What is Wrongful Dismissal?
There are two forms of wrongful dismissal. A dismissal is wrongful:
- if an employee is terminated with “cause”, but the “cause” alleged is unjustifiable, or
- if the employee is terminated without cause, but the employer did not provide reasonable notice of termination
In other words, employers must provide reasonable notice or pay in lieu to all employees unless there is just cause to support the termination. Otherwise, it is a wrongful dismissal.
This article will focus on the latter (2), whether the employee was terminated with reasonable notice. Please read our guide to (1) “just cause” terminations for more.
There are two kinds of notice.
Notice is the amount of advanced warning an employer must provide a terminated employee. It is measured in units of time. The employer has the option to provide one of two kinds of notice:
- working notice, or
- pay in lieu of notice
Subject to a few caveats, employers must provide terminated employees the same salary during the notice period, plus any incentive compensation (i.e. commission, bonus and equity) and benefits (i.e. health and dental, insurance, company car, cell phone).
Working notice is when an employee is terminated, but must continue to work (and get paid) until a set date following termination.
Working notice is legal in Ontario. Thus, if the employee is provided a reasonable amount of working notice, the employer owes the employee no additional money.
An employee may refuse to work during the working notice period and instead seek payment in lieu of notice in certain circumstances, most often where the relationship between employee and employer has soured to the point that working notice is impractical. Nevertheless, employees are cautioned to speak to an employment lawyer before refusing working notice, or else they may be found to have quit and therefore entitled to nothing. Call us today for advice related to refusal to work during the working notice period.
An employee who agrees to work during the working notice period is still entitled to seek additional pay in lieu of notice, above and beyond the working notice provided, in case the amount of notice provided is inadequate. As well, some employees would be entitled to a payment of statutory severance pay on top of working notice.
“Pay in lieu of notice” is occasionally referred to as “termination pay” or in some cases, by some lay people, as “severance”.
Pay in lieu of notice, sometimes referred to as termination pay, is the amount of money the employer must pay the employee if the employer seeks to immediately terminate the employee without working notice.
Pay in lieu of notice, similar to working notice, is measured in units of time. This means the employer owes the terminated employee either a lump sum payment or salary continuance for which the employee does not have to work for. The amount of pay the employer owes the employee following termination is called the “notice period”. If the notice period is insufficient, it is a wrongful dismissal, and the employee should seek out an employment lawyer to demand additional money.
Like working notice, what is a reasonable notice period depends on the circumstances, which will be discussed below.
Note that the term “severance” is a legal term that does not mean pay in lieu of notice or termination pay. Severance is a bonus paid to some long term employees under certain circumstances, but is usually worth less than a claim for wrongful dismissal and should be avoided without legal advice.
Notice is measured in two different ways: statutory notice and common law reasonable notice.
Employees may be entitled to both forms, which ever is greater, but at the very minimum, must receive statutory notice.
Reasonable notice is generally much more lucrative than statutory notice. In this regard, some employers put a limit on reasonable notice or provide a formula in employment contracts. Conversely, employers are not allowed to put a limit on statutory notice.
Even if an employment contract limits reasonable notice by way of a termination clause, an employment lawyer may be able to strike out that termination clause as void or unenforceable. Click here for more or call us today for advice.
Statutory notice is the minimum amount of notice that an employee must receive according to laws made by the government.
Employees who have worked for more than 3 months in an occupation regulated by Ontario must receive 1 week of notice for every year of service up to maximum of 8 weeks. For example, an employee who has worked for 6 years must receive 6 weeks’ working notice or 6 weeks’ pay in lieu of notice after termination, at minimum.
Likewise, employees who have worked for more than 3 months in an occupation regulated by the federal government (i.e. telecommunications, transportation, banking, etc.) must receive 2 weeks’ notice of termination, at minimum. In addition, federally regulated employees who have worked at least one year must also be provided 2 days’ notice per year of service, or 5 days at minimum.
It is always a wrongful dismissal if the employer provided the employee anything less than minimum statutory notice.
In other words, reasonable notice is the amount of notice than an employee must receive according to judge made laws passed down over time.
Reasonable notice is based on common law “precedents”, or similar cases from Canadian courts. For a lengthier discussion on reasonable notice, please click here.
Calculating reasonable notice is an art, not a science. There is no formula like there is for statutory notice. It is a myth that employees are generally awarded 1 month pay for every year of service. In fact, many employees get much more than 1 month’ pay for every year of service.
Calculating reasonable notice relies essentially on one key question: how much time will it take the terminated employee to find comparable employment? Judges usually determine this by examining four non-exhaustive factors:
1. the character of employment;
2. the length of service;
3. age; and
4. the availability of similar employment while having regard to experience, training and qualifications.
Thus, reasonable notice can vary widely depending on the circumstances. For example, a CEO of a Canadian bank, who worked for the bank for his entire career, who is 75 years old, and whose high level skills only apply to non-vacant positions at just a few other banks, would receive the maximum amount of reasonable notice. This is because it is virtually impossible for the former CEO to find comparable employment, considering:
1. any job less than CEO would be inappropriate;
2. his tenure with a single employer has tainted him;
3. his age is a barrier for the long term plans of another bank; and
4. there are few similar employers in the country, so his pool of target employers would be miniscule.
In this case, the CEO could receive up to 36 months’ of common law notice.
Alternately, for example, a fry cook at a fast-food restaurant in Toronto, who is just starting his career, who only worked one week, who is only 20 years old, who has no skills, would receive the minimum amount of reasonable notice because he could easily find comparable employment. After all, there are vast amounts of vacant, low skill positions he could apply to.
In this case, the fry cook would likely receive only one month of reasonable notice. Short term employees, even those who only worked a single day, are generally entitled to a minimum of 1-3 months’ reasonable notice. The courts are rational, and are aware it takes months, not days, for people to land on their feet.
Thus, whenever we get a new client, we ask them a series of questions reflecting the four points noted above. Thereafter, we compare the client’s answers with a special database of precedents from 1000’s of Canadian court cases to determine what a court would likely award that client based on their circumstances. Only then can we calculate how much reasonable notice they should receive.
Notwithstanding the above, the courts are open to creative interpretations of reasonable notice. For example, if an employee was persuaded to leave a job to come to another (i.e. inducement), the courts may take that into account in calculating the employee’s length of service and thus drastically increase the notice period.
Unless the employment contract states otherwise, it is a wrongful dismissal if the employer offered anything less than reasonable notice according to the common law.
Employees are entitled to salary, bonuses and benefits during the notice period.
Not only are employees supposed to be paid their usual salary during the notice period, but they should also be paid the same bonus they would have received during the notice period. In addition, they should also be provided the same benefits (i.e. insurance, cell phone reimbursement, etc.) during the notice period. In other words, the employee must be given the same compensation he or she expected to receive over the whole notice period, unless the employment contract says otherwise.
Notice may not be the only entitlement to funds an employee has access to following termination.
Employees can be awarded significant additional funds if, for example, they were terminated in bad faith, threatened with just cause where no cause existed, discriminated against or harassed.
In addition, employees are often entitled to be reimbursed for their legal costs in demanding or suing for more money, career transition services, the cost of moving, and training, among others.
Employees should never sign a termination package without consulting an employment lawyer.
Employers will likely never offer an employee their full entitlement to common law notice. Considering how lucrative common law notice is, why would they?
Our wrongful dismissal lawyers are regularly sought out by employees to provide consultation and advice, and write a demand letter or sue for wrongful dismissal, if need be. We are Toronto’s most trusted and respected wrongful dismissal law firm. Call a wrongful dismissal employment lawyer today.