Navigating the risk of legal fallout when terminating an employee
Employers owe many legal obligations to employees under human rights law and employment-related legislation. Employers put themselves at risk for liability if they fail to uphold such duties, but there is sometimes significant risk to an employer during the course of dismissal.
For non-unionized workplaces, generally an employer has the right to terminate an employee for any reason, so long as they provide sufficient notice or pay in lieu of notice. This type of termination is known as “without cause” termination. Determining the appropriate amount of notice, or pay in lieu of, can often pose a challenge to employers as there are two separate notice periods an employee may be entitled to (1) statutory minimums under provincial employment legislation, and (2) common law reasonable notice.
- Statutory Minimums: Subject to some limited exceptions, an employer must provide a prescribed amount of notice or pay in lieu of notice to terminated employees, determined based on their years of service (in Manitoba, notice caps out at eight weeks after 10 years of employment).
- Common Law Reasonable Notice: This notice is determined using previous court decisions and is based upon various contextual factors such as length of service, age of the employee, compensation, characterization of employment, and availability of similar employment. Common law reasonable notice can range up to 24 months depending on the circumstances (and in some exceptional circumstances greater than 24 months), which could spur significant liability against an employer.
The amount of pay an employee may receive during their statutory notice period compared to any common law reasonable notice may also vary depending on an employee’s remuneration structure.
In Manitoba, employers are only obligated to pay out the wages an employee would have earned during their statutory notice period. Comparably, during the common law reasonable notice period, an employee would be entitled to receive reasonable pay in lieu of wages. This reasonable pay may include compensation for the loss of benefits, wages, bonus entitlements, and any additional items an employee enjoyed during employment, such as a vehicle allowance or phone plan.
It is important to note that statutory notice and common law notice run concurrently and it is often the case that an employee’s common law reasonable notice will completely cover their statutory notice. However, not every employee is entitled to common law reasonable notice. An employer can contract out of, or limit, common law reasonable notice through a properly drafted employment agreement. To ensure legal compliance, employers should seek legal counsel in drafting, executing, and implementing employment agreements with their employees.
In addition to an employer’s pay-in-lieu obligations to a dismissed employee, an employer also owes the dismissed employee the duty of good faith and fair dealing throughout the course of the dismissal. In the Supreme Court of Canada decision, Wallace v United Grain Growers Ltd, the SCC described this duty to be, at minimum, that the employer “be candid, reasonable, honest and forthright with their employees and should refrain from engaging in conduct that is unfair or is in bad faith by being, for example, untruthful, misleading or unduly sensitive.”
Should the employer breach their duty of good faith, the employer may be liable to pay the dismissed employee additional damages, such as (1) aggravated, (2) punitive, and/or (3) human rights damages.
- Aggravated/Mental Distress Damages: If an employee suffers emotional harm or mental distress due to a breach of the duty of good faith by their employer, the employee may be entitled to be compensated for such breach. However, it is important to note that such emotional distress must be greater than just hurt feelings or upset that typically arise as a result of being dismissed. These damages are also known as “moral” damages and are meant to compensate the employee for any mental distress caused by the employer’s bad faith conduct.
- Punitive Damages: Should the conduct of the employer and manner of termination constitute behaviour that was defined in Keays v Honda as: “harsh, vindictive, reprehensible and malicious, as well as extreme in its nature,” the employee may also be entitled to punitive damages. Punitive damages are meant to punish the employer for any egregious or high-handed conduct.
- Human Rights Damages: If the employee has a characteristic that is protected by human rights legislation, and the dismissal itself or the conduct around the dismissal is discriminatory, the employee may also be entitled to damages for a violation of their human rights. Circumstances where this may arise would include but are not limited to, if the termination was racially motivated, if the employee had a disability and the employer failed to accommodate, or where the employer refuses to reinstate an employee following taking parental leave.
Depending on the circumstances, an employee may bring an action at the Court of King’s Bench, the Human Rights Commission, and/or Employment Standards. A legal proceeding (or multiple proceedings) may result in significant awards of damages against the employer, and legal costs whether successful or not. As such, before terminating an employee, it is good practice to seek legal advice to mitigate potential legal fallout from the termination.
Fillmore Riley LLP’s Employment & Labour Law Practice
We provide practical legal advice to our clients on all matters related to human resources and employment and labour law. Because every situation is unique, we carefully assess legal risks and obligations and arrive at the best course of action to help you achieve desired results. For more information, or if you have any questions, please contact a member of the Fillmore Riley Employment & Labour practice.