Wrongful Dismissal in Ontario
A wrongful dismissal occurs when an employer either: (i) terminates an employee without cause but fails to provide the employee with sufficient notice of dismissal; or (ii) terminates an employee for cause without providing any notice of dismissal in circumstances when the employer did not have just cause to dismiss the employee.
A wrongful dismissal is a breach of contract.
It is called a “wrongful dismissal action” when an employee commences litigation against his or her former employer seeking monetary damages because the employer failed to provide the employee with proper notice of dismissal. This includes situations where the employee has been constructively dismissed.
The term “wrongful dismissal” is often misunderstood. It does not mean that the employer’s decision to dismiss the employee was improper or unlawful. Both the employee and employer have the right to terminate the employment relationship for any lawful reason as long as the other is provided with sufficient notice. All that needs to be reasonable is the length of the notice.
The decision to terminate the employee’s employment may be unfair, inexplicable, or an obviously a bad business decision. For example, a manager may dismiss an employee simply because the manager does not like the employee. To give an even more bizarre example, it is not a wrongful dismissal if an employee has been dismissed because a manager became angry after learning that the employee showed up to work wearing the same shoes as the manager.
In all of these examples as long as the employer provides the employee with a severance package representing sufficient pay in lieu of notice of dismissal the termination will not be considered to be a wrongful dismissal.
For example in Joss Covenoho v Pendylum Inc.1 the employee was dismissed without cause only three months after she joined the company because she refused a criminal background check. The employee had not been notified of the need for a background check prior to joining the company. The court found that she had not been wrongfully dismissed because she had been provided notice pursuant to the terms of her employment contract.
How a court calculates a dismissed employee’s entitlement to a severance package is discussed in detail in the chapter titled Termination without Cause.
There is a common misconception that when an employer terminates the employment of an employee without cause the dismissal itself is a breach of contract. However, a breach of contract only occurs if the employer fails to provide the employee with proper notice of the dismissal. There is an implied term in every contract of employment that either party may terminate the contract by providing reasonable notice of dismissal.
The term “reasonable notice of dismissal” refers to the employer’s obligation to provide the employee with sufficient working notice of dismissal. During the working notice period the employee is expected to continue to work for the employer under the terms and conditions of his or her employment contract.
The fact that an employer is expected to provide an employee with working notice of dismissal may surprise many readers who believe, incorrectly, that the proper way to dismiss an employee is for the employer to notify the employee that his or her employment has been terminated and to provide the employee with a severance package. Indeed, many people are unaware that an employer even has the legal right to provide an employee with working notice of dismissal. A severance package is actually the employer paying the dismissed employee damages for its failure to provide the employee with working notice of dismissal.2
An employer’s decision to dismiss an employee must be lawful. A dismissal is illegal if the was discriminatory and, therefore in breach of the Human Rights Code.3 A dismissal will also be illegal if, as an example, the dismissal was a reprisal for the employee attempting to enforce a right provided by the Employment Standards Act4 or the Occupational Health and Safety Act.5 An employee who dismissal is illegal may have the right to be reinstated into his or her former position as well as other remedies not available to an employee who was wrongfully dismissed.
The right of an employer to dismiss a non-unionized employee at any time is one of the major differences between the rights enjoyed by unionized and non-unionized employees. A unionized employee may normally only be dismissed if the employer has just cause or because of a lack of work.
If the employer has not provided the employee with sufficient notice of dismissal or pay in lieu of notice of dismissal the only leverage the dismissed employee has to negotiate a fair severance package is to commence a wrongful dismissal action. This includes cases where the employer has terminated the employee’s employment for cause. In a wrongful dismissal action the former employee will ask the court to order his or her former employer to award damages (e.g. an award of money) for the employer’s failure to provide proper notice of dismissal. The employee will also ask the court to order the employer to pay a portion of his or her legal costs.
If a court finds that an employee has been wrongfully dismissed, the court will award the dismissed employee damages (i.e. an award of money) for the employer’s failure to provide reasonable notice of dismissal. The purpose of wrongful dismissal damage award is to compensate the dismissed employee for the employer’s failure to provide sufficient notice of dismissal. It is not a reward for long service or a bonus. It is also not meant to penalize the employer because it decided to dismiss the employee.
A claim for wrongful dismissal damages is subject to the employee’s duty to mitigate. The award of damages will be reduced by the amount of employment income the dismissed employee earned from other employment sources during the notice period, unless the terms of employee’s employment contract did not require the employee to mitigate his or her damages.
Dismissed employees who initiate wrongful dismissal actions may claim other types of damages against their former employers such as moral damages and/or punitive damages in addition to wrongful dismissal damages. Moral or punitive damages may be available to dismissed employees when the employer has acted in an unduly insensitive or malicious way.
Although the threat of litigation and commencing litigation is the only leverage a dismissed employee has when negotiating a severance package with a former employer it is important to understand that the vast majority of cases are not decided by a judge but, instead, are resolved when the employer and former employee voluntarily agree to settle their dispute. The terms of settlement will normally also include the employer paying a portion of the employee’s legal costs.
A wrongful dismissal must also be distinguished from an “unjust dismissal” in breach of the Canada Labour Code6 (“CLC”). The CLC is a statute that applies to federally regulated employers such as banks and interprovincial transportation companies. An employee working for a federally regulated employer may only be terminated if: (i) the employer has something akin to just cause to dismiss the employee; or (ii) if the employee has been dismissed as a result of the “discontinuance of the job function”. In other words, the employer may dismiss the employee because of lack of work or as a result of a corporate restructuring that resulted in the elimination of the employee’s position. This protection does not apply to certain managers and supervisors. Federally regulated employees have the option of claiming unjust dismissal and pursuing a claim under adjudication provision of the CLC or initiating a wrongful dismissal action. The adjudication process under the CLC differs from a wrongful dismissal action because the adjudicator has the authority to reinstate the dismissed employee into his or her former position. An adjudication under the CLC is also supposed to be more efficient and cost effective than a wrongful dismissal action, although it is debatable whether this is true in practice.
An employee dismissed from a federally regulated employer also has the option of initiating a wrongful dismissal action.
- Joss Covenoho v Pendylum Inc., 2016 ONSC 4969 ↩
- see Love v. Acuity Investment Management Inc., 2011 ONCA 130 at para. 44; ↩
- Human Rights Code, R.S.O. 1990, c. H.19 ↩
- Employment Standards Act, 2000, S.O. 2000, c. 41 ↩
- Occupational Health and Safety Act, R.S.O. 1990, c. O.1 ↩
- Canada Labour Code, RSC 1985, c L-2 ↩