You’re Fired! Introduction to Employment Law Litigation for Law Clerks
2016 OTLA Fall Conference, October 27, 2016
Ned Nolan, Nolan Ciarlo, LLP
Employment Law can be exciting and interesting. This paper will not be! It will not contain esoteric legal doctrines, articulate judicial discourses or juicy case law. Instead, it aims to read like a guide, an “Employment Law 101” for law clerks. Below I will introduce the basic principles in Employment Law and point out some useful procedural and technical issues to keep in mind as you explore this area of law.
- WHAT IS EMPLOYMENT LAW
Employment law governs the relationship between employers and employees in the non-union sector. Fundamentally, an employment relationship is a contractual one (even in the absence of a written contract). Employment law is therefore primarily the law of contract and it is governed by common law principles as well as government legislation such as the Employment Standards Act (ESA) and the Occupational Health and Safety Act (OHSA).
Employee vs. Contractor: It is important to keep in mind that not all workers are employees. Many workers are considered “contractors” and don’t have the same rights and protections that are afforded to employees. Workers who set their own hours, pay their own income taxes, invoice their employer and own their own tools, tend to be considered independent contractors. These are just some of the factors to be considered when determining whether an employment relationship exists. It is worth noting that even independent contractors, however, have a right to be free from discrimination under the Ontario Human Rights Code (OHRC). Key Case: 671122 Ontario Ltd. v. Sagaz Industries Canada Inc.,  2 S.C.R. 983.
Unions: One of the first questions you should ask a prospective client calling about an employment situation is: “Are you in a union?” In the union context, the term “labour law” is generally used rather than “employment law” and there is very little cross-over between these disciplines. The Ontario Labour Relations Act and associated jurisprudence establishes clearly that all disputes between employee and employer falling under a collective agreement are in fact disputes between union and employer and must be resolved through the grievance and arbitration procedure – not through civil litigation.
One common exception to this rule is where a unionized employee is engaged in a dispute with a group insurer over, say, Long Term Disability benefits. In these cases, the civil litigation process is fully available to the unionized employee. Another exception to the rule might arise where an employee alleges discrimination under the Ontario Human Rights Code (or the Canadian Human Rights Act). In some of these cases, particularly where the union has refused to pursue a grievance on the subject, the unionized employee may proceed with a Human Rights Application with no union involvement at all. Key Case: Baker v. Navistar  O.J. No. 2974.
Wrongful Dismissal: Undoubtedly the most common employment law issue is wrongful dismissal. All employment contracts contain, either explicitly or implicitly, a term as to how much notice is required before the employer may terminate the employment relationship. An employee is wrongfully dismissed when the employer fails to provide adequate notice of termination. How much notice an employee is entitled depends on a variety of factors and will be discussed along with other wrongful dismissal matters later in this paper.
Injury at Work: In most workplaces, the law of negligence and the civil litigation process is unavailable to a worker who is injured during the course of his/her duties. This is as a result of the Workplace Safety and Insurance Board (WSIB) system which effectively shelters employers from all civil liability arising out of workplace injuries.
Always inquire with a prospective client who was injured at work, whether the injury was reported to the employer and whether the employer submitted a Form 7 to WSIB. Some employers are exempt and do not pay WSIB premiums, leaving the door open to liability for workplace injuries.
Regardless of WSIB coverage, certain workplace deaths/injuries must be reported to the Ministry of Labour and may result in fines and remedial orders pursuant to the Occupational Health and Safety Act or even criminal charges pursuant to a rarely used 2004 amendment to the Criminal Code of Canada.
Again, regardless of WSIB, an injured worker should make use of any available disability benefits pursuant to a group insurance plan subject to set-off for payments made by WSIB. The reverse is also true: Injured employees pursing an LTD claim should be careful when considering whether or not to pursue a WSIB claim for the same injury. Failure to pursue an available WSIB claim can sometimes prejudice the LTD claim. Key Case: Madill v. Chu  2 S.C.R. 400 (S.C.C.).
More about the interplay between LTD, the Duty to Accommodate, frustration of contract, and other disability-related workplace issues will be discussed later in this paper.
- MINIMUM STANDARDS LEGISLATION
Work would be a very scary place if it were only governed by the common law of private contract. There is a well-recognized, fundamental imbalance of power in the employment relationship whereby employers can often dictate the terms of employment in “take it or leave it” contract “negotiations.” Workers outside the union context tend to have little if any leverage to demand enhanced terms in their own interests. Accordingly, governments have long-recognized the need to set minimum standards below which no employee or employer may contract.
Ontario Employment Standards Act: The central minimum standards legislation in Ontario, the ESA, sets out various basic requirements in employment which cannot be contracted-out-of including things like:
- Minimum Wage (Currently, $11.25 for most workers)
- Minimum Vacation (2 weeks off per year and 4% pay)
- Overtime (time and a half over 44 hours per week)
- Protected Leaves of Absences (Parental, Pregnancy, Family-Care Giver, Personal Emergency, etc.)
- Notice of Termination (1 week of pay or notice, plus benefits, for each year worked up to 8 weeks)
- Severance Pay (1 week of pay per year up to 26 weeks, for employees with 5 years or more of service and employers with a payroll of 2.5 million or more)
Of course, the above standards are only minimums and, in the case of notice and severance pay, contracts which are silent on the subject (contracts which don’t specifically refer to the ESA minimums) will be deemed to include more employee-friendly terms in accordance with the common law.
Where an employer has breached the ESA, an employee will want to consider a civil action or a complaint to the Ministry of Labour – she cannot do both. Until recently, employees could not claim, through the Ministry, wages owing in excess of $10,000.00. “Wages” under the ESA is defined as “any payment required to be made by an employer to an employee under this Act.” Accordingly, the $10,000.00 cap acted as a significant barrier to the Ministry’s complaint procedure, having the effect of funneling claimants into the civil system instead – even when claiming exclusively unpaid wages or termination and severance pay under the Act.
Effective February 20, 2015, that cap has been removed and there is no longer any cap whatsoever for wages owing after February 20, 2015. Wages which became owing before February 20, 2015 are still capped at $10,000.00 regardless of when the claim is filed with the Ministry. Accordingly, as February 20, 2015 fades into the past, fewer employees will have to resort to a civil claim for breach of contract in order to collect unpaid wages or termination or severance pay under the Act.
In addition to the monetary cap, until recently there was a limitation period of 6 months, beyond which an employee could not be awarded unpaid wages. This limitation has been increased to 2 years. However, the transitional period will stretch for two years past February 20, 2015 which gets a little complicated: The new limitation period will not really begin to have an effect until after August 20, 2015, because there remains a 6 month limitation on the entirety of any claim seeking to stretch back before February 20, 2015. In other words, the limitation period for unpaid wages only begins to “grow” beyond the old 6 month restriction as of February 20, 2015, making claims dated, say, September 2015, the first that could stretch back 7 months; and October 2015 claims the first that could stretch back 8 months, etc.
This 6-months transitional restriction does not apply to a claim for unpaid vacation pay nor does it apply to shield repeat employer-offenders. As with the monetary cap, during the transitional period, employees with a claim for unpaid wages which exceed the 6-month limitation period continue to have recourse to a civil claim for breach of contract where common law rules surrounding limitations apply
Canada Labour Code: It is important to note that some Ontario workplaces (like those involved in inter-provincial transport, telecommunications, banking, etc.) are federally regulated and do not fall under the purview of the ESA at all. These industries are governed federally by the Canada Labour Code (CLC) which has the dual purpose of setting minimum standards of employment analogous to the ESA, while also establishing the framework within which federally regulated unions operate (analogous to the Ontario Labour Relations Act).
The CLC also provides a significant, augmented protection for employees which was recently confirmed by the Supreme Court of Canada in Wilson v. Atomic Energy of Canada Ltd.  S.C.J. No. 29. The Court confirmed that the language in the CLC pertaining to unjust dismissal, is properly interpreted as creating a mechanism by which employees can challenge their dismissal for being “unjust” or – without “just cause.” Accordingly, federally regulated employers cannot terminate an employment contract without just cause. This is a significant departure from the common law of contract and wrongful dismissal, but reflects the kind of protection afforded to many unionized workers whose collective agreements contain similar protection.
Occupational Health and Safety Act: Another central piece of legislation in Ontario governing the workplace is the OHSA which establishes safety precautions which employers must adhere to including, perhaps most notably, precautions around workplace harassment and bullying. There are extensive Regulations to the OHSA which set out by industry, everything from what kind of footwear a healthcare worker must wear, to what kind of harness system must be in place for window cleaners. The OHSA also codifies a worker’s right to refuse unsafe work without penalty or reprisal. Where a worker believes her rights in this regard have been infringed, she must file a complaint with the Ontario Labour Relations Board and may not proceed with a civil remedy for reprisal.
- WRONGFUL DISMISSAL
By far the bulk of employment law matters fall under this heading. In essence, a wrongful dismissal claim is a claim for damages flowing from the employer’s failure to provide adequate notice of termination.
Not About Cause: Wrongful dismissal does not mean, as many clients initially suspect, termination of employment without a good reason. With a few exceptions (noted below), employers may terminate the employment of a worker for any reason whatsoever so long as adequate notice/severance is provided. When prospective clients want to discuss their excellent work history with you, it is advisable to politely change the subject. The reason (or lack of reason) for termination is relevant in three scenarios:
- Where the employer has raised the reason for dismissal to establish “just cause” in order to justify summary dismissal of the employee without notice or severance. Just cause is an extremely high threshold and usually must consist of willful misconduct and extreme behavior utterly incompatible with the employment relationship such as dishonesty. Where an employer can show cause (and that onus is the employer’s), the employee is not entitled to any compensation other than wages to the date of termination plus vacation pay;
- Where the employee believes the reason for dismissal was discriminatory under Human Rights legislation or constituted a reprisal for the employee asserting her rights under legislation such as the ESA, CLC, OHSA;
- Where the workplace is federally regulated and, pursuant to the CLC, the employer must show just cause for termination,
Look for a Contract: The first step in a wrongful dismissal matter is to establish the reasonable notice period and the first step in that analysis is to look for a written employment agreement, offer letter or other contractual document setting out the employment terms. If an enforceable contract exists and sets out exactly how much notice an employee will be entitled to upon termination, that will be a simple answer to the question of notice. A contract might purport to limit the employee’s entitlement to the ESA minimum requirements, or it might establish another formula such as 3 weeks per year of service.
As noted above, all employment relationships are deemed under the common law to include the requirement of reasonable notice. Accordingly, it is no easy task to contract-out-of this presumption, and one can only contract-out to a point: down to the minimum floor set out in the ESA. If an employer wishes to limit its notice and severance obligations to the minimum standards set out in the ESA, the employment contract must be worded very carefully. If the language is ambiguous or could be interpreted as an attempt to contract below the ESA requirements, it will likely be unenforceable and the employee will be entitled to damages calculated based on a common law reasonable notice period. Key Case: Stevens v. Sifton Properties Limited,  O.J. No. 6244.
Bardal Factors: Most employment contracts do not contain a notice or severance formula and consequently, courts have to look at a variety of factors in determining a reasonable notice period. The seminal case on this subject is Bardal v. Globe and Mail Ltd.  O.J. No. 149 which set out a list of some of the most relevant factors to consider including:
- Length of service;
- Character of employment;
- Availability of similar employment.
Put simply: the older an employee, the longer her service, the more senior her position, and the more difficulty she would have finding alternate employment – the more lengthy the common law reasonable notice period will be. When paid as a lump sum, the common law pay-in-lieu of notice period is inclusive of any ESA termination and severance pay and tends to be substantially more generous. A generous notice period for, say, a 10-year employee, might be 12-15 months.
Damages: An employee’s entitlement is to notice of termination. Summary dismissal without notice is a prima facie breach of contract giving rise to damages. Realistically, most employers prefer to pay damages in lieu of notice so as to end the employment relationship quickly without dragging it out over months or even years during a working-notice period. Pay in lieu of notice seeks to put the employee in the place she would have been had the employer provided lawfull working notice. As such, the payment must consist of the employee’s total remuneration, including bonus, benefits, commissions, gratuities, car and phone allowance where applicable, employer RRSP and/or pension contributions, etc. Damages may be significantly augmented in cases where premature termination without notice triggers an early retirement under a pension plan. In some cases, based on the terms of the pension plan and the employee’s age, an un-fortuitous termination date might be the difference between an early, reduced pension and an un-reduced one, payable as such for the rest of the employee’s life.
It is worth stressing that employers are at liberty to provide no severance or any payment at all (except, where applicable, the ESA requirements under Section 64-65) and to simply provide written notice of termination. Similarly, employers are at liberty to pay the damages in lieu of notice as salary continuance over the course of a reasonable notice period – not necessarily as a lump sum or “package.”
Mitigation: As with all civil claims for damages, a plaintiff has a duty to take reasonable steps to attempt to mitigate her damages. In the employment law context, this means attempting to find another job for which the employee is reasonably suited. The fact that the employee’s job-search attempts (and post-termination income) is the business of their former employer never ceases to offend employee clients. It is important at the outset of the retainer, to clearly explain the concept of mitigation to clients and advise them to keep a log and/or record of all efforts being made to find reasonable, alternate, suitable work. Failure of the dismissed employee to do so can substantially reduce or even nullify the value of a wrongful dismissal claim. Key Case: Yiu v. Canada Kitchens Ltd., 2009 Can LII 9412
Litigation: The common adage that 80% of cases settle (or is it 90%?) is especially true in Employment law – and those cases that do not settle are often suitable for Summary Judgment. However, when settlement negotiations have broken down, plaintiff’s counsel must consider all the usual steps in litigation including limitation periods, cost consequences of offers to settle, recoverability, and whether to proceed with a small claims, simplified rules, or regular superior court action (not to mention the various other specialized tribunals).
Statements of claim should state the amount of reasonable notice the plaintiff suggests is appropriate and should specifically plead breach of contract, wrongful dismissal and may include ancillary claims such as punitive and aggravated, damages for bad faith in the manner of dismissal, breach of the Human Rights Code, etc.
- HUMAN RIGHTS
In Ontario, all employees have the right to be free from discrimination. Federally regulated workplaces are governed by the Canadian Human Rights Act (CHRA) and the vast majority of Ontario workplaces are governed by the Ontario Human Rights Code.
Discrimination: Both pieces of legislation make it illegal to discriminate, refuse to hire or terminate the employment of a worker on the basis of any of the listed “grounds.” The prohibited grounds of discrimination are:
- OHRC: Race, ancestry, place of origin, colour, ethnic origin, citizenship, creed, sex, sexual orientation, gender identity, gender expression, age, record of offences, marital status, family status or disability.
- CHRA: Race, national or ethnic origin, colour, religion, age, sex, sexual orientation, marital status, family status, disability and conviction for an offence for which a pardon has been granted or in respect of which a record suspension has been ordered.
There are exceptions set out in the legislation where employers are entitled to discriminate on these grounds. Most importantly, where an employer can establish that a particular ground of discrimination is in fact a “bona fide occupational requirement” discrimination will be permitted. Key Case: British Columbia (Public Service Employee Relations Commission) v. BCGSEU,  3 S.C.R. 3 (“Meiorin”).
Litigation: Under both statutes there is a 1 year-limitation period which must be adhered to. Application are made by competing a form and the matter almost always proceeds first to a mediation. Failing settlement, an OHRC matter may proceed to the Ontario Human Rights Tribunal. A CHRA matter must first proceed through a vetting process before any hearing can take place.
Disability and Human Rights: Of central importance under both the federal and provincial human rights regimes, is the Duty to Accommodate. The Duty to Accommodate arises in the employment context when an employee has a disability of any kind or level of severity and requires some help or modifications at work. An employer is required to work with the employee and her doctor to make whatever workplace accommodations are necessary to enable to employee to continue working. This is a very powerful and important doctrine for disabled workers. Not only is the employer prohibited from terminating their employment as a result of disability (except in the case of “frustration” discussed below), but the employer has a positive duty to actually assist the employee.
Employers are not obligated to create new positions for disabled employees or to implement measures that would constitute “undue hardship.” What kind of accommodations are “unduly hard” for an employer raises difficult questions. However, financially, employers have been required to invest in very costly measures to accommodate a disabled employee up to the point whereby their business would no longer be viable. Key Case: Central Okanagan School District No. 23 v. Renaud,  2 S.C.R. 970
Frustration of Contract: How long does an employer have to hold a job for an absent, disabled employee? This question arises often in the cross-over between personal injury litigation and employment law. The short answer is: A long time.
If an employee cannot work as a result of a disability, and cannot be accommodated due to the severity of the disability and/or the employer’s inability to accommodate the disability without experiencing undue hardship, the employee might remain “in limbo” for a number of years: Unable to work, but still an employee. Whether or not the employee is receiving some kind of income protection either from WSIB, an LTD insurer, or under a tort claim, will not affect the eventual frustration of the employment contract. At some point the contract comes to an end.
Frustration of contract occurs when, as result of unforeseeable and un-intentional circumstances, the employment contract between the parties becomes impossible to fulfill. If it is clear that there is no reasonable prospect for the return to work of a disabled employee, the employer can terminate the relationship on the basis of frustration. When an employment contract is frustrated as a result of disability, the employee is not entitled to common law payment in lieu of notice. However, the employee will still be entitled to the ESA minimums pursuant to Regulation 288/01 to the ESA.
- RESTRICTIVE COVENANTS, CONFIDENTIALITY, LOYALTY
Non-Compete: Employment lawyers are often asked to draft, comment on, enforce, or challenge contractual language which purports to limit an employee’s ability to work elsewhere after the employment relationship comes to an end. These are known as restrictive covenants and commonly referred to as “non-compete” clauses. Restrictive covenants come in a wide range of language ranging from: Absurd and illegal – to possibly enforceable – to carefully worded and legally binding. These must be assessed on a case-by case basis but it is generally accepted that agreements which purport to prohibit an employee from working in the same industry at all after termination/resignation period (i.e. very broad non-competition language) tend to be contrary to public policy and unenforceable. Agreements which carefully limit the scope of the restrictions in time (2 years is usually a maximum) and space (depends on the geographic operation of the business) and which limit the restrictions to soliciting actual clients of the former employer (as opposed to all business in the industry) tend to be enforceable so long as the employee understood the terms and received consideration in exchange for signing.
Confidentiality and Loyalty: It is important to note that employees all have a common law duty of confidentiality, loyalty, good faith and fidelity to their employers which arises irrespective of any contractual obligations. This means that employees are obligated to maintain the confidential information of their employer during and after their employment. Confidential information includes information about clients and client-lists, trade secrets, financial information, etc. The duty of loyalty restricts an employee’s ability to compete with an employer while still employed.
- CONSIDERATIONS INVOLVING SETTLEMENTS
Because damages in wrongful dismissal settlements are usually taxable income, employment settlements involve some unique considerations around taxation, Employment Insurance repayments, and payment of legal fees, etc.
Taxation of Employment Settlements: The Income Tax Act requires that lump sum payments in lieu of notice of termination (the bulk of wrongful dismissal settlements) be classified as a Retiring Allowance and subject to a pre-determined withholding tax rate as follows:
- Settlements under $5,000: 10% withholding tax
- Settlements between $5,000 – $15,000: 20% withholding tax
- Settlements over $15,000.00: 30% withholding tax.
Of course dismissed employees will want to work with an accountant or financial advisor to insure that, based on their total earnings over the course of the tax year, any excessive taxes withheld are refunded.
Allocation to Legal Fees: Plaintiff’s counsel will want to include in the settlement terms that the employee’s total legal fees will be deducted from the otherwise taxable lump sum and paid directly, without deduction, as costs. Employers generally have no problem doing so as long as the employee signs a Direction authorizing their “income” to be paid out as fees instead. This of course is different from a contribution to legal fees and is only intended to lawfully shelter costs from otherwise being taxable income.
Other Allocations: In cases where other causes of action exists within the ambit of the employment dispute (for example allegations of discrimination under the Human Rights Code, defamation, or torts such as the intentional infliction of mental suffering which can arise in harassment cases) counsel will want to canvass the possibility of allocating a reasonable sum of the settlement funds to these non-income / non-taxable heads of damages. This can facilitate settlement by increasing the value of gross dollars paid out by an employer.
Employment Insurance Overpayments: A common hurdle in employment settlements is EI. It is often the case that by the time a settlement is reached between employer and employee, the employee has already applied for and received Employment Insurance benefits. Unfortunately for the employee, the wrongful dismissal settlement money is going to be allocated to a period of weeks/months immediately following the termination of employment. It is this same period for which the employee may have also received EI benefits and consequently, an overpayment is likely to be triggered (an employee cannot receive full EI benefits and her regular income for the same period). The Employment Insurance Act requires that the employer withhold such an overpayment from the settlement funds and directly remit the overpayment to the Receiver General. To make matters worse for employees, the process of informing Service Canada about the settlement and requesting the Notice Of Debt stating the overpayment amount can take months.
The good news for employees is that, should the employee need to remain on EI for the maximum EI period, no net loss will occur because the employee’s EI period will be extended at the back end, for the same amount of time which was carved out at the front-end and re-paid.
Releases: Employer counsel will insist on certain employment-specific language in a Release. The employer will likely require a release of liability for any claim relating to the premature discontinuation of disability insurance. Without such a release, the employer may be found liable for the payment of disability benefits to an employee who becomes disabled during a notice period which does not include continuation of disability insurance. Key Case: Brito v. Canac Kitchens, 2011 ONSC 1011.
A Release will also include an indemnity clause relating to any improper withholding of taxes, EI or CPP premiums or EI overpayments. Without such language an employer may find itself liable for taxes which ought to have been withheld from a settlement. This is of particular importance to employers when a significant portion of the settlement funds are allocated to non-taxable damages, for example, for the alleged violation of the Ontario Human Rights Code.
Another common item included in employment releases is confidentiality and non-disparagement clauses which should not be worded so broadly as to put the employee easily at risk of inadvertent breach.
Finally, employment releases will likely specifically reference all possible employment standards and human rights claims and require that the employee warrant that no such claim has been commenced or will be commenced.
Of course, when forwarding a Release to employer’s counsel, it should be done under the express condition that it be held in escrow pending delivery of the settlement funds or the expiry of the salary continuance period.
 Employment Standards Act, 2000, SO 2000, c 41
 Occupational Health and Safety Act, RSO 1990, c O.1
 Human Rights Code, RSO 1990, c H.19
 Labour Relations Act, 1995, SO 1995, c 1, Sch A
 Canadian Human Rights Act, RSC 1985, c H-6
 Workplace Safety and Insurance Act, 1997, SO 1997, c 16, Sch A. Section 26
 Id at fn. 1. Part IX
 Id at fn. 1. Part XI
 Id at fn. 1. Section 21 (1)
 Id at fn. 1. Part XIV
 Id at fn. 1. Section 57
 Id at fn. 1. Section 64-65
 Id at fn. 1. Section 1.1
 Id at fn. 1. Section 103 (4.1)
 Id at fn. 1. Section 104 (4)
 Id at fn. 1. Section 111 (1) to 111 (3)
 Id at fn. 1. Section 111 (3.1)
 Id at fn. 1. Section 111 (3.2)
 Id at fn. 1. Section 111 (4)
 Canada Labour Code, RSC 1985, c L-2
 Id at fn. 2. Part III.0.1
 Id at fn. 2. Part V
 Id at fn. 2. Part VI
 Id at fn. 3. Section 5
 Id at fn. 5. Section 3
 Income Tax Act, RSC 1985, c 1 (5th Supp)
 Employment Insurance Act, SC 1996, c 23