In Canada, the terms of employment are governed by contract law. If there is no written contract of employment, then contractual terms may be implied from the common law. One of the key clauses, or non-clauses, is the employee’s entitlements upon termination of their employment.
If the dismissed employee is not provided with their entitlements upon dismissal, it’s referred to as a “wrongful dismissal”. If they are provided with those entitlements, then their dismissal isn’t “wrongful”.
This blog post sets out 10 points about dismissal law in Canada. Note that the situation for unionized employees is unique and is not covered by this blog post, which focuses on non-unionized employees in Ontario, Canada’s largest province.
You should also note that statutory entitlements upon termination vary from province to province and are also different if the individual’s employer’s labour relations are governed by federal statutes. We focus below on the entitlements of individuals employed in Ontario and not in the federal sector. Although a dismissed employee’s common-law entitlements are roughly comparable for employees in nine of the provinces and in the federal sector, they are not the same in the Province of Quebec.
Each province and the federal government has its own legislation setting out minimum employment standards. Employers in banking, transportation, the federal public service, and others, are regulated by the Canada Labour Code, which protects employees against dismissal without cause and requires employers to provide reasons for dismissal in all cases. Most sectors are provincially regulated.
For these reasons, and many others, it is important for an individual to obtain legal advice both at the time of accepting employment in Canada and at the time of the termination of their employment.
And we start off with the usual disclaimer – we are not providing legal advice in this article and you, or your client, should always seek the advice of a lawyer to address particular situations.
1. Employees dismissed for ‘just cause’ are not entitled to any notice or payment in lieu of notice
An employee may be terminated at any time for just cause, in which case there is no entitlement to advance notice of termination, compensation in lieu of notice, or severance pay. The onus of proving just cause lies with the employer. It is generally difficult for an employer to establish just cause, unless there is strong evidence of serious misconduct such as fraud, significant breaches of employer policies, insubordination, and so on.
2. Employees may be dismissed “without cause” if adequate notice (or pay in lieu of notice) is provided
The employment of non-unionized employees in Ontario – with the exception of employees in federally regulated workplaces[1] – can be terminated at any time, even if the employer does not have just cause or any cause whatsoever. In that situation, the employee is entitled to a period of advance notice, or compensation in lieu of notice, and in some cases statutory severance pay. The period of notice depends on a review of the employment contract, the employer’s personnel policy, if any, the relevant statute (the Employment Standards Act, 2000 in Ontario), and the common law.
3. Statutory notice and severance under the Employment Standards Act, 2000
Non-unionized employees at provincially regulated employers in Ontario benefit from minimum standards for notice and severance pay in the Employment Standards Act, 2000. The number of weeks of notice and severance pay (if applicable) is based solely on years of service. Briefly, an employee is entitled to one week of notice for each year of employment to a maximum of eight weeks. If an employee is entitled to statutory severance pay (this depends on factors such as the size of the employer), the entitlement is one week of severance pay per year of service, to a maximum of 26 weeks.
4. Unless the contract expressly limits the entitlement to the statutory minimum, the employee is entitled to reasonable notice at common law
If there is no contract of employment, or if the contract of employment does not limit the employee’s entitlements upon a dismissal without cause, then an employee is entitled to reasonable notice or compensation in lieu of reasonable notice pursuant to the common law. Reasonable notice under the common law tends to be significantly greater than statutory minimum notice periods. Even if the contractual termination clause purports to limit an employee to the statutory minimum standards, there may be reasons why that termination clause is unenforceable. For this reason, it is important to have an experienced employment lawyer review the termination clause.
5. Reasonable notice at common law is contextual and based on what courts have awarded other employees in “similar situations”
Courts have held that the determination of a common law reasonable notice is more of an art than a science. It is based on a comparison of an employee’s situation with prior court decisions involving employees in similar situations. Relevant factors include age, years of service, duties and responsibilities, salary level, and other factors that might be unique to the employee (e.g. an inducement to leave an established employment relationship to take the job, particular difficulties in finding new employment after dismissal, etc.). In the past courts sometimes referred to a general rule of one month of notice per year of service, but that approach has been rejected in favour of a contextual approach in every case and is never followed in the situation of a short service, older employee.
6. An employee’s right to common law reasonable notice is subject to the duty to mitigate, unless it is a fixed-term contract
A dismissed employee is required to mitigate his or her damages by seeking out alternative employment during the notice period. If an employee obtains alternative employment during the notice period, then the earnings from that alternative employment are deducted from the notice period damages. Similarly if an employee refuses a reasonable job offer, or fails to adequately search for alternative employment, the court may find a failure to mitigate and reduce damages accordingly. If the contract provides for employment for a fixed-term or if the contract provides for payment of a specific number of months upon termination without specifying a duty to mitigate, there is no duty to mitigate and the employee is generally entitled to payment for the duration of the term or for the specific number of months, if applicable.
7. Wrongful dismissal claims are typically brought in the courts
Wrongful dismissal claims may be adjudicated by a variety of bodies, including: the courts, the Ministry of Labour (for statutory claims), arbitrators (where there is an arbitration clause), or the Human Rights Tribunal of Ontario (where there are allegations of discrimination). Importantly, an employee must choose which forum to pursue at the front end, e.g. he or she cannot pursue both a statutory complaint and a civil claim. The lawfulness of arbitration clauses in employment contracts is in flux following a recent court decision (which is under appeal) invalidating an arbitration clause in Uber’s employment contracts because it contracted out of statutory minimum standards and was found to be unconscionable by requiring costly arbitration in the Netherlands. However a properly worded arbitration clause in an executive’s employment contract would likely be enforceable.
8. If discrimination is involved, an employee may claim human rights damages in court or at the Human Rights Tribunal of Ontario
The Human Rights Tribunal of Ontario is a specialized administrative tribunal with jurisdiction to apply the Ontario Human Rights Code. If there are issues of discrimination under the Code as part of the dismissal, an employee may decide to pursue a complaint at the Tribunal instead of in the courts. The Tribunal can also award damages in lieu of reasonable notice and, unlike the courts, has the jurisdiction to order a wider range of human rights remedies, including the reinstatement of an employee. If the employee pursues a wrongful dismissal action in court rather than at the Tribunal, the employee may still seek human rights damages.
9. Just because the employer is a Canadian company doesn’t mean you have to bring your action in Canada
A Canadian court will accept jurisdiction of an action brought by a dismissed employee if there is a real nexus between the employment relationship and Canada, or if there is a specific clause in the employment contract conferring jurisdiction on a court in Canada. The Canadian court may also enforce a clause in a contract specifying that the employment laws of another country apply, although the court may examine those laws to satisfy itself that they provide at least the minimum statutory entitlements afforded the employee in the Canadian jurisdiction.
10. Bottom line: negotiate the contract at the time of hire/relocation
As described above, an employee’s entitlements following termination may vary considerably depending on what the contract says. It is therefore important to get legal advice at the time of hire or relocation in order to fully understand the entitlements an employee may or may not enjoy following termination.
[1] As noted, employees in sectors where the federal government has jurisdiction are entitled to reasons for dismissal under the Canada Labour Code. The majority of employees work in provincially-regulated sectors which are subject to employment standards legislation in each of the provinces.
James K. McDonald and Louis Century
Toronto, Ontario, Canada
