2016 was a significant year for employment law with precedent-setting decisions on a variety of issues combined with new legislation that continues to alter the Canadian employment law landscape. While a number of these decisions suggest that a common sense approach to employment law issues may be underway, other decisions and legislative developments highlight the potential liabilities facing employers and the need to remain vigilant.
The Cassels Brock Employment & Labour Group has put together the following list of top cases and trends for 2016:
1. Notice Periods and Dependent Contractors
In Keenan v. Canac Kitchens Ltd., 2016 ONCA 79, Canac Kitchens continued its streak of making law in the area of reasonable notice awards when the Ontario Court of Appeal upheld an adverse trial decision in which two contractors who had worked for the company for 32 and 25 years were each awarded 26 months of reasonable notice. The contractors had started out as employees, and until the final two years of service had worked for Canac Kitchens exclusively. Nonetheless, Canac Kitchens did not provide any notice or pay in lieu of notice whatsoever.
The Court of Appeal rejected the argument that the dependent contractors’ limited work for another company during the final two years of their engagement with Canac disentitled them to reasonable notice. Instead, it held that the issue of exclusivity must be considered based on the entire history of the working relationship. The Court of Appeal reiterated that dependent contractors are entitled to reasonable notice of termination, which should be calculated using the same method used for employees. Finally, the Court of Appeal rejected Canac Kitchens’ argument that an express finding of “exceptional circumstances” is required to support an award in excess of 24 months’ notice and held that a 26 month notice period was reasonable in the circumstances.
2. Ontario’s Activist Approach to Employment Law
The Ontario Government was very active in the area of employment law throughout 2016 with the passage and implementation of new legislation along with enforcement efforts. Significant developments affecting Ontario employers include the following:
3. Constructive Dismissal Claims Rejected
2016 saw the release of a number of helpful decisions for employers on the issue of constructive dismissal, and specifically, the requirements for such claims to succeed.
In Chapman v. GPM Investment Management and Integrated Asset Management Corporation, 2015 ONSC 6591, the Ontario Superior Court of Justice rejected a senior executive’s claim that his employer’s failure to pay him a $328,862 bonus amounted to constructive dismissal. The Court concluded that while the bonus ought to have been paid, the employer’s failure to do so was the result of a divergence in the interpretation of the relevant bonus clause as it applied to a one-off transaction. There had been no actual alteration to the terms of employment that would reduce the executive’s compensation on a permanent basis and no other conduct by the employer to support a conclusion that it no longer intended to be bound by the employment relationship. While the claim for constructive dismissal was rejected, the employer was still required to pay the bonus. In addition, this decision confirmed that employees may successfully sue employers for damages as a result of conduct that fails to meet the test for constructive dismissal.
In Persaud v. Telus Corporation, 2016 ONSC 1577, a software developer resigned from her employment shortly following the resignation of a close friend/supervisor, but subsequently alleged she had been constructively dismissed on the basis that Telus had increased her hours and caused her to work in a poisoned work environment. The Ontario Superior Court of Justice rejected the employee’s claim and held that for a constructive dismissal claim to succeed the reason for the resignation must be related to either (a) a unilateral change to an essential term of employment, or (b) a series of acts evidencing the employer’s intention to no longer be bound by the terms of the employment contract. In this case, the resignation was motivated by the employee’s solidarity with her former co-worker. Further, based on the evidence, the Court found that neither a breach under (a) nor (b) had been made out.
4. HRTO’s Broad Powers to Reinstate Employees Confirmed
In Hamilton-Wentworth District School Board v. Fair, 2016 ONCA 421, the Ontario Court of Appeal upheld a decision of Human Rights Tribunal of Ontario (HRTO) that ordered a terminated employee be reinstated to her position with full seniority almost a decade after she had left the workplace for medical reasons.
The Court of Appeal upheld the HRTO’s finding that the employer had failed to accommodate the employee following her doctor’s confirmation that she could return to work, and, most significantly, the HRTO’s order that the employee be reinstated.
The Court of Appeal found that while reinstatement was rarely ordered, this option falls within the HRTO’s broad remedial authority and the HRTO’s determination of the appropriate remedy should be accorded a high degree of deference given its specialized expertise. Further, the long passage of time was not, by itself, determinative of whether reinstatement of an employee is an appropriate remedy. Rather, the decision as to whether to order reinstatement is context-dependent, and in this case, the HRTO had held that the employment relationship was “not fractured” and that the passage of time had not “materially affected” the employee’s capabilities.
5. Termination Clauses – A Shift to a Common Sense Approach?
2016 was also a good year for employers with respect to the prospect of enforcing termination clauses, and may signal a move away from the overly technical interpretation that has often been applied in favour of a common sense approach focusing on the intentions of the parties.
First, in Wood v. Fred Deeley Imports Ltd., 2016 ONSC 1412, the Ontario Superior Court of Justice considered a termination clause providing that the employer was entitled to terminate the employee’s employment “at any time without cause by providing ... two weeks Notice of Termination or pay in lieu thereof for each completed or partial year of employment with the company.” The termination clause also provided that “payments and notice provided for in this paragraph are inclusive of your entitlements to notice, pay in lieu of notice and severance pay pursuant to the Employment Standards Act, 2000.”
The former employee asserted that the termination provision was unenforceable because she accepted a verbal offer of employment before receiving the written offer of employment and because it did not specifically provide for the ongoing payment of benefit premiums as required by the ESA. The Court, however, rejected these arguments on the basis that the offer of employment preceded her actual start date, and because the termination clause provided her with more than her minimum entitlements under the ESA and the employer had kept the benefits in place as required by the ESA.
Next, in Oudin v. Le Centre Francophone de Toronto, 2016 ONCA 514 (Oudin), the Court of Appeal upheld a summary judgment decision enforcing a termination provision that permitted the employer to terminate employment by providing the “minimum notice required under the Employment Standards Act.” The clause did not include any reference to severance pay or continuation of benefits, which plaintiff’s counsel will typically argue renders a termination provision invalid.
In a brief decision that triggered much debate amongst the employment law bar, the Court of Appeal deferred to the decision of the motions judge in interpreting the contract. The Court of Appeal also held that there was “no basis to interpret this employment agreement in a way that neither party reasonably expected it would be interpreted when they entered into it. There was no intent to contract out of the ESA in fact; to the contrary, the intent to apply the ESA is manifest.”
Whether these decisions represent a turning point in the interpretation of termination provisions remains to be seen. However, as the plaintiff employee in Oudin has sought leave to appeal to the Supreme Court of Canada, clarity may be on the way.
6. Pitfalls of Fixed Term Contracts
The danger for employers in entering into fixed term employment contracts was highlighted by the Ontario Court of Appeal’s decision in Howard v. Benson Group Inc., 2016 ONCA 256.
In this case, an employee on a five year fixed term employment agreement (with an ambiguous ESA-only termination provision) was terminated without cause after only 23 months of service. The employee claimed payment for the remaining 37 months of the term and sought summary judgment. In light of the ambiguity of the termination provision, the motions judge held that the employee was entitled to the common law presumption of reasonable notice (as opposed to notice for the balance of the fixed term) and that the employee had an duty to mitigate.
The Court of Appeal reversed this decision on both points. Because the ambiguous ESA-only termination clause was deemed unenforceable, it was to be treated as being deleted from the agreement altogether, with the end result being that the employer only had the right to terminate the agreement early in the event of just cause. Further, the Court of Appeal held that parties had bargained for certainty by choosing a fixed term agreement and mitigation was therefore not required.
7. Just Cause Confirmed on Appeal
In a decision that came as some relief to employers, the Ontario Court of Appeal reversed a lower court trial decision and held that a private school had not wrongfully dismissed a teacher who had committed academic fraud by submitting grades he knew to be inaccurate and then lied about it when confronted by the employer.
In Fernandes v. Peel Educational & Tutorial Services Limited (Mississauga Private School), 2016 ONCA 468, the majority of the Court of Appeal held that the “core question” is whether the employee’s misconduct is sufficiently serious to strike “at the heart of the employment relationship”, and observed that “one of a teacher’s most important professional obligations is to fairly and properly evaluate and assess student progress and achievement.”
In this case, the teacher’s actions were intentional and constituted serious misconduct without any mitigating circumstances. The majority of the Court of Appeal also found that the school could have suffered serious harm because of the teacher’s misconduct and that the severity of the potential harm was most important, not whether the harm was actually suffered. As the teacher’s misconduct put the school’s continued operation as an accredited private school in jeopardy and destroyed the school's trust in the teacher, the misconduct amounted to just cause for dismissal. The majority of the Court of Appeal dismissed the action and awarded the school $105,000 in costs for the trial and appeal.
While the standard for a just cause termination remains very high, this case demonstrates that employers can succeed where they can prove that the employee has engaged in serious misconduct with significant potential harm to the employer.
8. Test for Discrimination in Family Status Cases
The issue of family status discrimination and the appropriate test to be applied in Ontario has been somewhat unclear, with diverging tests set out at the Federal level and other jurisdictions. Family status discrimination cases and the appropriate test to be applied to Ontario employers governed by the Human Rights Code was discussed by the HRTO in Misetich v. Value Village Stores Inc., 2016 HRTO 1229 (Misetich).
Misetich involved an employee who had refused to accept certain proposed scheduling changes designed to accommodate her physical limitations. The employee asserted that the proposed changes constituted discrimination on the basis of family status since it interfered with her eldercare responsibilities.
While the HRTO ultimately dismissed the application due to the failure of the employee to provide sufficient evidence to establish her eldercare obligations, the HRTO’s discussion of the appropriate test to applied to family status cases is significant. Specifically, the HRTO held that the test for discrimination was the same in all cases and expressly rejected the family status test set out by the Federal Court of Appeal in Canada (Attorney General) v. Johnstone, 2014 FCA 110, which it viewed as creating a higher standard than cases based on other forms of discrimination.
Given the number of employees with childcare and eldercare responsibilities, this developing area of human rights law will be one employers should watch closely.
9. Bonus Plans Requiring “Active Employment” Alone Insufficient to Avoid Post Termination Obligations
In a less than helpful decision for employers, in Paquette v. TeraGo Networks Inc., 2016 ONCA 618, the Court of Appeal overturned a summary judgment decision which had awarded a dismissed employee a 17 month notice period but denied his entitlement to a bonus payment.
The bonus plan in question provided that an employee was eligible for a bonus if the employee was “actively employed by TeraGo on the date of the bonus payout,” which the motion judge concluded did not apply to the employee during the reasonable notice period.
The Court of Appeal held that the motions judge had erred in principle by focusing on whether the “active employment” provision was ambiguous or not. Instead, the Court of Appeal held that the starting principle is that the employee is entitled to compensation based on the employee’s complete compensation package during the reasonable notice period, and the analysis should focus on whether the relevant bonus provision effectively operates to limit this common law entitlement. In other words, the question is not whether the bonus plan itself is ambiguous, but whether the wording of the plan unambiguously alters or removes the appellant’s common law rights.
In light of this decision, employers would be well-advised to review the terms of their bonus plans to avoid unexpected liabilities upon termination.
10. SCC Confirms Federally-Regulated Employers Cannot Terminate Employees Without Cause Even With Reasonable Notice
Finally, in Wilson v. Atomic Energy of Canada Ltd., 2016 SCC 29, the majority of the Supreme Court of Canada confirmed that the unjust dismissal provisions of the Canada Labour Code prevent federally-regulated employers from terminating non-unionized, non-managerial employees without cause even if reasonable notice or pay in lieu is provided. Unless an employer has cause (or unless the termination was due to lack of work or the discontinuance of a function), an employee who has completed 12 months of service may be reinstated with back pay (even if the period of back pay would greatly exceed the reasonable notice period at common law). An adjudicator may also require the employer to “do any other like thing” that is equitable in order to remedy the dismissal.
While this interpretation of the Canada Labour Code’s unjust dismissal provisions has long been shared by the majority of adjudicators, a minority of decisions had come to the opposite conclusion. The majority of the Supreme Court of Canada has now ended this debate.
While the Canada Labour Code does not apply to provincially-regulated employers, the significance of this decision to federally-regulated employers should not be understated.