Employment & Human Rights Law In Canada : Canada Employment Human Rights Lawyer : Lisa Stam, Law Firm : Labour Law in Toronto, Ontario

Recently, a reader asked me whether cutting back the hours of a department of hourly paid employees by about 5 hours a week for a few months would create any problems. She correctly identified constructive dismissal as the issue to consider.

What is Constructive Dismissal?

“Constructive dismissal” is when an employer unilaterally makes such substantial changes to the employee’s contract so as to breach the terms of the contract, amounting to an indirect termination. 

For anyone who has seen the movie Office Space (and everyone absolutely should), dear Milton is the classic case of constructive dismissal. Rather than firing him - or for that matter, trying to figure out what he actually did at the company, since he had been laid off a few years earlier, but continued to be paid through a payroll glitch - they gave him progressively demeaning conditions of work to the point where they relocated his office to a corner of the basement with leaky pipes, no phone or stapler, and piles of boxes and supplies around his desk. 

With slightly more precedential weight, the oft-cited Supreme Court of Canada case, Farber v Royal Trust Company explains constructive dismissal as follows:

24.  Where an employer decides unilaterally to make substantial changes to the essential terms of an employee’s contract of employment and the employee does not agree to the changes and leaves his or her job, the employee has not resigned, but has been dismissed.  Since the employer has not formally dismissed the employee, this is referred to as “constructive dismissal”.  By unilaterally seeking to make substantial changes to the essential terms of the employment contract, the employer is ceasing to meet its obligations and is therefore terminating the contract.  The employee can then treat the contract as resiliated for breach and can leave.  In such circumstances, the employee is entitled to compensation in lieu of notice and, where appropriate, damages.

Practically speaking, an employee traditionally had to repudiate the revised terms by leaving the job and then sue for damages after the fact.  The risk to an employee is very high, since they may be resigning from an employer who in fact had no intention of firing him or her, but rather, simply made some changes to the business about which the employee was unhappy.   

Recent Developments

This area of the law is evolving, and some recent cases suggest an employee may be expected to stay on to mitigate his or her losses while looking for another job if the atmosphere is not hostile or embarrassing (e.g. Evans v Teamsters Local Union No. 31).  As well, in Wronko v Western Inventory Service Ltd, the Ontario Court of Appeal held that simply providing notice of fundamental terms may no longer be sufficient to avoid a claim of constructive dismissal.

The Employment Standards Legislation

The Ontario Employment Standards Act provides that constructive dismissal is a “termination” under section 54 if:

56(1)(b)    the employer constructively dismisses the employee and the employee resigns from his or her employment in response to that within a reasonable period.

An employer found to have constructively dismissed an employee is therefore liable for the same statutory termination and severance pay amounts as required for general terminations.

Examples of Constructive Dismissal

In addition to the demeaning actions against Milton, examples of constructive dismissal include:

• unilaterally revising an employee’s contract to introduce a very narrow termination clause without consideration (i.e. without something in return, such as a bonus payment);
• revising an employee’s job description to remove significant aspects such as supervising a team or leading an important ongoing part of the business; or
• moving an employee from a corner office to a cubicle. 

More obviously, any decrease in compensation usually triggers the risk of constructive dismissal.  Examples include:

• moving an employee from straight salary to a lower salary with commission;
• changing positions into a lower pay scale;
• transferring an employer to a jurisdiction with a higher cost of living but no salary increase; 
• removing a car bonus; or
• cutting hours.

Can you Decrease a Department’s Hours?

So what about slightly decreasing an entire department’s hours temporarily? This is a common strategy in our struggling economy. Assuming the department is not comprised of only one, otherwise poor performing or problematic employee, and assuming the decrease is small and temporary, a department-wide slight and temporary decrease of hours based on an objective business decision should be fine. Yes, there is a risk, but not significant, primarily because no individual is being targeted. 

In addition to whether an individual is being targeted, the caselaw looks at the impact on the employee’s wallet at the end of the day. Very generally, if the decrease or change in compensation scheme amounts to an overall compensation cut of over 10%, you can be sure there is a constructive dismissal claim. Anything under 5%, particularly if backed up by objective, strong business reasons, is usually okay. The 5-10% range enters into a danger zone, and will depend on the context and surrounding factors in each situation.

Of course, all of the above is subject to any terms or conditions found in an employment agreement that speaks to the company's right to make changes to the position in question.

Tips for Employers

Communication is the key. Employees know the economy is still tough, and most would prefer a job with small modifications than to have no job at all. In my experience, constructive dismissal claims arise more from an employee who felt pushed out, hurt and angry, rather than any true complaint of a decrease in salary or responsibilities. 

Communicate the business reason for the change and provide as much notice as the business can bear. Reassure the employee(s) that the company is happy with his or her work, but is forced to make some hard business decisions. Study after study shows that employee satisfaction is based more on being valued and playing a meaningful part of the organization than on whether he or she receives a 50 cent raise this year. 

And for goodness sake, try and avoid issuing a press release the next day that reports the company is enjoying an excellent quarter and top bonuses are scheduled to be paid to management as a result of top profits.

If you in fact have every intention of pushing an employee out the door and hope that he or she will quit so you are off the hook for termination and severance pay, you may want to rethink your strategy.  Aside from issues of workforce morale and employee productivity, particularly nasty constructive dismissals may also face the risk of bad faith damages.

How has your workplace been dealing with the ongoing recession crunch?  Any tips you'd like to share on how your organization has creatively weathered the storm?

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Recent caselaw suggests that huge damage awards for employees claiming wrongful dismissal is on the decline. Upper courts continue to cut down lower court awards and eliminate “bad faith”-types of compensation.

Last month, in Soost v Merill Lynch, the Alberta Court of Appeal reduced the lower court award to dismissed stock broker, Kurt Soost, from $2.2-million to $600,000. The Court held that while the employee was wrongfully dismissed by Merrill Lynch Canada, 12 months’ notice was a sufficient award for a high performing 3 year employee. It reversed the additional $1.6-million bad faith award the lower court had awarded for the loss of Soosts’ book of business as a result of the termination.

In Canada, if an employee is terminated with cause, the employee is entitled to no notice or pay in lieu of notice.  If, however, the employee is terminated without cause (or sues and a court sides with the employee), the employee is entitled to notice of termination or pay in lieu of termination.   Although there is no official rule of thumb, most agree the range of notice is between 3 to 5 weeks of notice per year of service - or a payment in lieu of such notice.  Courts have generally capped awards at around 12-15 months, but some have gone as high as 24 months.

In addition to the payment in lieu notice reflecting the number of years the employee has worked at a company, courts have inconsistently awarded additional awards for behaviour such as an employer's bad faith in the termination, the employee's mental suffering, and other losses suffered by the employee. 

Key to the analysis in Soost is whether the employer was acting in bad faith when terminating Mr. Soost.  Since the Supreme Court of Canada's Keays v Honda Canada case in 2008, employee plaintiffs must prove that the employer’s conduct caused actual losses. The act of dismissal itself is not a sufficient “bad faith” or loss that warrants extra damages from the court. 

The trend over the last couple of years has been to limit the damages awarded to employees for wrongful dismissal.  While it remains impossible to predict exactly what a court would award, it appears that for most cases, the basic notice period requirements will be the extent of the damages.

For a good summary of the case and further commentary, you may want to visit the following sites: 

• In yesterday's Globe & Mail Law Page, Jeff Gray provides a succinct summary of the case
• Michael Fitzgibbon's blog, Thoughts from a Management Lawyer
• Stuart Rudner's commentary on the First Reference blog  

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Working notice is like eating at a cheap buffet restaurant - it's inexpensive, and it seems like a good idea at the time, but the meal doesn't taste so great within a short period of time.  This usually applies to both employers and employees.

I often have employer clients looking for a way to lower the cost of dismissing more expensive employees by providing some or all of the notice in working notice, rather than paying out the full amount owed in cash. 

No "At Will" Employment In Canada

For American clients in particular, the cost of terminations in Canada can often seem quite high.  We do not have an "at will" employment concept in Canada, so if an employer wishes to dismiss an employee without cause (for business restructuring, redundancy, etc), the employer is essentially breaking the employment contract, which the courts otherwise deem to be a permanent long-term relationship.  In order to break that contract, the employer must either give working notice to the employee or make a payment in lieu of that notice

How Much Notice is Required?

Most employment law is governed by provincial statutes, so the amount of notice varies slightly from province to province.  In Ontario, there are four sources of notice that could dictate the amount of notice an employer must provide to an employee:

1.      Employment Contract – if the parties entered into an employment contract that contains a termination provision, the terms of that contract will apply and will trump any common law (i.e. court) amount or amount required by the Ontario Employment Standards Act (ESA) (assuming the employment contract provides more than that set out in the ESA).  This generally applies in the unionized context where the collective agreement will dictate the terms of termination.

2.      Termination Pay – the ESA requires that an employer provide 1-8 weeks of notice (or pay in lieu), depending on the years of service of the employee.  Termination Pay can either be pay in lieu of notice, or can be provided as a notice period during which the employee is required to continue working.  The Ontario Ministry of Labour website provides details on dismissals and the ESA.

3.      Severance Pay – in Ontario, an employer must pay Severance Pay in the amount of a week of pay for each year of service (up to a maximum of 26 weeks) if the following apply:  the employee was employed by the employer for 5 or more years and (i) the employee is one of 50 or more employees terminated because of a permanent discontinuance of all or part of the business, or (ii) the employer has a payroll of $2.5 million or more.  Severance Pay must be provided as a lump sum payment and cannot be provided as working notice.

4.      Common Law – The ESA provides the minimum amount employers must provide to employees.  Courts will generally award more, taking into consideration an employee’s age, length of service, type of employment and availability of similar employment.  Often the common law amount will be in the range of 3-5 weeks of notice for each year of service, depending on the circumstances.  This is inclusive of any ESA amounts, not in addition to ESA amounts.

As an example, an employee without an employment contract with 30 years of service at a company with a payroll of at least $2.5 million will be entitled to 8 weeks of Termination Pay and 26 weeks of Severance Pay as a minimum.  That’s without considering what a court would offer on top of the ESA amounts.

Payment or Working Notice?

Unless the employment contract says otherwise, and other than Severance Pay which must be paid out as a lump-sum payment, an employer can offer all of the notice as working notice rather than pay.  The question is, do you really want to?

Generally, employees prefer the pay in lieu of notice.  No one wants to working under the cloud of dismissal, and the clean break gives the employee the time to move on and find a new job.

Generally, employers want to save the money by giving working notice, but here are some of the reasons why many employers in fact opt for the pay in lieu of notice:

• no bang for your buck  - rarely does an employee retain his or her enthusiasm for the job and productivity inevitably goes down;
• workplace sabotage - in highly sensitive positions, it is often best to make the clean break so that the employee is not tempted to take business secrets, confidential data or company property with him or her prior to the end of the working notice period;
• the business must go on - if the reason for the dismissal is to bring in fresh talent, why wait out the many months for the employee to finish up the working notice period when you could bring in the fresh talent asap; and
• workplace morale – an unhappy employee on their way out may drag down your other employees and create an atmosphere of low morale.

One option is to combine working notice with a pay in lieu of notice.  If, for example, you have decided to give your 30 year employee 18 months notice, you could do 12 months of that notice by way of working notice and pay out the remaining 6 months at the end of the working notice period.  In this example, an employer would have to pay at least 6 months as a lump sum payment for Severance Pay in any event, so the combination may be a natural break down of the notice provided.

Cost Effective Decisions

At the end of the day, employers with employees in Canada should balance the cost of a dismissal without cause with the potential cost of litigation.  If a company offers a long-term employee little more than the ESA amounts, there is a high likelihood the employee will sue for wrongful dismissal.  Even if the court awards the employee only a small amount above the ESA requirements, the hassle, the costs of litigation and the invitation to other employees to do the same will not be worth the several weeks of extra pay a company could have included in the original dismissal offer to the employee.

Additionally, any taint of bad faith or poor treatment during the termination process will invite a court to increase its award.  By offering a decent dismissal offer in the first place, a company can hopefully avoid the scrutiny of the court and help contain costs.

Finally, it should be noted that none of the above applies if an employee has been dismissed with cause.  An employee who steals, who has a long record of discipline issues, or has engaged in a serious act of violence, for example, all may be grounds for dismissal with cause.  In that case, no payment or notice is required. 

The threshold of “with cause” is high in Canada, however, and an employer would be wise to think hard about whether it has sufficient evidence to prove dismissal with cause.  In the case of any doubt, offer a decent package and be done with it.

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Just in time for Valentine's Day, Toronto city councillor Adam Giambrone made a statement to the media  last night that he has had "intimate relations" with women other than his spouse throughout most of 2009. 

While at 32 years old, the politician may be excused for the lapse in judgment, given his former bid to run for Mayor of Toronto, the jury is out whether public opinion will be quite so forgiving.

In my view, the interesting issue is not so much whether he had affairs, but rather, the extent to which the news will have a negative affect on his credibility and ability to assume the role of leadership and responsibility of running a large city.  In fact, he has stepped down from his candidacy within a day of the news.

Companies are forced to deal with this all the time.  What happens when one of your senior people starts behaving inappropriately at the staff party?  When rumours start to fly about an affair with a junior person in the organization?  Or when two people approach you, as owner, to declare that their mature romantic relationship will not impact their workplace professional relationship?

The courts zero in on consent - if a senior executive is romantically involved with a junior employee, is the employee really fully consenting?  Or is he or she just worried about job security? 

Unless your workplace policy says otherwise, it is likely fairly benign for employees to engage in relationships with people at the same level, at least in the short-term while they are each at the same level.  The cases are clear, however, that relationships crossing supervisory roles are a problem.

In the 2009 Ontario case Cavaliere v Corvex Manufacturing, the plaintiff sued the company for wrongful dismissal.  He had worked his way up the company to a senior management position.  After a warning about sexual relationships with one employee, the plaintiff engaged in a relationship with another employee.  When that employee's husband found out, he went straight to the owner.  The owner - and the court - found that the pattern of behaviour was sufficient grounds for dismissal.

The plaintiff insisted that the relationships were consensual and relied on a 1995 case that found consensual relationships in the workplace were not grounds for dismissal.  He argued that if the relationships were consensual, his dismissal was wrongful and he was entitled to damages for pay in lieu of notice. 

The court in Cavaliere, however, held that in 2009, the achievable expectation for an harassment free workplace required a look at all of the facts, which included:

• the company had already warned him in writing to cease the behaviour;
• he was in a position of senior management; 
• the last relationship was with a particularly vulnerable junior subordinate; and
• the plaintiff just "didn't get it" that the behaviour in the circumstances was inappropriate.

These were all reasons to uphold the termination and deny him any termination pay.

Those in leadership roles will bear a greater onus to guard against romantic relationships with subordinates.  While many Canadians still agree that the state (or the courts or the company) has no place in its citizens' bedroom, for leaders and senior folks in your organization, that may not be quite so true.    

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One of the more stark contrasts between Canadian and American law is the law around terminations of employment. This may be rooted in the fundamental difference between the American "at will" concept versus the Canadian contract-based employment relationship. In other words, unless a contract says otherwise, in the US, an employee is hired "at will" and can be terminated with little to no notice.

Any Canadian employer - and certainly any American employer with a branch in Canada - will tell you that termination of employment requires a careful look at the employment contract to determine the parameters in which the termination can occur. If the contract doesn't survive a court's scrutiny, in many situations, an employer is often looking at paying an employee 3-5 weeks per year of service if the termination is found to be wrongful.

What is not necessarily in the contract, however, is the Canadian requirement to terminate only in good faith and without public humiliation. In other words, even when terminating an employee, Canadians have to be nice about it.

There are a number of cases that have awarded additional damages to a terminated employee if the employer conducted the discharge in a publicly humiliating or unnecessarily cruel manner. Terminations should be in person and the employee is entitled to know the grounds for dismissal.

A recent example is the case of Soost v Merrill Lynch Canada Inc in which an Alberta court awarded the terminated employee damages for wrongful dismissal. Not only was the employer found to have not had grounds for termination, but the court held that " the Defendant’s actions in purporting to dismiss Soost for cause were both unfair and insensitive."

For more details on the facts of the case, Christina Catenacci has done a great summary entitled, The importance of notice and manner of dismissal over on the First Reference Blog.

The bottom line is that Canadian employers always need to proceed slowly, with caution and with a hefty paper trail to back up the reasons for the termination. Now, in light of the damages award in Soost, there is even more financial incentive to be decent about it. It could get expensive otherwise.

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Should an employer friend his or her employees on Facebook? Connect on LinkedIn, follow on Twitter or read an employee’s blog? There is no consensus and employers continue to grapple with the role of social media in the workplace – and the role employers should take within these vehicles of communication. 

The more difficult question is not whether to friend, follow or read, but whether an employer can then rely on that information as evidence when hiring, disciplining or firing an employee. Does social media produce reliable legal evidence?

In the British Columbia Court of Appeal case, Bishop v. Minichiello, released last week, the court upheld the lower court decision that ordered production of metadata from a plaintiff’s computer regarding his usage of Facebook. The court required the plaintiff to forward a copy of his computer hard drive to a neutral third party who would compile data on the narrow issue of the amount of time the plaintiff was spending on Facebook from 11pm to 5am. This was directly relevant to the plaintiff’s personal injury claim and to alleged fatigue during the day. The court permitted the forensic computer search on narrow grounds. While not an employment law case, the case does speak to how a court would rely on Facebook evidence.

Recent employment specific examples in the case law include:

• Making disparaging comments about the company or the boss online: this is usually valid grounds for some sort of discipline, particularly if a fundamental breach of trust results from particularly nasty comments.
•  Discovering unfavourable information online about a potential candidate and choosing not to hire him or her: this has human rights violation written all over it if the decision to not hire can be connected to the candidate’s age, disability, pregnancy, or any other ground protected by the Human Rights Code.
• Firing someone because of comments posted on someone else’s Facebook Wall: talk about six degrees of hearsay separation! (Alberta Distillers Ltd. v. United Food and Commercial Workers, Local 1118 (Whiteside Grievance) [2009] A.G.A.A. No. 46)
• Firing an employee because of information on their Facebook page if the employee claims the entire Facebook page is a fake page created by his ex-girlfriend: questions arise of proving the evidence found in Facebook.
•  Whether a Status Update on Facebook could violate the confidentiality terms of a settlement agreement: apparently not, if the status is vague enough.

While American employers tend to have more leeway with disciplining employees for information gathered online, Canadian employers must continue to be cautious of the human rights regimes, privacy laws and employment law culture that afford employees more protection of their personal information than our neighbours to the south.

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