Supreme Court: may be necessary for dismissed employees to return to the same employer to satisfy duty to mitigate

According to the Supreme Court of Canada, it may be necessary for a dismissed employee to mitigate his or her damages by returning to work for the same employer.

In a case released just yesterday, the Supreme Court of Canada has added a new and interesting element to the mix of termination options for employers.  The case, Evans v. Teamsters Local Union No. 31 2008 SCC 20, involved a business agent who had been employed by the Union for 23 years.  After receiving notice that his job had ended, he, through his lawyer, attempted to negotiate a severance package with the union’s lawyer.  When negotiations failed, the union advised him that he was expected to return to work to work out a 24 month notice period.  When he refused to do, the union claimed that he was not entitled to notice because he had failed to mitigate his damages by not returning to work.

While the employee was successful at trial, arguing that it would have been too difficult for him personally to return to the job, the decision was overturned on Appeal, and this was supported by the Supreme Court.

In reaching this decision, the Court took what it called a “multi-factored and contextual analysis” which included considering the fact that there was no other employment available to Evans at the time, and that viewed objectively, Evans would not have been working in an atmosphere of “hostility, embarrassment or humiliation”.  On these facts, and the Court stressed that these cases will always revolve around the facts, a reasonable person would and should have accepted the opportunity to work out the notice period.  Moreover, the Court stated that in considering whether an employee has failed to mitigate by not staying or returning to the dismissed position, there was no distinction between an employee who has been constructively dismissed or one who has been dismissed outright.

Finally, the Court has also “parenthetically noted” that Wallace damages are not subject to mitigation.  This clarifies some uncertainty in the case law across the country about this issue.

Janice Rubin, May 2, 2008

Notice not always proportionate to service in case of short service employee

A recent case involving the termination of a short service employee, illustrates a principle that is often difficult for employers to accept.  A terminated employee’s entitlement to reasonable notice may not always be proportionate to his or her notice.

The case in point is Gingerich v. Kobe Sportswear Inc. (unreported, January 25, 2008).  Here, Mr. Gingerich, who was 38 years old at the time of his termination and had worked for the employer for five months as a sales and marketing manager, was offered two weeks of severance at the time of his termination.  Mr. Gingerich claimed five months notice, based on, amongst other things, an inducement argument.

At trial, Justice Low rejected the inducement argument, but nevertheless awarded Gingerich two and half months of notice.   This case is consistent with others that provide short term employees with pay in lieu of notice that appears disproportionate to their service.  It is an important reminder that the “one month per year of service” rule of thumb that many employers still use, and has, incidentally been explicitly rejected by the Ontario Court of Appeal, often leads to the wrong result.  It may be in the interests of some organizations to terminate an employee shortly after their employment starts.  However, as this case illustrates, assuming that the notice obligations in these circumstances are negligible, is in error.

Janice Rubin
April 8, 2008

WSIB Amnesty Program: Time is running out!

This week’s RTLaw@Work blog entry is written by my colleague, David A. Whitten.  In addition to employment law, David’s practice also includes advising employers and employees on WSIB matters.  Employers should take note of this entry, in light of the time sensitivity discussed below.

With rare exception, most businesses in Ontario must be registered with the Workplace Safety and Insurance Board (“WSIB”).  Nevertheless, many are not.  If an employer engaged in an industry that is covered on a compulsory basis under the Workplace Safety and Insurance Act is discovered to be unregistered by the WSIB, they will be liable not only for retroactive premiums, but penalties, interest and possible prosecution under the Provincial Offenses Act (“POA”).

The possibility of being discovered has increased significantly since the WSIB entered into an information sharing agreement with the Canada Revenue Agency a few years ago.  The two institutions are now sharing information which means that unregistered employers that fall under compulsory categories should not be surprised if they receive an audit letter.  Otherwise, unregistered employers can be found through the WSIB’s ordinary revenue recovery activities, such as employer audits and investigations, or when an injured worker makes a claim.

The WSIB announced a voluntary registration program in the fall of 2007.  Under the program, employers in compulsory categories who voluntarily register before March 31, 2008 will receive full amnesty.  A full amnesty means no penalties for not reporting, no reconciliation interest, no retroactive premiums, and no prosecution under the POA at the time of registration.  Premium remittance will begin from the date of first contact with the WSIB.

After March 31st, all voluntary registrants will receive partial amnesty, including no penalties, no reconciliation interest on retroactive premiums, or prosecution at the time of registration.  However, retroactive premiums will apply for the year of registration and up to one year prior.

For more information on how to take advantage of the Voluntary Registration Policy go to the WSIB’s web site: http://www.wsib.on.ca/wsib/wsibsite.nsf/public/home_e

David A. Whitten
March 3, 2008

Supreme Court of Canada Hears Honda v. Keays

Today, the Supreme Court of Canada heard submissions in what is arguably the most important employment law case in over a decade, Honda v. Keays.  At issue are the legal consequences of firing an employee with a disability – in this case chronic fatigue syndrome.  As part of the company’s disability management program, Honda required Mr. Keays to document each absence from work with a doctor’s note, a requirement that his counsel argued was excessive given the pattern of intermittent absences from work which were part of Mr. Keays’ condition.  In addition, Mr. Keays was told that he needed to meet with a doctor hired on Honda’s behalf.  After his lawyer questioned the purpose of the meeting, Mr. Keays was told that he had to attend or else he would be fired.  When Mr. Keays did not comply, he was fired for cause, thus ending a fourteen year career with Honda.

At trial, Mr. Keays was awarded 15 months of notice and 9 additional months of notice by way of Wallace damages.  The trial judge, who was clearly appalled by Honda’s behaviour in its treatment of Mr. Keays, ordered the company pay $500,000 in punitive damages.  This amount was subsequently reduced to $100,000 by the Ontario Court of Appeal.

The courtroom today was completely full.  Not only were counsel for Honda and Keays present, but also counsel for each of the nine intervening parties.  These included the Human Rights Commissions of Canada, Manitoba and Ontario, the Human Resources Professional Association of Ontario, the Women’s Legal Education and Action Fund and the Council for Canadians with Disabilities, amongst others.  A full nine judge panel heard the case, with many questions being asked by Justices Abella, Charon, Binnie in particular.  While there is no way to predict which way the Court will ultimately decide, here are a number of questions it will likely address in its judgement:

• Is a breach of a human rights code a so called “actionable wrong” that is a prerequisite for the awarding of punitive damages?
• If punitive damages are an appropriate remedy in this case, what is the proper amount?
• Are there occasions when employers, under the guise of accommodating a disabled employee, go too far and impose unnecessarily harsh conditions – such as the provision of a doctor’s note for each absence – or is this all part of an employee’s obligation to assist in his or her own accommodation?
• What is the correct approach for employers to take when attempting to accommodate employees with “invisible” disabilities like chronic fatigue syndrome?
• Notwithstanding the existence of human rights legislation across the country that provides access to commissions and tribunals to investigate and adjudicate complaints, do the courts have jurisdiction to hear civil actions based on a tort of harassment and/or discrimination?
• What is the proper relationship between punitive damages and Wallace damages?

We predict that the outcome of this case will affect all Canadian workplaces in some fashion, particularly as employers go about accommodating the disabled employees who work within them.

February 21, 2008
Janice Rubin

Restrictive covenants that “stick”

This week, we continue to look back at noteworthy 2007 employment law cases.  For people who are interested in the duties imposed on departing employees, have a look at H.L. Staebler Co. v. Allan [2007] O.J. No. 3460, a decision of the Ontario Superior Court of Justice.  The case revolved around whether an employer’s restrictive covenant was enforceable.  The covenant stated that an employee, in this case a “commercial insurance producer”, was prevented from conducting business with any customers of the employer that were serviced by the employee at the date of their resignations for two years.

The two employees in question blatantly ignored this restriction.  With the assistance of their new employer, they resigned their positions without notice, and began to immediately solicit and secure the business of the customers with whom they did business at their former employer.  Two weeks after their departure, their former employer was successful in getting an injunction preventing them from accepting any of this work.  However, by this time, 118 of the clients had already moved their business.

The Court upheld the restrictive covenant, saying that it was reasonable in the circumstances, and the employees, and their new employer, had to pay the former employer close to two million dollars in damages.

We like this case because it shows that a well crafted restrictive covenant can be enforceable in the right circumstances.  While overly broad restrictions are difficult to defend, here, the employer focused on its most pressing economic interest – the relationship that is built between employees and the clients they serve – and was successful.

January 24, 2008
Janice Rubin

“Frustration”

One of the more interesting trends in the 2007 case law was a number of cases in which judges considered whether an employee’s contract of employment had become “frustrated” due to illness and disability. “Frustration” is an old legal concept taken from the law of contracts. It sets out the circumstances when one party to a contract can call the contract to an end, without payment of any damages, because the contract has become impossible to perform. Traditionally, contracts have become frustrated when a factory has burned down, when a ship is lost at sea etc.

In the employment law context, there have been cases when an employer has successfully argued that the employment contract has been frustrated when the employee has been ill for a long time, and the prognosis is that he or she cannot return to the workplace.

The interpretation and application of this doctrine has, in recent years, become increasingly difficult given the influence of human rights law, and the notions of accommodation and discrimination and disability in the workplace. A decision released recently, S.D. v. Riva Plumbing Ltd [2007] O.J. No. 3710 (Q.L.) is a case in point. There, an employer was prevented by the Court to conclude that a contract had come to an end when an employee with metastasized breast cancer had been away from the workplace for 14 months. When it removed the employee from its group health benefits, the employee successfully brought an application to have her benefits and employment status reinstated.

For employers, cases like these mean that before taking steps to discontinue benefits, a very careful review of the file must be done to see if the circumstances warrant it. Indeed, there is the suggestion in this case that so long as an employee is receiving disability benefits from the employer’s plan, the employer may never be able to argue that the contract has become frustrated.

Janice Rubin
January 14, 2008

Welcome to RTLaw@Work

Happy New Year and welcome to the first edition of RTLaw@Work, Rubin Thomlinson’s weekly blog on new and noteworthy employment law cases.

We could not say goodbye to 2007, without mentioning our favourite case of the year, Mercey v. Consolidated Recycling [2007] O.J. No. 3608 (QL). This decision was released in September, and is still unreported. In our view, it is a sign of employment law cases to come. Ms. Mercey was sexually assaulted by a co-worker. Instead of pursuing a complaint at the Human Rights Commission, she sued her employer in court, claiming constructive dismissal, Wallace damages, and punitive damages.

What is striking about this case is while her recovery for severance was quite modest – one month- and in keeping with the fact that she had only worked for the company for six months – she received six months Wallace damages, and $10,000 in punitive damages.

We think there will be more harassment type cases making their way to courts this year. Look also for the continuing rise of so called “ancillary damages”, things like mental distress, punitive damages, and Wallace damages, as these become increasingly prevalent in cases like these.

In the next few weeks, we will let you know about some other cases we thought were noteworthy in 2007.

Janice Rubin
January 7, 2008