Court of Appeal decisions challenge long-held assumptions on wrongful dismissal
Howard Levitt explains why employers may prefer severance over working notice.
Wrongful dismissal damages were never intended by the courts to provide employees with a windfall. When a court awards, for example, 18 months, employees are usually entitled only to their actual damages — their economic loss — during the 18 months following their dismissal, not more. In other words, if that employee obtains another job after eight months, at the same remuneration, she only will recover those eight months’ pay, not the full 18 months. If she obtains another job after eight months at $10,000 per annum less, she will recover her full lost income for the first eight months and the $10,000 per annum differential for the remaining 10.
Instead of providing severance, employers also have the right to provide advance working notice instead for the number of months in question. In other words, instead of awarding 18 months’ of full remuneration, an employer can have the employee work for those 18 months and that will serve legally as a substitute for wrongful dismissal damages. The only amount the employee must be paid is the minimal severance payments required by employment standards legislation. These are bedrock principles of wrongful dismissal law.
But two recent Ontario Court of Appeal decisions have challenged those long held legal assumptions.
In the first, Esther Brake, a long serving MacDonald’s restaurant manager, was dismissed without any notice, or even payment of her statutory minimum entitlements under the Employment Standards Act.
Brake began working at MacDonald’s Restaurants in 1986 in Cornerbrook, N.L., and subsequently moved to Ottawa. After years of very good reviews, she received a short series of poor evaluations and then the choice of a dismissal or a demotion, reporting to employees whom she had previously trained and supervised.
She refused the demotion, walked out of the meeting and never returned. At 62 years of age, after 20 years with MacDonald’s, she was not well situated to secure re-employment.
The court awarded her 20 months in wrongful dismissal damages. The question for the court was what portion of any income she earned during those 20 months should be deducted in awarding her damages.
The court held that any alternate income earned during the period of an employee’s termination and severance pay (in her case, 28 weeks because of her length of service) should not be deducted from an employee’s damages for wrongful dismissal. As well, even for the remainder of the 20 months of wrongful dismissal damages that Brake was held entitled to, the court made no deduction for the income that she earned from work at Sobeys and Home Depot. The court found that, since she had been working at Sobeys parttime during her employment with McDonalds, it was not new employment, so should not be deducted. As well, it noted that, if the new work is sufficiently inferior to the position the employee was terminated from, it might not be deductible for damages for wrongful dismissal for that reason.
An even more recent decision of the Ontario Court of Appeal involved a group of employees who sued CTS of Canada. CTS had provided them with working notice. During that working notice, a number of the employees were required to work considerable overtime. Justice Alix Hoy of the court found that, since the purpose of notice is to provide employees with the opportunity to find other work, any period during which the employees are working considerable overtime should not be deducted because the overtime work deprived them of the practical opportunity of seeking work elsewhere.
In the same way, it might well be argued that if employees receive remote or overseas assignments during their working notice, which makes obtaining interviews etc. impractical, that period of notice also might not be deducted from their damages.
Clearly, these two decisions provide employees with multiple arguments as to why new income or working notice should not be deducted from their damages for wrongful dismissal.
Working notice presents difficulties. One may argue that it is easier to find new employment while still employed. But the practical reality is that few employees wish to work away their right to wrongful dismissal damages. From an employer’s perspective, it makes economic sense to obtain work from an employee rather than pay severance with no offsetting benefit.
But dismissed employees tend not to be productive or motivated and may well cause morale issues among their co-workers. There are also obvious security risks in having dismissed employees working, with access to confidential information, knowing that they will soon be involuntarily departing. It’s not a situation that garners employee loyalty.
It is for those reasons that few employers utilize working notice rather than pay severance. Interestingly, when working notice is imposed, most employees are so anxious to leave that they will usually take reduced severance in return for not having to come into work. And some employers provide working notice explicitly for the purpose of then negotiating a reduced severance package.
As in so many things, as the law changes, the affected parties seek strategic advantage.