An employment law blog for employers and employees.
Published by Sean Bawden of Kelly Santini LLP.
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Sunday, 2 August 2015

Judge's Wrongful Dismissal Decision is Itself Wrongful

From time-to-time a decision will come along that will leave me not only confused, but frustrated. Wyllie v Larche, 2015 ONSC 4747 is one of those cases.

Yesterday, I wrote about the court’s decision not to award punitive damages in that case. With respect to that issue, the court decided that the employer’s refusal to pay the statutory minimum amount of severance to a dismissed employee was excused because the employer had offered the employee an extra $546.25 (gross of tax) to waive all of his rights. See: Failure to Pay Statutory Severance ‘Okay’ because Employer Offered to Do So.

In my earlier commentary I had written the following:

I have a number of issues with Justice Price’s decisions. Principally His Honour’s decision to award Mr. Wyllie no more than his five days of statutory severance and his decision to not award punitive damages.

I have already explained my concerns with respect to the punitive damages decision, this post examines the severance issue.

Facts

The facts of the case bear repeating as they set the context for why Justice Price’s decision with respect to severance is so blatantly wrong.

The case concerned an action brought by the dismissed employee for wrongful dismissal.

The defendant, Larche Communications Inc. (“Larche”), operates a radio station in Owen Sound. In July 2010, Larche hired the plaintiff, Mr. Wyllie, as a sales representative to sell radio advertising for its new radio station, “the Dock”, in Owen Sound.

The parties had initially entered into a written employment contract for a year, ending August 31, 2011. Larche prepared the contract, in the same form which it required each of its sales representatives to sign. The contract provided that Larche would pay Mr. Wyllie a salary for the first ten months of his employment, and commissions thereafter. After the first ten months, Larche would advance $750 per month to him, which it would then deduct from his earned commissions.

Larche gave Mr. Wyllie an outline of his job description, training, sales targets and minimum performance requirements. The employment contract allowed Larche to terminate his employment without cause upon giving him two weeks’ notice of his termination.

On September 1, 2011, Larche entered into a second employment contract with Mr. Wyllie, which replaced the first. The second contract was for the year ending August 31, 2012. Its terms were substantially the same as those of the prior contract, except that his remuneration was based solely on commissions.

On April 10, 2012, Larche gave Mr. Wyllie written notice of the termination of his employment on a “without cause” basis. It says that it did so because he failed to meet his sales targets and minimum performance requirements.

Larche paid Mr. Wyllie two weeks remuneration, in lieu of notice, as required by his employment contract. Larche additionally offered to pay Mr. Wyllie severance equal to a further ten days remuneration if he signed a release, which he declined to do.

Mr. Wyllie sued Larche for damages, including punitive damages, for wrongful dismissal. He made multiple complaints against Larche for wrongs done to him during his employment and dismissal, including that Larche arbitrarily increased his commission targets beyond those set for more favoured employees.

As set out by the motion judge, Mr. Wyllie’s complaints amounted to, essentially, to an allegation that Larche constructively dismissed him, or dismissed him without cause.

Larche has moved for summary judgment dismissing Mr. Wyllie’s action or, in the alternative, for an order requiring him to post security for costs. Justice Price awarded summary judgment in favour of the plaintiff instead – in the whopping amount of five days of severance: $546.25.

The court did not award Mr. Wyllie anything for his court costs. (The court would have charged him $181.00 to file his claim against his employer.) The award was taxable. And, if Mr. Wyllie received EI benefits, then he likely had a repayment obligation as well. Even without hiring a lawyer I fail to see how Mr. Wyllie came out ahead in this process.

Decision

With respect to the plaintiff’s claims for “severance pay”, Justice Price wrote the following eight paragraphs. The emphasis that appears in the following paragraphs appears in the original decision. Unlike most posts on this blog, the court’s original decision, with all of its original emphasis – and none other added – is repeated below.

[38] Part II of the Canada Labour Code, which guarantees minimum severance for employees of “a federal work, undertaking, or business,” applies to Larche because broadcasting is a federally regulated business. Section 167 of The Labour Code provides:

167. (1) This Part [Part III] applies

(a) to employment in or in connection with the operation of any federal work, undertaking or business other than a work, undertaking or business of a local or private nature in Yukon, the Northwest Territories or Nunavut;

(b) to and in respect of employees who are employed in or in connection with any federal work, undertaking or business described in paragraph (a);

(c) to and in respect of any employers of the employees described in paragraph (b);

[39] The Broadcasting Industry Commission Salesmen Hours of Work Regulations exempts commission sales employees in the broadcasting industry from sections 169, 171, 173 and 174 of the Canada Labour Code, which regulates the payment of overtime, but there is no similar exemption from the sections regulating the termination of employment.

[40] The Labour Code entitles Mr. Wyllie to two weeks wages in lieu of notice and, additionally, to five days severance. The Code provides, in this regard:

230(1) Except where subsection (2) applies, an employer who terminates the employment of an employee who has completed three consecutive months of continuous employment by the employer shall, except where the termination is by way of dismissal for just cause, give the employee either:

(a) notice in writing, at least two weeks before a date specified in the notice, of the employer’s intention to terminate his employment on that date, or

(b) two weeks wages at his regular rate of wages for his regular hours of work, in lieu of the notice.

….

235(1) An employer who terminates the employment of an employee who has completed twelve consecutive months of continuous employment by the employer shall, except where the termination is by way of dismissal for just cause, pay to the employee the greater of:

(a) two days wages at the employee’s regular rate of wages for his regular hours of work in respect of each completed year of employment that is within the term of the employee’s continuous employment by the employer, and

(b) five days wages at the employee’s regular rate of wages for his regular hours of work. [Emphasis added by Justice Price]

[41] The Labour Code does not diminish the remedies Mr. Wyllie has at common law for wrongful dismissal. Section 168(1) of the Canada Labour Code provides, in this regard:

168.(1) This Part and all regulations made under this Part apply notwithstanding any other law or any custom, contract or arrangement, but nothing in this Part shall be construed as affecting any rights or benefits of an employee under any law, custom, contract or arrangement that are more favourable to the employee than his rights or benefits under this Part. [Emphasis added by Justice Price]

[42] Were it not for Mr. Wyllie’s employment contract, he would be entitled, according to the principles of contract, as they have developed in the common law, to “reasonable notice” of termination of his employment. The period of notice to be given to him upon his dismissal “without cause” would be based on the facts of his case. The court has developed general guidelines and factors to be considered in that event, which McRuer C.J., of the Ontario High Court, set out in Bardal v. Globe & Mail Ltd., in 1960. Chief Justice McRuer stated:

There could be no catalogue laid down as to what was reasonable notice in particular classes of cases. The reasonableness of the notice must be decided with reference to each particular case, having regard to the character of the employment, the length of service of the servant, the age of the servant and the availability of similar employment, having regard to the experience, training and qualifications of the servant." [Emphasis added]

[43] The common law permits employers and employees to “contract out” of the reasonable notice period that an employee is otherwise entitled to, by setting out a shorter notice period in their employment contract. Mr. Wyllie’s employment contract limited the notice he was entitled to receive to two weeks, or two weeks remuneration in lieu of notice.

[44] An employer is not permitted to contract out of minimum statutory requirements for payment in lieu of notice or severance. Insofar as the minimum statutory requirements are concerned, the Canada Labour Code’s requirements prevail over any less favourable provisions of the Employment Standards Act, 2000. The Employment Standards Act, 2000, provides:

5. (1) Subject to subsection (2), no employer or agent of an employer and no employee or agent of an employee shall contract out of or waive an employment standard and any such contracting out or waiver is void.

(2) If one or more provisions in an employment contract or in another Act that directly relate to the same subject matter as an employment standard provide a greater benefit to an employee than the employment standard, the provision or provisions in the contract or Act apply and the employment standard does not apply. [Emphasis added by Justice Price]

[45] The question arises as to whether the Canada Labour Code gives Mr. Wyllie a civil remedy, enforceable by this court, or whether it restricts him to the administrative process set out in the Labour Code. That process is begun by a complaint to an administrative official at Human Resources and Skills Development Canada (“HRSDC”), and culminates in a determination by an Adjudicator appointed pursuant to the Code.

Commentary

After much, much consideration of those paragraphs, let’s unpack what went wrong.

Civil Remedies – Paragraph 45

The answer to Justice Price’s question in paragraph 45, “whether the Canada Labour Code gives Mr. Wyllie a civil remedy, enforceable by this court” is found in, and very easily answered by, section 246 of the Canada Labour Code, which provides, rather clearly, as follows:

246. (1) No civil remedy of an employee against his employer is suspended or affected by sections 240 to 245.

There are also several, several civil decision concerning federal works and undertakings. Justice Price’s very thorough analysis on this point seem wholly unnecessary.

Contracting Out – Paragraphs 42 - 45

In paragraph 43 Justice Price wrote, “The common law permits employers and employees to “contract out” of the reasonable notice period that an employee is otherwise entitled to, by setting out a shorter notice period in their employment contract.” While that statement of law is generally correct, the limitation placed upon the right is as stated by Justice Price in paragraph 44 of his reasons for decision, “An employer is not permitted to contract out of minimum statutory requirements for payment in lieu of notice or severance.”

Both statements of law are taken, albeit in a much paraphrased manner, from the Supreme Court of Canada’s decision in Machtinger v. HOJ Industries Ltd., [1992] 1 SCR 986, 1992 CanLII 102. According to the headnote prepared for that case, in Machtinger, the Supreme Court of Canada held as follows:

Employment contracts for an indefinite period require the employer, absent express contractual language to the contrary, to give reasonable notice of an intention to terminate the contract if the dismissal is without cause. …this common law principle of termination only on reasonable notice should be characterized as a presumption, rebuttable if the contract clearly specifies some other period of notice, whether expressly or impliedly…

[T]he minimum notice periods set out in the Employment Standards Act…[do not] operate to displace the common law presumption of reasonable notice. Section 6 [of the then operative Employment Standards Act states that the Act does not affect the right of an employee to seek a civil remedy from his or her employer, and under s. 4(2) a "right, benefit, term or condition of employment under a contract" that provides a greater benefit to an employee prevails over the standards in the Act. The effect of ss. 3 and 4 of the Act is to make any attempt to contract out of the minimum employment standards of the Act by providing for lesser benefits "null and void".

Policy considerations support the conclusion that where an employment contract fails to comply with the minimum notice periods set out in the Act, the employee can only be dismissed without cause if he or she is given reasonable notice of termination. An interpretation of the Act which encourages employers to comply with its minimum requirements, and so extends the Act's protection to as many employees as possible, is to be favoured over one that does not. If the only sanction which employers potentially face for failure to respect the minimum notice periods is an order that they comply with the Act, they will have little incentive to make contracts with their employees that meet the statutory standards. Many individual employees are unaware of their legal rights, and employers can rely on the fact that they will not challenge contractual notice periods below the statutory minimum. It is more consistent with the objects of the Act to take the approach that, if an employment contract fails to comply with the minimum statutory notice provisions, then the presumption of reasonable notice will not have been rebutted.

In paragraph 42 of his reasons, Justice Price commented that, “Were it not for Mr. Wyllie’s employment contract, he would be entitled, according to the principles of contract, as they have developed in the common law, to “reasonable notice” of termination of his employment.” But, as we just saw, in order for the contract to displace the legal presumption of termination only upon the provision of reasonable notice, the contract must provide for at least the minimum amount of notice and severance prescribed by the applicable employment standards legislation, which in this case was the Canada Labour Code.

The contract of employment clearly failed to provide for the minimum amount of severance prescribed by the Canada Labour Code; about that there appears to be no ambiguity.

However, rather than award the plaintiff damages in lieu of reasonable notice, which he ought to have done, Justice Price, for reasons totally incomprehensible to me, set out to award the plaintiff no more than the statutory minimum amount of severance prescribed by the Canada Labour Code: five days. Had Justice Price followed his own logic, as I have set it out above, the law would have compelled him to award the plaintiff damages in lieu of reasonable notice. For what it is worth, I would calculate the same as being somewhere between two and four months of wages.

For readers interested in how I come to the conclusion that the plaintiff should have been awarded between two and four months of reasonable notice, I would direct them to the following two posts:

Greater Benefit – Paragraph 44

Finally, there is this very perplexing comment from Justice Price, which I admittedly had to read several times before fully comprehending what I believe Justice Price intended. In paragraph 44 of his reasons for decision, Justice Price wrote the following:

Insofar as the minimum statutory requirements are concerned, the Canada Labour Code’s requirements prevail over any less favourable provisions of the Employment Standards Act, 2000. The Employment Standards Act, 2000, provides:

5. (1) Subject to subsection (2), no employer or agent of an employer and no employee or agent of an employee shall contract out of or waive an employment standard and any such contracting out or waiver is void.

(2) If one or more provisions in an employment contract or in another Act that directly relate to the same subject matter as an employment standard provide a greater benefit to an employee than the employment standard, the provision or provisions in the contract or Act apply and the employment standard does not apply. [Emphasis added by Justice Price]

As I interpret Justice Price’s reasons, he looked to section 5(2) of the Employment Standards Act, 2000 and concluded that the provisions in the Canada Labour Code, being “another Act” applied and the employment standard set out in the Employment Standards Act, 2000 did not. I make this interpretation based on the emphasis Justice Price added to subsection 5(2) in his reasons for decision and the award he granted the plaintiff.

Here’s the problem: Justice Price never should have considered the Ontario Employment Standards Act, 2000 at all. As explained more fully here, Which Laws Apply?, given that the employer in this case was a “federal work or undertaking” the Ontario Employment Standards Act, 2000 was of no more application than the employment standards law of the province of Quebec or the state of New York; it simply did not apply. Again, for those wondering why that law would not apply, see the post Which Laws Apply?, it will explain things.

What Should Have Happened?

The benefit to being in the position I am, as compared to the position of the motion judge, is that I get to pick the cases on which I will comment. I do not bear the weight of being asked to make decisions affecting one’s life, one liberty, one’s livelihood, or one’s children; at least not yet. However, the benefit to blogging is that I can play Monday morning quarterback.

I would have awarded the plaintiff in this case damages in lieu of reasonable notice. The employment contract prepared by the defendant was illegal, and on the basis of the Supreme Court of Canada’s decision in Machtinger I would have found myself compelled to award him more than the minimum amount of severance prescribed by the Canada Labour Code. I probably also would not have made any mention of the Ontario Employment Standards Act, unless it was to confirm that it was of no application.

Takeaways for Employees with Labour Pains

The plaintiff employee in this case was unrepresented. As mentioned in my previous post, I am not entirely sure for what he asked, but I am hopeful (for the sake of the system) that it was lacking. Notwithstanding Justice Price’s lengthy decision, most employment law concepts are easy enough to explain and to litigate; if you know what you’re doing. Like anything, conducing one’s own wrongful dismissal case is generally to be discouraged; cases like these are best left to the professionals.

If you are a worker in Ontario and are looking for advice on whether you may have a case for wrongful dismissal or constructive dismissal, the professional, experienced and cost-effective employment lawyers for employees at Ottawa's Kelly Santini LLP would be happy to be of service to you.

Contact Me

To reach the author of this blog, Sean Bawden, email sbawden@kellysantini.com or call 613.238.6321 x260.

Sean P. Bawden is a partner with Kelly Santini LLP, located in Ottawa, Ontario, Canada. He practices in the areas of employment law and civil litigation. He has also taught Trial Advocacy for Paralegals and Small Claims Court Practice at Algonquin College in Ottawa.

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As always, everyone’s situation is different. The above is not intended to be legal advice for any particular situation. It is always prudent to seek professional legal advice before making any decisions with respect to your own case.

3 comments:

  1. Good analysis, Sean.

    One of the particularly puzzling elements to me about Justice Price's failure to apply Machtinger is that, in the Ford v. Keegan decision (another against-the-grain decision which he decided not so long ago), he wrote this:

    "The employer who drafts an agreement prescribing a fixed notice period, rather than one that increases with the employee’s years of service, and who does not negotiate a new employment agreement when the employee’s years of service entitles him/her to a longer period of notice, assumes the risk that the clause will become invalid at that point and that the common law will prevail to determine the period of notice required."

    It's not exactly the application of Machtinger that most courts have taken, but if Justice Price had even followed his own reasoning it would have presumably have resulted in Mr. Wyllie having substantially greater entitlements. Hard to say, without seeing the full text of the contract, but I have a sneaking suspicion that the correct measure of compensatory damages would have been to the end of the fixed term contract - about 20 weeks total.

    That said, I can imagine a number of almost-cogent ways that this result could be argued: For instance, if the contract merely spoke to notice obligations and didn't expressly displace other entitlements (i.e. statutory severance), one might theoretically regard that as not actually being inconsistent with the terms of the CLC provided the contractual notice period actually met or exceeded the CLC's minimalistic notice period. (There might actually be a basis for such an argument...but it's always seemed like a tough pitch for an employer when it has previously taken the position that the contract actually limits its liabilities to less than the stat minimums.)

    Or I could imagine an attempt to distinguish Machtinger in context of Federal jurisdiction. There isn't a whole lot of case law about enforceability of written termination clauses in the Federal sphere, and I have to admit that s.168 of the CLC is somewhat less express about voiding non-compliant language than s.5 of the ESA. (Still, I think that approach would be wrong - a purposive interpretation would make it hard to apply the CLC differently than the ESA.)

    However, I'm not seeing any reasoning along any of these lines in the decision: It looks to me like Justice Price was so caught up figuring out whether or not civil/contractual remedies can coexist with the CLC's administrative process that he didn't think to ask whether or not the written contractual terms might not be enforceable. Or, to be fair to him, with a self-rep plaintiff, the question was probably never coherently put to him in the first place.

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    1. Dennis,

      I also saw the fixed-term aspect, but was inclined to give effect to the without cause aspect of the agreement. Damages would likely come to a similar amount either way.

      As to limiting the notice but not the severance, I think that's what Justice Price intended to do. To say, under Machtinger, one can limit "notice" to no more than the minimum amount prescribed in employment standards legislation and the employer in this case had. He appeared to approach the issue of statutory severance as separate from that of notice.

      It's a long way to go, but he appears to say "severance" is not a component of "reasonable notice" - which is a treatment it does actually receive. Therefore, the employer did limit notice, but not "severance", so I am awarding the severance component.

      Convoluted and not articulate to be sure. I am also not convinced it's right.

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    2. Oh, it could be correct, in my view, but it strongly depends on the language of the contract.

      It's always been my view that contract language to the effect of "The employer is entitled to terminate the employment relationship on provision of x notice", with nothing further, does displace the common law entitlement to reasonable notice, without tinkering with concepts like severance. Under the terms of the contract, I properly terminate the contract by providing you with actual notice, and then I owe you certain monies at the end - wages, vacation pay, severance, etc. (Not like an 'actual notice' termination clause could build in severance entitlements anyways. Then again, I've also always believed that the treatment of severance in Stevens v. Globe & Mail is incompatible with the applicable first principles. There's an entry to that effect buried in my blog somewhere...)

      But few termination clauses are so simple. Most build in a contractual right to terminate without notice, and try to create a comprehensive formula for the employee's monetary entitlements - which clearly *would* have to account for severance entitlements.

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