The dismissal of an employee is never an easy or pleasant task. However, in these difficult economic times, the dismissal of an employee may be necessary to maintain the economic viability of your organization. The purpose of this article is to set out the legal requirements for dismissing an employee and the risks and costs associated with a wrongful dismissal claim, as well as providing some guidance on how to decrease the risk of facing a wrongful dismissal claim by a former employee.

The legal relationship between employer and employee

The basic principle of wrongful dismissal law is that there is a contractual relationship between the employer and the employee, who are free to negotiate the terms and conditions that will govern the employment relationship, including its termination. However, these terms and conditions cannot provide for less than what is set out in the relevant statutes in your jurisdiction, such as the Employment Standards Act, 2000 (Ontario) ("ESA"), and the Human Rights Code (Ontario) ("the Code").

Whether the employment contract is written or oral, unless the parties otherwise agree, it is implied in all employment contracts that they are of indefinite duration and are subject to termination by the employer only for "just cause" or by giving reasonable notice of termination or pay in lieu of that notice. Where an employer terminates an employment contract without just cause or without giving reasonable notice or pay in lieu thereof, the employer is considered to have breached the contract of employment and wrongfully dismissed the employee. In those circumstances the employer may be liable to the employee for monetary damages.

Statutory requirements

In Canada, all provinces and territories have employment law statutes setting out the minimum level of entitlements that an employee must receive upon dismissal without just cause. In Ontario the ESA provides that employees are entitled to what essentially amounts to one week for each full year of service up to a maximum of eight weeks.

It is important to emphasize that these statutory payments are minimums to which an employee dismissed without cause is legally entitled. Depending on the circumstances, he or she may also be entitled to additional pay in lieu of notice under the common law.

Common law notice

Common law notice is much different than statutory notice, in that it is not determined by a particular statutory formula based upon the number of years of employment. However, over the years, Canadian courts have determined that an employee's reasonable common law notice must be determined by a number of factors. The Ontario judgment most often cited with respect to these factors is Bardal v. Globe and Mail Ltd. ("Bardal"), a 1960 case of the Ontario High Court (as it was then called). In Bardal, the court set out several factors that determine the applicable notice period, such as: the character of the employment (i.e. the position held by the employee) and the length of service.

In many instances, the longer the length of service, and the older the employee, the longer the notice period will need to be. Courts have imposed a rough upper limit on common law notice of 24 months. While there have been a few cases exceeding that period, these are quite rare.

Formerly, some judges applied a so called "rule of thumb" that an employee is entitled to roughly one month pay in lieu of notice for each year of service to the employer.

Additional common law damages for wrongful dismissal

One of the noteworthy developing areas of employment law concerns damages for an employer's unnecessarily callous dismissal of an employee. The Supreme Court of Canada's decisions in Wallace v. United Grain Growers Ltd., [1997] 3 S.C.R. 701 and Honda Canada v. Keays, 2008 SCC 39 confirm that if the employee can establish that the employer engaged in bad faith conduct during the course of dismissal, injuries such as humiliation, embarrassment and damage to one's self worth might well be deemed worthy of compensation.

The right to reinstatement

Common law claims for wrongful dismissal are for monetary damages only, and the law does not allow for reinstatement. However, an employee who was dismissed in breach of the anti-discrimination provisions of the Code may proceed with an application to the Ontario Human Rights Tribunal. If there is a finding of unlawful discrimination, the Tribunal has powers under the Code to order reinstatement, with full back wages.

Additionally, the Canada Labour Code provides a limited statutory right to reinstatement. The Canada Labour Code applies only to federally regulated industries, such as banks, marine shipping, and air transportation.

Termination for cause

The employer is always entitled to dismiss an employee without notice or termination pay for just cause. However, the onus is on the employer to prove that cause exists. The employer must prove incompetence or misconduct and not just dissatisfaction with performance or concern about potential misconduct.

Reducing the risk of wrongful dismissal claims

Defending a wrongful dismissal claim can be costly and time consuming for the organization. The following steps may serve to reduce the risk of facing such claims.

Use written employment contracts

Consider using written employment contracts, which specify the notice periods that the employee would be entitled to in the event of termination without cause. A well drafted employment contract may serve to limit the employer's liability in the event of employee termination. To avoid allegations that the contact was forced on the employee and is unjust, the employer should give the employee the opportunity to seek independent legal advice. Further, a current employee should never be advised that he or she is required to sign an employment contract as a condition of continued employment with the organization, as a court will likely not enforce such an agreement.

Secure a full and final release

In the event that you are offering your dismissed employee a termination package which exceeds the statutory minimum payments, have the employee sign a Full and Final Release in favour of the organization as a condition of receiving any funds beyond the statutory minimums. Such a release would protect an employer in the event that the employee has second thoughts about the severance package after he or she has been paid out.

Working notice suitable in some instances

Consider providing working notice instead of pay in lieu of notice. If the organization believes that the employee will still be able to function effectively after receiving notice that the job will be terminated, it will have the benefit of having a working employee throughout the notice period.

Documenting performance problems

In dealing with a problem employee, make sure to document any warnings, suspensions or other disciplinary actions on the employee's file. Such documentary evidence will be invaluable in supporting the organization's position that just cause existed as of the time of dismissal.

Conclusion

There are many issues to consider once the decision to dismiss an employee has been made. If the organization has any doubts concerning the legality of the dismissal or the appropriateness of the termination package being offered to the employee, it should consider seeking legal advice prior to any final decisions being made.

For more information, see Barry W. Kwasniewski, "The Ins and Outs of Wrongful Dismissal for Charities and Nonprofits", in Charity Law Bulletin No 153 (January 20, 2009), online: http://www.carters.ca/pub/bulletin/charity/2009/chylb153.pdf. bwk@carters.ca