The Common Law of Employment Regime

Should ‘Just Cause’ be required for terminations?

Aqib IrshadSteven Thorne

Alison Purvis

Agenda

Introduction/Key QuestionsLegislation- Federal & Provincial

Common Law Practices Termination ModelsAdvantages and DisadvantagesDebate

Recommendations Conclusion

Termination PractisesKey questions:1) Should employers be able to terminate employees

‘without cause’ simply by providing sufficient ‘reasonable notice?’

2)Do current common law termination practises favour employers or employees too much? How do you balance employee and employer rights?

3) Is further legislation needed to specifically address things such as just cause, reasonable notice, severance entitlements?

What is ‘Just Cause?’• ‘Just Cause’ is a legal term that means an employer is

justified in terminating an employee without providing reasonable notice or payment instead of the notice.

• When determining whether there is just cause for dismissal, courts will look at answering the following two questions as established by the Supreme Court in McKinley v. BC Tel, 2001

• : ▫ (1) whether the employee misconduct may be

proven; and (2) whether the nature and degree of the misconduct is sufficient to dismiss the employee without notice.

What is ‘Reasonable Notice?’ Employees can be dismissed from their job at any time, as long

as their employer continues to pay salary during a period of reasonable notice. The purpose of this notice period is to compensate the employee while they look for comparable employment. Reasonable notice is determined by statute, by agreement between the employer and employee and by common law.

• Statutory Notice Period - ESA provides minimum amount due• Notice Period by Agreement - Employment contracts may

specify• Common Law Notice Period - Following factors are

considered : ▫ length of employment, age of employee, health, education

level, role specialization, scope and responsibility , availability of suitable jobs, including size of city/town.

Current Landscape: Provincial Legislation• In Ontario , Employments Standards Act (ESA) provides

minimum standards for payments:

1) termination pay provides (1 week per year of service to max. 8 weeks)

2) severance pay (1 week per year of service to max. 26 weeks) once minimum requirements met. ( i.e. payroll over 2.5 million, 5 yrs. service etc.)

** In Nova Scotia and Quebec additional protection exists with regards to ‘just cause’.

Current Landscape: Federal Legislation

• Canada Labour Code- Section 240- addresses unjust discharge. To be eligible must be: non-union, non-manager, 12 mths. continuous service, timely application, dismissed not laid off, under federal jurisdiction, no other statutory procedure for redress, exhausted pre-adjudication mediation, and have ministerial approval for adjudication.

• Employees with at least 3 months of service must be given 2 weeks notice of termination, or pay in lieu of. Also entitled to severance pay calculated at rate of two days severance for each year of service with minimum of 5 days payable to all employees .

Current LandscapeCommon Law: Too employer focused?• Judicial consideration of issues such as the duty to

mitigate in the event of dismissal, damages for bad faith, punitive damages and duty to accommodate disability have all been addressed in a pro-employer manner. (i.e. Hydro-Quebec v. SCFP-FTQ)

•  Supreme Court of Canada replaced the notice extension as defined in Wallace (1997) with approach that requires employee to prove not only that the employer acted in bad faith, but that they suffered actual damages as a result. (Honda Canada Inc v. Keays ( 2008)

Current LandscapeCommon Law: Too employee focused?

• Recent court cases have made terminations riskier and more complex. Courts now scrutinize the dismissal process closely and require employers to discipline in proportion to the severity of the employee misconduct (McKinley, 2001).

• After the Wallace, 1997 decision which established the extension of reasonable notice pay as compensation for bad faith conduct in course of termination, many “employers now routinely offer packages even when they believe there is just cause to dismiss and continue to accommodate employees who are though to be taking advantage of the company” (Chris, 2008)

Termination models

1) ‘At will’ - current US model, employer and employee can end employment relationship at own discretion.

2) ‘Reasonable notice’ unless there is ‘cause’ -currently in existence in majority of Canada; employer pays or provides ‘reasonable notice’ to employee if cannot prove cause.

3) ‘Just cause’ -currently only federal legislation(Section 240- Canada Labour Code) addresses. Employer must establish level of cause to terminate

Evaluating Termination Models In reviewing termination models the following

questions should be asked to establish whether or not the model balances the interests of both employee and employer.

Does it:1) Impose unacceptable economic costs on employers?2) Adequately safeguard employees autonomy and dignity?3)Provide equal safeguards compared to other employees covered under different legislation or agreements? ( i.e. union ee’s)4) Contain termination of employment provisions that operate efficiently in own right?

( Source: England,Wood & Christie, 2005)

1) ‘At Will’ -Advantages• ‘Freedom of contract’ advances individual autonomy and promotes efficient operation of

labour markets. (Epstein, 1984)• Protects individual liberty; the right to make a

choice. “Employer is the full owner of his capital, and employee the full owner of his labour.” (Epstein, 1984)

• Lowers costs of both quitting and firing.• Can limit risk of employer abuse; employee can quit

whenever value of employment relationship become negative without fear of litigation. (Epstein, 1984)

• Cost effective- cheap to administer.• Flexible labour laws lead to lower unemployment

rates. (MacCulloch & Di Tella)

1) ‘At Will’ -Disadvantages• Favours employers because they have superior

knowledge, resources and access to law and labour markets. (MacGowan, 1998)

• Only protects employees in government roles, protected classes (race, colour, religion, sex, national origin, disabled) and unionized.

• Identifying protected classes in US has caused discriminatory hiring practises.

• Employers less careful in hiring practises. • Employees vulnerable to coercion and

exploitation .• Employers have easy out- do not bother to look at

ways to improve areas within organization which could ultimately lead to long term efficiency gains.

2) ‘Reasonable notice’- Advantages

• Monetary entitlements ease terminations for employees, minimizing risk of morale crises, strikes and other forms of job action. (Emerson, 1988)

• Societal costs reduced- with businesses absorbing extended severance costs government programs funded via taxpayers are utilized at reduced rate. ( i.e. EI programs, government funded social assistance, welfare etc.) (Emerson, 1988)

• May improve productivity- increases loyalty and dedication of workforce. Know that if things go badly, they will be well compensated.

2) ‘Reasonable notice’- Disadvantages

• Statutory termination provisions that restrict employers flexibility in terminating employees can have adverse economic effects. (Emerson, 1988)

• High termination costs deter employers from implementing lay-offs, hiring permanent employees.

• Generous severance packages impair labour mobility (MacCulloch & Di Tella)

• Lowers # of jobs in economy and size of labour force (Lazear, 1990)

3) ‘Just Cause’- Advantages• Ensures companies held to higher standard- more

carefully select, train and develop employees.• Enhances efficient bargaining between employers

and employees by guaranteeing employers will honour commitment to make payment. (Friesen, 1996)

• Employers and shareholders will benefit- companies covered by legislated termination provisions saw this as increasing efficiency of organization which ultimately led to higher stock prices. (Abraham, 1998)

• Can provide standardized method of addressing just cause, reasonable notice and severance payments.

3) ‘Just Cause’ - Disadvantages• Statutory termination provisions that restrict employers

flexibility in terminating employees can have adverse economic effects. (Emerson, 1988)

• Thompson Report (BC, 1994) recommended against implementing as costs found to be too excessive for employers.

• Increases taxpayer costs due to having federal bureaucracy administer program of this nature.

• Just cause less flexible, harder to hire for short term demands, problematic in dealing with mediocre employees.

• When job has more guarantee around it then workers become complacent and unmotivated. (MacCowan, 1998)

• Language has to be clear and not open to wide interpretation or circumvention.

Debate

Should ‘just cause’ be a legislated requirement for

termination?

RecommendationsIf statutory termination provisions are to be put in place

some of the following elements need to be addressed:

1. Employees must have an affordable, user friendly method of enforcing legal rights.

2. Adequate minimum severance payments that cannot be undercut by employment contracts

3. Standards of ‘just cause’ must be identified4. To make whole the financial and psychological harm

created by unjust dismissal, reinstatement needs to be included.

(source: Arthurs Commission Report)

Conclusion

•In determining which model will work best we need to ensure there is a balance between ensuring an organizations economic profitability and safeguarding employee rights.

Which model do you think best meets

addresses this balance?