for bonus during the severance period, benefits, pension contributions and other amounts. You might be able to get outplacement assistance paid for by the employer and some employers may even pay for your reasonable legal fees to get everything worked out. If you have been given a severance package or a termination letter, here are a few points to keep in mind:

1. Don’t Sign Anything!

Some employers will ask you to sign a severance proposal on the spot, possibly even while also making some threats about what might happen if you don’t sign. Fortunately, most employers are not that unreasonable and would prefer to allow you some time to consider an offer. Take the offer, say very little and let the employer know you will get back to them. Even if you are in a difficult economic position, you will rarely benefit from signing something on the spot at the time of dismissal.

2. Be Professional

Resist the urge to attack the employer, launch an email missive directed at company personnel or say things you might later regret. Such statements or emails are rarely helpful or productive. If you are being investigated for cause and you are being asked about certain allegations, you may have an obligation to respond. But once you have already been dismissed, there is rarely anything that you might say at a termination meeting that will help with your severance negotiations or with your future references.

3. Find Your Original Employment Contract

One of the first things you should do is find a copy of your original employment contract or offer letter. There may be a “notice clause” or a “severance clause” in the document. If your employment contract or offer letter does have this kind of clause, it may limit your entitlement to severance or notice. You might be stuck with a very limited severance payout. There are some ways around these types of agreements, but not always. This can be very technical and will almost always require professional assistance.

4. Gather Information

For the best assessment of your employment situation and potential severance, you should gather key documents and information. Your compensation information for the past three years will be crucial including a breakdown of your base salary, bonus (if any), RRSP or pension contributions, car allowance, stock options or share purchase plan amounts, and other components of your compensation. As well, it will be helpful to try to put together a narrative of what occurred that you believe led to your dismissal. If this is a complete surprise and is really just a “restructuring,” there may be no need for an accompanying narrative. You should also try to make sure that you have any relevant emails, memos, performance assessments or other documents that relate to your performance or the reasons for your dismissal. If you are being dismissed for cause, it may be important to get witness statements about what took

5. Get Expert Legal Advice

If you have been provided with a severance package or you have been dismissed “for cause,” you should get specialized legal advice as soon as possible from an employment lawyer. You may be entitled to far more than the amount that the employer has offered. The employer may be willing to pay reasonable legal fees. You might be able to get certain clauses deleted or modified. Proper legal advice in this situation will usually involve a consultation fee. But you are entitled to objective advice about the best way of dealing with your situation and sound professional advice is almost always going to involve a fee. If the advice is “free,” you should check carefully what kind of retainer you will be expected to provide afterwards or what percentage of the settlement your lawyer will take. You should also find out whether the percentage is related to the whole package or only the improvement. You should feel comfortable with the overall fee arrangements not just the initial consultation itself. You should also feel comfortable that you will get the lawyer’s full attention at the initial meeting without an artificial time constraint so that you have enough time to go over everything that may be relevant.

6. Hit the Ground Running

In most cases, the best way of dealing with a dismissal is to begin the process of finding new employment fairly quickly. You should ask your employer for a reference letter or confirmation that you will be given a positive reference if the employer is phoned. Brush off your resume and consider getting professional assistance in developing a new version of it. Start using internet sources ranging from LinkedIn and Workopolis to Facebook and Monster as you put together your job search strategy. Keep track of all of your efforts, informal and formal contacts and applications. Try to set up “informational meetings” as well as interviews. Try to take care of yourself, which might include getting some exercise, making sure to get out and staying in contact with people important to you. Having a strong support network can help you feel positive about your transition and can also produce employment

Kenneth Krupat, Barrister
2000-393 University Avenue
Toronto, ON M5G 1E6
Phone: 416-593-0400
Fax: 416-593-0668
e: kkrupat@joblaw.ca
www.joblaw.ca

Luis Romero Olgin worked for Canac Kitchens as a cabinet maker and production supervisor for 24 years.  He was dismissed in 2003 at which time he was 55 years old.  His termination was “without cause.”  However, Mr. Olgin was not provided with common law severance at the time of dismissal, as required by Ontario law.  Instead, he was paid only the bare minimum amounts under the Ontario Employment Standards Act, amounting to 32 weeks’ pay.  His benefits were continued for only 8 weeks rather than for a reasonable notice period.

Only two weeks later, Mr. Olgin was able to find new employment with Cartier Kitchens, but at a much lower rate of pay.  With Canac Kitchens, Mr. Olgin had been entitled to Short and Long Term Disability Benefits (STD and LTD).  However, he could not get these benefits through Cartier.

Approximately 15 months later, Mr. Olgin underwent cancer surgery and continued to require cancer treatment, including various types of surgery for a number of years.  By the time this case came to trial, Mr. Olgin was still undergoing cancer treatment.  He was still disabled.

Mr. Olgin sued Canac Kitchens for wrongful dismissal.  At trial he was awarded a reasonable notice period of 22 months.  This meant that he was entitled to everything he would have earned for a period of 22 months, less whatever he earned while working for Cartier.  More significantly, Mr. Olgin was entitled to STD and LTD benefits from Canac for the entire reasonable notice period.  Since he became disabled approximately 16 months after being dismissed by Canac, Canac was still responsible for Mr. Olgin’s LTD coverage.  Based on available medical evidence, Mr. Olgin was awarded damages by the Ontario Superior Court (the late Justice Randall Echlin) for disability benefits to the age of 65.  These damages amounted to close to $200,000.  Mr. Olgin was also awarded punitive damages of $15,000 and compensation for legal costs of $125,000.

Canac appealed the decision to the Ontario Court of Appeal, which released its decision on January 31, 2012.  The Ontario Court of Appeal upheld the full award of STD and LTD benefits for Mr. Olgin to the age of 65.  However, the Court of Appeal overturned the punitive damages award since Mr. Olgin had not originally sued for punitive damages.

This decision has tremendous ramifications for employees and employers.  The Ontario Court of Appeal has made it clear that employers must provide STD and LTD benefits during any period of reasonable notice.  If an employee is dismissed and does not sign a release with his or her former employer, the employee will be entitled to disability benefits if he or she becomes disabled during the reasonable notice period.  This would not apply if the employer provides a severance package and the employee signs off – even if benefits are not included in the signed off package.

Employees in Ontario can sue for disability benefits if they become disabled at any time during a reasonable notice period as long as they have not otherwise reached a settlement with their former employer.

For employers in Ontario, the decision means that employers can be held liable for disability benefits if they cancel an employee’s benefits at the time of dismissal or shortly afterwards without a release.  Employers can avoid this liability by paying employees reasonably at the time of dismissal and by getting a signed release.  Without a release, employers can be liable for the full amount of any disability benefits.

This case clearly demonstrates that employees must be very careful when reviewing and deciding on whether or not to sign a severance package and release.  They may be giving up significant potential compensation and should only do so if the severance package is otherwise reasonable.

At the very easy end of the constructive dismissal spectrum are cases where employers unilaterally reduce an employee’s pay, with little or no notice.  Similarly, a significant demotion for an employee, even where the overall compensation is kept intact will usually be grounds for a constructive dismissal claim.  But there are many other cases that are in a much greyer area.  The reduction of some responsibilities, a change in reporting structure and sometimes, a change to the terms of a bonus plan, are all the types of changes that may not lead to clear results.

What about geographic relocation?  Can employees be asked to move as part of their employment?  Intuitively, one might have thought the answer would usually be “no.”  Although this might often be the case, the legal answer can depend on the context and the particular background.  Has the employee moved around before as part of the position?  Is the industry one in which employees are routinely expected to relocate?  Is the employer paying for moving expenses?  Is the employer offering any other alternatives?  These are all factors to consider.

In a recent case, the Alberta Court of Appeal (Robin Brown v. Pronghorn Controls Ltd.) held that a transfer from Red Deer, Alberta to Sedgwick, Alberta, approximately two hours away, was not a constructive dismissal.  The Court held the employee would be a branch manager in both places and would be entitled to the same terms and benefits, despite the disruption to his family life.

The Court of Appeal’s view was probably influenced by the fact that the employee had also refused another alternate position with the company in Red Deer and went on to find new employment, at a higher rate of pay elsewhere, quite quickly.  The Court looked at the background and history of Brown’s employment and applied those facts to conclude that this would have been a reasonable move.  In making its decision, the Court relied on a 1989 decision of the Ontario Court of Appeal (Smith v. Viking Helicopter) in which the Court had held that it was not a constructive dismissal to require an employee to move from Ontario to Quebec in the particular facts of that case.

This recent ruling from Alberta is not necessarily a definitive statement of Canadian law.  Other courts in other jurisdictions across Canada have taken and may well continue to take different approaches.  However, in determining whether a proposed transfer is a constructive dismissal, Canadian courts are likely to look at a number of factors including the following:

1. Is there an employment contract in place?  If so, does it permit the employer to relocate the employee?
2. Has the employee moved for work purposes while working for this employer?  Has the employee moved for professional purposes in the past, with other employers?
3. Is the proposed position equivalent in compensation, benefits and opportunity?
4. Will the employer be paying for all moving costs?
5. Is there a reasonable business purpose to the proposed transfer (i.e. as opposed to some type of vindictive relocation proposal).
6. Is the employer offering an alternative?

These are some of the questions that should be considered carefully when evaluating the likely success of a constructive dismissal claim as a result of a proposed relocation.  The legal answer may not always be as predictable as one might have expected.  Setting up a proper paper trail and asking the right questions can certainly help.  But ultimately, taking the wrong steps can be risky and costly, particularly, as with many other constructive dismissal claims, if there are other reasonable alternatives.

Antonio Di Tomaso worked for 33 years for Crown Metal Packaging as a mechanic and press maintainer.  He was 62 years old at the time he was dismissed.  He had applied for work with 22 other companies after being let go, but as of the time of the summary judgment motion, he had not yet found new employment.

Di Tomaso was awarded 22 months of compensation in the Ontario Superior Court. In issuing this award, the Court considered his length of service, age, anticipated difficulty of finding alternate work and other applicable common law factors.

Crown Metal Packing unsuccessfully appealed to the Ontario Court of Appeal.  It tried to argue that since Di Tomaso fell into the category of “clerical and unskilled employees” he should be awarded a much lower notice period.  It suggested that 12 months was the “cap” for Di Tomaso.

The Court of Appeal roundly rejected that argument.  In doing so, it completely eliminated the notion that there is a 12 month cap on notice awards for certain employees.  Although “character of employment” may still be a factor for courts to consider in awarding notice periods, it is only one factor among several and not the primary or controlling factor.

The practical meaning of this decision is that many Ontario employees may now be entitled to much higher notice awards when they are wrongfully dismissed.  They will still need to demonstrate that they have made reasonable and appropriate efforts to try to find other work.  But long service non-managerial employees should now be entitled to significantly better treatment when let go.

Here are some of the key things to look for as part of a “reasonable” severance package.

Severance Pay or Salary Continuation:  It goes without saying that the most important component is usually the severance itself.  Employers can choose to pay over time, with or without some kind of claw back (or “mitigation”) clause, or in one or more lump sums.  In most cases, this is the most important part of the severance package and in many cases, different components are negotiable.  The severance must, at a minimum, include compensation for the relevant provincial employment standards amount.  For example, in Ontario, the severance package must provide for notice pay under the Ontario Employment Standards Act and severance pay, if applicable.   If you are Federally regulated employee (someone who works in a bank, telecommunications company, tv network etc.,) the Canada Labour Code would apply instead of the provincial legislation.  Beyond the employment standards amount, employees can negotiate the length of time, the trigger for mitigation, the payment schedule or other terms.  This is all aimed at ensuring that the employee is compensated as required by Ontario common law, which itself, can vary wildly for each employee.  This is the area on which appropriate legal advice should generally be obtained.  The period of time for which the employee is being compensated is generally called the notice period or severance period.  

Bonus:  Dismissed employees should usually be compensated for accrued bonus for the current year (if there has usually been an annual bonus), as well as bonus for the severance period.  Many employers are quite reluctant to include the prospective bonus as part of the severance package.  If the employee has been getting the bonus every year and can show that he or she would have continued to get a bonus if employment had continued over the severance period, the bonus should be payable.  There may be wording in the original employment contract that overrides this entitlement, but it is often worth trying.  If there is wording in an employment contract or agreement that deals with the bonus, this will be something that needs to be properly assessed and considered. Commissions and Variable Pay:  For dismissed employees with fluctuating pay, the test is what the employee would have reasonably earned over the severance period.  Of course all accrued amounts are owed to the employee, subject to the terms of the employer compensation plan.  Going forward, most dismissed employees should be paid severance on the basis of overall estimated earnings, not just base salary for the entire notice period.

Benefits, RRSP and Pension Contributions:  Severance packages should include arrangements that compensate employees for all components of their compensation.  Generally, all benefits, including extended health benefits, STD and LTD insurance, RRSP contributions, pension contributions, and other perquisites should be continue during the notice period – or the employee should be compensated for the value of any items that are not being compensated.  For example, most insurers will not allow employers to continue LTD insurance plans.  Employees should request compensation for the loss of this employment benefit.  Many employers will agree to include that compensation in the severance package.  Pension losses can be a huge component of a severance package, particularly if the employer had a defined benefit pension plan.

Car or Mileage Allowance:  If the employee had the use of a company vehicle, the general rule is that the employee is entitled to be compensated for the personal use component of the vehicle.  In other words, if the employee used the vehicle for personal use 30% of the time (and showed that on his or her taxes), employers can be required to provide compensation for this loss during the notice period.  Some employers will be more flexible in this area and will either provide employees with the use of a vehicle over the notice period or pay a reasonable estimate of the real costs of the vehicle.

Outplacement or Retraining:  Strictly speaking, an employer is not necessarily required to provide outplacement or retraining as part of a severance package.  However, an employer can be required to pay for the employee’s reasonable costs of “mitigation” if the employee incurs costs in trying to find other work.  As a result, many employers will provide direct outplacement arrangements at their expense.  Dismissed employees may be able to negotiate the type of arrangements that are being provided, the organization, location, and value of such services.  As well, dismissed employees can often arrange to have an employer pay for some upgrade or retraining courses if that will help the employee find new employment.  Though some of this may sound expensive for employers, overall, providing these arrangements may help the employer reduce the time period that it will take the employee to find new work and that might save the employer some money.

References:  Employers are not strictly required to provide helpful references though some judges may look at this down the road and award extra damages for an employer’s failure to do, even if the judge does not state that expressly.  Employees should ask for a mutually agreeable reference and an agreement that any reference requests will be answered in a manner that is consistent with the reference letter or summary provided.

Legal and/or Accounting Fees:  Most employers should be prepared to make some kind of reasonable contribution towards the legal fees of a dismissed employee.  Once a lawsuit has been commenced, the employer can be required to make these contributions if the lawsuit had merit.  Employers will often try to avoid a lawsuit by including payment for some of the legal fees in a negotiated severance package.

Waiver of Non-Competition Clauses:  Some employers may be prepared to waive or modify certain non-competition terms or clauses that were contained in a dismissed employee’s employment contract.  This can often be a tricky conversation.  It is usually more likely that employers will agree to modify a non-competition clause (that might have been unenforceable anyways) than to modify a non-solicitation clause, that may actually protect the employer’s business.  Telling an employer that you would like to go and take their clients’ business is not usually the best way to get a great severance package.  But telling an employer that you won’t be able to find any work because of an overly broad non-competition clause may be viewed as reasonable.

Other Perquisites:  Employers will sometimes provide for items like health club memberships, personal cell phone costs, professional memberships, private annual physical examinations, employer discounts and other items.  These items should be reviewed and considered individually.  Employees will also need to weigh the value of pursuing an item that may not be significant in comparison to the other items.

General Damages:  Most wrongful dismissal damages are fully taxable as if they were income.  The withholding rate may be lower (i.e. 30% if the amount is over $15,000) but at the end of the year, the employee will have to pay tax on the full annual marginal tax rate.  An exception is if there is a basis for some of the damages to be paid as “general damages,” which are non-taxable.  This, fortunately, is not applicable for most dismissals. I say fortunately because it would be a harsh world indeed if every employer who dismissed someone had also acted in a way that would warrant general damages.  Nevertheless, conduct that violates human rights legislation or  other “bad faith” conduct can warrant payment of general damages. It is very rare that employers will actually negotiate and pay these damages without an actual lawsuit or human rights complaint but it does sometimes occur.

These are some of the items to look for in a severance package, though entitlements to these items will really depend on the terms of the person’s employment, the length of service, the type of position, the existence of any employment contract or offer letter and a range of other factors.  A key factor is the likelihood of the dismissed employee finding new employment since all of these items are only really payable if they are arranged initially, or if the employee is actively looking for work and unsuccessful.  Dismissed employees who find new employment quickly may only be entitled to the applicable employment standards minimums.

There is no set formula for exact severance pay calculation.  Despite the fact that some lawyers might claim there is a very exact number if you plug a few variables into a “severance pay calculator,” that only produces a rough average, which may not even be statistically significant.  In most cases, there is a range, sometimes a fairly wide range.  Employees need to consider all of the different aspects of the proposed severance including which items are being paid and which are not, whether the severance is being paid as a continuance or a lump sum, and other related factors.

This list of items is provided only as a guideline for things that employees should consider when looking at a severance package that has been proposed.  In most cases, particularly when a number of different items are listed, employees should make the tax-deductible investment of obtaining proper legal advice from a qualified employment lawyer.