KWA Partners
Lunch & Learn Seminar
How to Terminate Without a Law Suit
November 24, 2004
Janice B. Payne
Nelligan O’Brien Payne LLP
66 Slater Street, Suite 1900
Ottawa, ON K1P 5H1
Tel: (613) 231-8245
Fax: (613) 788-3655
[email protected]
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Introduction
In 1977, the Supreme Court of Canada handed down a landmark decision in a case called
Wallace v. United Grain Growers1. The majority of the Court decided that employers owe
employees a duty of good faith and fair dealing, especially at the time of termination of
employment, when they are most vulnerable. A breach of that duty will entitle the employee to
additional notice, or pay in lieu, the theory being that such breaches can add significantly to the
length of time it takes an employee to recover from the effects of termination of employment.
At the time, Wallace was the latest case in a series of decisions made by our highest Court that
identified and attempted to correct the power imbalance between employers and employees. Mr.
Wallace had suffered significantly from the effects of his dismissal in a small community when
wrongful allegations of just cause were made against him. He became seriously ill and was not
able to secure other employment. The Supreme Court confirmed a twenty-four month award of
damages, in essence adding in the order of nine months to the notice period that might otherwise
have applied in Mr. Wallace’s case.
The Court suggested in its decision that actions at the time of termination such as false
allegations of cause, refusal to provide references, terminations following recruitment from
secure employment and terminations during illness could be the kind of conduct that would
constitute a breach of the duty of good faith and fair dealing.
Ever since that decision, and notwithstanding language in the Court’s decision which stated that
such awards would not be routinely granted or apply in most cases, plaintiffs’ counsel scrutinize
the facts of cases that are brought to them in an effort to determine if a claim for longer notice,
sometimes called “Wallace damages”, can successfully be pursued.
In this paper, I will look at some of the most recent cases in this area that have received scrutiny
by the Supreme Court of Canada and the Ontario Court of Appeal. Some state that Wallace
principles are being followed; some find other grounds to compensate a plaintiff for
inappropriate treatment by his or her employer.
I will then conclude with a list of “best practices” that should assist employers in avoiding these
claims and others like them.
1
Wallace v. Grain Growers, [1997] 3 S.C.R. 701
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Allegations of Dishonesty – McKinley v. BC Tel2
Mr. McKinley had asked his employer to provide him with a less responsible position because he
was suffering from physical and mental disabilities. He took a leave of absence in 1993,
suffering from high blood pressure and hypertension. His employer was unable to find him a
suitable position and terminated his employment before he returned. It defended Mr.
McKinley’s wrongful dismissal action, in part, by alleging that he had exaggerated his health
problems and related workplace requirements because he had not told his employer that his
doctor had advised he could take medication to reduce those problems, although the medication
in question also posed risks to his health. It alleged that Mr. McKinley had been dishonest and
that his dishonesty constituted cause for dismissal.
At trial, Mr. McKinley was held not to have given his employer cause for dismissal and was
awarded four months extended notice under Wallace principles which was upheld by the
Supreme Court of Canada.
On the issue of cause, the Court held that while Mr. McKinley may not have made full disclosure
of all material facts concerning his treatment and medication, he did nothing that could constitute
dishonest conduct of a degree incompatible with his employment relationship.
McNamara v. Alexander Centre Industries Ltd.3
Mr. McNamara was fired after he informed his employer that he required medical leave. The
employer acknowledged that it had no cause for dismissal but argued that the value of Mr.
McNamara’s disability benefits should not be included in the calculation of his wrongful
dismissal damages.
The Court disagreed finding that Mr. McNamara would have demanded a higher salary if he did
not think that he would receive the benefit package that included his disability benefits. The
Court did not think that an employer should receive a windfall for “acting abominably”, i.e. by
choosing the occasion of an employee’s disability, “after 24 years of loyal service, as the
moment and reason to fire him”.
Ceccol v. Ontario Gymnastic Federation4
Ms. Ceccol had a contract with the Federation for a one-year term subject to renewal if she had
positive performance reviews. The contract was renewed fifteen times.
The Court concluded that the reality of the relationship was one of indefinite employment,
terminable on reasonable notice. The Court held that the courts “should be particularly vigilant”
when an employer tries to establish a term contract when in essence the relationship between
employer and employee clearly depicts an indefinite long-term position. The reasonable notice
2
McKinley v. BC Tel, [2001] 2 S.C.R. 161
3
McNamara v. Alexander Centre Industries Ltd., [2001] O.J. No. 1574 (C.A.)
Ceccol v. Ontario Gymnastic Federation, [2001] O.J. No. 3488
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period was held to be 16 months, notwithstanding a clause in the contract that attempted to
incorporate Employment Standards Act minimums into the relationship.
Marshall v. Watson Wyatt & Co.5
Ms. Marshall was a communications consultant. She accepted the employer’s offer of
employment over a competing offer when told that she would be offered an equity position and a
future role internationally. Her employment was terminated a year later.
The employer alleged cause for dismissal and maintained that position until shortly before trial.
In addition, it refused to pay the plaintiff approximately $80,000 in commission revenues
acknowledged to be owing to her and delayed for several months before sending her the record
of employment required for her EI benefits. The Court was satisfied that the employer had
practised the kind of “hard ball” conduct with Ms. Marshall when dismissing her which the bad
faith extension of the notice period is designed to deter.
The Court upheld a total notice period of twelve months, including a three-month extension for
the conduct described above.
Prinzo v. Baycrest Centre for Geriatric Care6
In this case, the employer fired Ms. Prinzo while she was on sick leave after slipping and falling
at Baycrest’s parking lot. Baycrest had previously notified Ms. Prinzo that her position was
going to be eliminated at some uncertain future date. She was forced to take time off work
because she was unable to move her right arm. During the time that she was off, the employer
repeatedly urged her to come back to work and falsely told her that her doctor had agreed that
she should. Ms. Prinzo had become so distressed by her employer’s conduct that her lawyer
wrote on her behalf and insisted that all future communication be with him. Notwithstanding
that letter, Baycrest continued to contact Ms. Prinzo directly.
The trial judge had awarded Ms. Prinzo 18 months notice plus $15,000 aggravated damages.
She had worked for the employer for 17 years as the manager of its beauty shop.
On appeal, the Court of Appeal reduced the notice period to 12 months but did uphold the
$15,000 award as proper damages for mental distress. The trial judge’s findings that the
employer was well aware of Ms. Prinzo’s poor health and that it knew that its treatment was
further harming her health, properly supported an award of damages for mental distress.
Gismondi v. Toronto7
Mr. Gismondi’s position was dissolved because of the corporate re-structuring of the new City of
Toronto. Although the trial judge had extended the notice period based on Wallace factors, the
5
Marshall v. Watson Wyatt & Co., [2002] O.J. No. 84 (C.A.)
Prinzo v. Baycrest Centre for Geriatric Care, [2002] O.J. No. 2712 (C.A.)
7
Gismondi v. Toronto (City), [2003] O.J. No. 1490
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Court of Appeal did not agree that these were present on the facts of this case. The employer had
been sloppy and had not followed its own policies carefully, but these were not sufficient to
justify additional notice.
The Court in its decision provided examples of the kind of situations that would warrant
extended notice pursuant to Wallace principles, namely false allegations that termination was
because of an inability to perform the job, persistence in allegations of cause up to the time of
trial or refusal to provide a letter of reference after termination.
Montague v. Bank of Nova Scotia8
Ms. Montague injured her shoulder as a result of two slip and falls at work. She stopped
working as a result and made a claim for long-term disability benefits.
The Bank rejected her claim because it was inadequately supported by medical information and
insisted that she return to work or face dismissal.
Immediately after being so advised, Ms. Montague told the Bank that she had made
appointments with her doctors to get the medical information required. The Bank proceeded
with dismissal in any event without making any inquiries regarding the new medical reports.
The trial judge extended Ms. Montague’s notice period by 3 months to 16 months to take
account of Wallace factors; the Court of Appeal upheld this decision stating that the Bank had
unfairly treated Ms. Montague by claiming that she had abandoned her job when she did not
return to work.
Belton v. Liberty Insurance9
In this very recent decision of the Ontario Court of Appeal, the Court was dealing with an
employer that was seeking to impose new contracts on its agents. When the agents refused to
sign, they were terminated.
The Court had no difficulty finding that the agents were employees and not independent
contractors and that they were entitled to reasonable notice of any change to their contracts.
Their refusal to sign and acknowledge their agreement to new contracts could not be cause for
dismissal.
Referring to the line of cases including Wallace, the Court acknowledged the vulnerability of
employees at the time of change and discussed the power imbalance between employer and
employees.
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9
Montague v. Bank of Nova Scotia, [2004] O.J. No. 13
Belton v. Liberty Insurance Co., [2004] O.J. No. 3358
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The Court held that employees who are confronted with change, that may or may not amount to a
constructive dismissal, are entitled to a reasonable period of time to assess the impact of that
change before they are obliged to either accept or reject the new terms.
Best Practices
Set out below is a list of pointers taken from these cases that should assist employers in avoiding
unnecessary and expensive law suits by employees who believe that they have been poorly
treated:
•
avoid allegations of cause for dismissal that are not supportable in law
•
investigate allegations of wrong-doing adequately and ask the employee for his or her
reaction to same prior to taking a decision to dismiss
•
assist a terminated employee with suitable references that attest to his or her strengths, on a
without prejudice basis if necessary
•
offer outplacement counselling to assist the individual with the transition to other
employment
•
manage the dismissal well with suitable internal and external announcements worked out
with the employee’s input where possible
•
if there are signs of health problems, make inquiries and route the employee to the
appropriate sick or long term disability policy rather than terminating; do nothing that will
jeopardize the employee’s coverage
•
avoid taking action to dismiss at times when an employee is dealing with other personal
problems, if possible
•
recognize that an employee who has been recently recruited from other secure employment
will be entitled to more notice than might otherwise be the case
•
get legal advice regarding the enforceability of termination provisions in contracts
•
use contracts that provide for a notice period that applies regardless of the position and duties
held at the time of dismissal but that also increases with length of service
•
when introducing change to terms and conditions of employment, get legal advice as to the
potential remedies that the employee may have, provide due notice and consider offering a
severance package as an alternative where the change is so fundamental as to constitute a
constructive dismissal