Employment Contracts and the Termination of Employees

Every worker has a contract with their employer.  The contract may be a written document, it may be an oral agreement, it may be an email, an SMS, a letter, or a combination of those items and other info.  It may be amended over time with new terms, promotions, raises, transfers etc.  Your employment contract is the combination of all binding aspects of your relationship with your employer.

Sometimes there are specific provisions in employment contracts dealing with termination, severance pay, notice periods etc.  In many cases those matters are not dealt with specifically.  In situations where termination is not addressed, employees are protected by the fact that the courts have set a legal precedent that says that all employment contracts have an implied term that the employer will not terminate your employment unless they provide the employee with reasonable notice of the termination, unless the employer can establish just cause for the termination.

Reasonable Notice

Canadian courts have long held that employees do not have a “right” to their job. An employer can let you go, terminating your employment, as long as they provide reasonable notice.  They do not need a good reason or any specific reason.  They can always replace you with someone else or leave the position empty.  They simply need to provide notice that your job will end which will allow the employee a reasonable time, with income still coming in, to make other arrangements and start looking for a new job.   An important matter to keep in mind is that the law does not say a terminated employee automatically gets severance pay but only that the employer has to provide working notice. As discussed below, that affects the amount of compensation you may be entitled to.

Wrongful Dismissal Issues

With those basic principles in mind, whenever we get a call from an individual who has lost their job, we consider three key issues:

  1. Whether there was just cause for the dismissal;
  2. If there was no just cause, how long is the appropriate reasonable notice period; and
  3. Whether the employee lost any money during the reasonable notice period or has mitigated their loss by finding replacement work.

1. Just Cause

Employers often think they have a good reason to let an employee go, but an explanation is not the same as legal just cause.  To establish just cause an employer either has to show:

(a) that an otherwise good employee has committed a single bad act so terrible that they can’t continue as an employee (e.g., theft, conflict of interest, complete refusal to follow a direct order of the employer in a serious issue etc.); or

(b) that for more minor misconduct (e.g., being late for work, bad attitude, poor safety record, not following policy etc.), the employer has applied progressive discipline, e.g., given clear warnings, opportunity to resolve the problem, warnings that if the conduct continues the employee will be terminated and ultimately only after all of that, termination.

It is difficult for an employer to establish just cause and courts usually give the benefit of the doubt to the employee.  If there is no just cause, the employer can still terminate the employee, but has to provide reasonable notice, or pay compensation in lieu of reasonable notice.

2. Reasonable Notice

Both the courts and the relevant legislation (Employment Standards Code) allow employers to terminate an employee provided they give the employee reasonable notice that their job is ending.  There is unfortunately no way for the employee to avoid losing their job at that point.  In most cases, the employer does not want an employee who has just been told their job is coming to an end to continue working, dealing with customers, having access to computer systems etc.  As a result, most employers choose to pay out the estimated lost salary and benefits the employee would have earned during the appropriate reasonable notice period.  That is what severance pay is – salary in lieu of notice.

There is no set chart of what reasonable notice periods should be, but the Supreme Court of Canada has set out some factors to be considered including:

  • the type of job,
  • salary,
  • the employee’s age,
  • experience and education,
  • the availability of replacement work etc.

Often the court will look at these factors and then set a number of weeks’ notice “per year of service.”  In many cases this means that shorter term employees (under 1-2 years of service) may only be entitled to a number of weeks or a couple of months of reasonable notice.  The maximum severance awarded by Canadian courts is 24 months’ notice. Most employees fall somewhere in between.  A common starting point is one month/year of service but the total amount can be higher or lower depending on the circumstances.

If an employee has been actively recruited from another job, been forced to move a long distance for a job with the employer’s knowledge or assistance or there are other extenuating circumstances, there could be a higher notice period.  Higher salaries, older age, a higher level of education or training, uniqueness of the job, and difficulty in the specific job market could all result in increases to the appropriate notice period.

Working Notice

The law only says that the employer must provide notice.  If an employer advises an employee that their job will end in 6 months, that employee will have to work out that that notice period in order to receive their salary and benefits.  If the employee finds another job and resigns at some point during their working notice period, they are entitled to no further compensation after their last day of work. The fact that an employer only has to provide working notice will affect the potential value of a claim for severance pay, as explained below.

3. Mitigating Your Loss and Calculating the Value of a Claim

All employees who have been terminated, whether allegedly for just cause or not, are required to immediately start looking for a new job and to provide proof they are doing so.  A terminated employee cannot sit at home and expect that severance pay will cover their time off.

Employee Proof of Mitigation

It is best to keep copies of resumes, cover letters, online applications, telephone numbers and potential employers contacted, dates, times and contacts for interviews, newspaper and Kijiji postings etc.  If litigation is necessary, an employee may need to prove how hard they tried to find work if they remain unemployed for an extended period.

Mitigation and Severance Pay

If an employee is able to find a new job at some point, any replacement earnings will be deducted from a potential claim for severance pay.  That is the case because, as discussed above, the law only says an employer has to provide working notice of the termination, and not severance pay.  For example, if an employer gave someone an appropriate (based on their particular situation) notice of four weeks, they would work for the four weeks and earn their salary and benefits up to the date of termination, with no further claim.  If an employer terminated the same employee without notice, however the employee found a new job at the same salary starting one week after the termination, the only amount that employee would have lost was their net earnings for the one week they were out work.  When they started the new job, and for the balance of the reasonable notice period, they would have replaced the rest of their earnings.

As a result, the important question is not simply “how long is the reasonable notice period” but rather “how much did the terminated employee lose during the reasonable notice period?”  The employee has to establish that they tried to find work, and they have to accept reasonable replacement work.  After considering mitigation attempts and success, we attempt to determine how long the reasonable notice period should have been and the amount of any mitigation from a new job. If there is a net loss during the reasonable notice period, that is the amount that can be claimed as compensation from the employer through a wrongful dismissal claim.

In addition to compensation for earnings and benefits lost during the reasonable notice period, terminated employees may sometimes be entitled to additional compensation for other costs and losses such as moving expenses, retraining, and other financial losses depending on the unique circumstances. Unfortunately, there is rarely any compensation for the intangible affects of a termination such as stress, aggravation, anxiety, pain and suffering, pressure on relationships etc.  All of those issues may be relevant in some unique circumstances and are points that can be discussed with a lawyer if there is a belief they may be relevant to a claim.

How We Can Help

We hope this information is helpful and provides you with a starting point for interpreting your particular legal circumstances. The specific facts of your case are always going to be important and need to be taken into account. Our firm has a great deal of experience handling wrongful dismissal claims for both employees and employers and are happy to help in any way we can.

If you have questions regarding a possible claim, please contact our office to schedule an employment matter consultation.  We charge a small fee for a one hour consultation where we can review your situation, confirm the applicable legal rules and principles, consider how the law applies to your situation, outline your options, and how you can expect the matter to be resolved. From there you can decide for yourself how you want to proceed and you will have the best tool you could hope for – a full and clear understanding of your legal rights and both the positive and negative aspects of your situation.

If you are a business requiring legal assistance on employment matters, such as drafting employment agreements, please contact our business lawyers.

Experienced Wrongful Dismissal Lawyers