The Common Law Claim
Our common law courts insert an implied term into every employment relationship – an obligation on the employer to provide advance notice of termination, absent cause for dismissal.
It is this “notice period” which forms the basis of the civil claim. The employee will claim the value of all income direct and indirect which he may normally earn in this notice period. This will include not only salary, but also the value of fringe benefits, incentive payments, commissions – in short, anything of value which he may normally earn in this notice period.
The Need for an Employment Relationship
The key to the claim is that the relationship be one of employment. Occasionally issues arise as to whether the business agreement is an employment agreement or something different – such as a consulting relationship. There is an old legal maxim – if it looks like a duck, walks like a duck and quacks like a duck – it’s a duck !
The Phony Consulting Agreement
The parties cannot disguise what is in reality an employment relationship and call it a consulting agreement. This will end in misery. The Canada Revenue Agency will demand the employer make good source deductions for tax, CPP and EI, and likely disallow deduction taking for income splitting or business deductions taken by the employee. Apart from these issues, the common law courts will examine the relationship and if it is in reality an employment relationship, the employee will be allowed all common law claims and statutory entitlements. Very often the “consulting agreement” will contain a limiting severance claim on termination, which must then face the tests of the statutory requirements, failing which it will be back to common law wrongful dismissal claim by the “employee”. For a good review of the test to be applied, see the 2001 Supreme Court of Canada decision of 671122 Ltd. v. Sagaz Industries. Although this case involved a determination of the existence of the employment relationship to allow for a claim of vicarious responsibility, it is nonetheless of relevant application in this instance.
The Dependant Contractor
As a momentary aside, even if the relationship is not an employment relationship, the “employer” is not quite out of the woods. If the relationship can be said to be one of a “dependent contractor” it will follow that a notice provision will be implied. See the 2009 Ontario Court of Appeal decision in McKee v Reid’s Heritage Homes and the cases cited therein. The issue here, however, is that there are no statutory protections afforded. The “employer’s” contract which may have a limiting provision may rule the day.
The Main Common Law Claim
Unlike the statutory payments, there are deductions from the wrongful dismissal notice claim for the following:
1. Any income the employee may earn in this period, and
2. Any income which the employee should have earned in this period.
3. All statutory sums which were paid or which were sued for.
The essential theory is that the claim is based on economic loss for the notice period – the employee has an obligation to “mitigate” or minimize that loss by looking for and accepting reasonably comparable employment.
Hence, for that reason, the employee could also claim any costs incurred in the job search, including travel expenses, resume preparation and relocation counseling. It is arguable that should the employee be required to move to accept new employment, such costs may also be claimed, or at the very least, be deducted from the offset of new earnings.
There is no formula for determining what the notice period may be. The high end for senior executives, with long service record is considered to be 24 months. The lower range is generally seen as 1 to 3 months. For a good review of a senior position with relatively short service of two plus years and no inducement, see the Ontario Court of Appeal decision in Love v Acuity in which the court awarded 9 months, reversing the trial judge’s decision of 5 months.
If the employee can show he was induced or persuaded to leave secure employment and he was not otherwise seeking alternate employment, then the notice period, can be increased to adjust for this – usually the impact of inducement is limited to the early years of the relationship. A good synopsis of this factor is seen in the Ontario Court of Appeal decision in Egan v Alcatel.
The assessment of the common law notice period is an important issue. Legal advice must be taken to determine what likely range is to be expected. There is no formula such as a month a year. ( See Minnott v O’Shanter – Ontario Court of Appeal )
Apart from the usual claims for lost income, claims have been successfully made for lost pension entitlements, particularly where a significant pension advantage ( Taggart v Canada Life Ontario Court of Appeal ) may have accrued during the notice period, and similarly for the loss of the vesting of stock options on the same basis. ( Veer v Dover Ontario Court of Appeal). See however Love v Acuity, Ontario Court of Appeal, referenced above, in which the court did not apply the Veer v Dover principle due to an agreement which set the date for valuation of the plaintiff’s equity as the last day of employment and did not notionally extend this to reflect a “legal termination” by adjusting the termination date for fair notice.
Using the same concept, Richard Clark, a financial advisor, was successful in suing for the loss of his ability to sell his book of business, an event which the trial judge, Mr. Justice Peter Jarvis, found he would have done, had he received proper working notice, in addition to the usual claim for lost income for the notice period. The Court of Appeal agreed.
Using again the same principle, the British Columbia Supreme Court awarded Mr. Prince the value of his lost disability benefits which he would have received had he been provided reasonable notice. Such a claim is not limited to the notice period. A person who is terminated on short or no notice and then suffers a medical calamity while uninsured may sue the employer for the full loss of disability benefits, pension accruals and similar benefits typically paid to a disabled employee until age 65. ( see also the Ontario Court of Appeal in Egan v Alcatel ) The late Mr. Justice Echlin came to the same conclusion in the recent decision of Brito v Canac, awarding Mr. Brito lost disability benefits beyond the notice period of 22 months to age 65.
Keep in mind that a disability in the statutory period will likely give rise to a claim against the employer for short term and the insurer for long term disability benefits. The common law claim will be against the employer only where the disability commences beyond the statutory period, yet within the common law period.
For this reason, a dismissed employee would be well advised to get an updated medical before he signs a release and accepts a settlement.
Most group life insurance plans allow conversion to a privately paid plan within 60 to 90 days of termination. This is significant as such insurance can be continued without the need for underwriting approval. A person with a questionable medical past must be alerted to this conversion option and the relevant time period.
