In a wrongful dismissal action, the employee has the onus of establishing that they are entitled to a particular form of compensation during the notice period and establishing the financial value of their damages.
Mitigation income and collateral benefits may be deducted from this loss figure.
Wrongful dismissal damages are generally calculated from the date of the employer’s breach of the employment contract (i.e. the date that employment was terminated).
An employer who dismisses an employee without just cause is obliged to provide the employee with reasonable notice of the termination of their employment.
There are two steps to determine the employer’s potential liability for reasonable notice:
Step 1: Determine the period of reasonable notice.
The period of reasonable notice is calculated using the Bardal factors, which take into consideration the:
- employee’s character of employment;
- employee’s length of service;
- age of the employee; and,
- the availability of similar employment, having regard to the experience, training and qualifications of the employee.
The foregoing are the most important factors, but there are other factors to be considered in assessing the common law reasonable notice.
Step 2: Calculate the employee’s damages based upon the reasonable notice period.
To determine the financial value of the employee’s loss, the court will break the employee’s compensation and benefits down to a monthly or weekly figure, and then multiply this value by the months or weeks of reasonable notice from Step 1.
The court will award an amount that most accurately reflects what the employee would have earned over the applicable notice period.
The following components of an employee’s earnings most commonly form a part of the severance package commensurate with the appropriate notice period and are briefly discussed below:
Lump Sum Severance Payment or Salary Continuation
- Normally the court will consider the salary level earned by the employee at the date of termination.
- The court will typically reference the employee’s Income Tax T4 form to establish their fixed salary.
- The court may also consider the employee’s pay slips or the terms of any offer letter.
Commission, Variable Pay and Bonus
- Where an employee is compensated solely or in part by commission, they will be entitled to damages for loss of their commission during the notice period
- The employee is usually not entitled to projected commissions beyond the reasonable notice period.
- For dismissed employees with fluctuating pay, the test is what the employee would have reasonably earned over the severance period.
- Of course all accrued amounts are owed to the employee, subject to the terms of the employer compensation plan.
- Most dismissed employees should be paid severance on the basis of overall estimated earnings, not just base salary for the entire notice period.
Overtime
- Aside from unpaid accrued overtime at the time of termination, the employee may be entitled to claim for loss of overtime pay over the reasonable notice period, if they establish that they likely would have earned overtime during the notice period.
- The court will usually average the value of the employee’s overtime history (often over a period of multiple years) to quantify the overtime component of the employee’s remuneration in determining how much, if any, overtime pay the employee should be entitled to over the reasonable notice period.
Life Insurance, Medical and Disability Benefits
- The employee will be entitled to damages for loss of life insurance, medical and dental benefits during the notice period.
- Employers may continue these benefits over the course of the reasonable notice period, but the usual course is to pay the value of the premiums that the employer would have paid in respect of those lost benefits.
Automobile Benefits (Car or Mileage Allowance)
- An employee may be able to claim for loss of automobile benefits during the notice period. The primary considerations in determining if the employee is entitled to damages for loss of automobile benefits are:
- The terms of the employment contract.
- Whether the vehicle was provided for personal or business usage.
Equity-based Compensation
- Equity-based compensation grants the employee rights related to shares (or “stock”) in the corporate employer or a related corporation.
- An employee may claim damages for loss of equity compensation following a wrongful dismissal.
RRSP and Pension Contributions
- Severance packages should include arrangements that compensate employees for all components of their compensation.
- Generally, all benefits, including RRSP and pension contributions, and other perquisites should be continued during the notice period – or the employee should be compensated for the value of any items that are not being compensated.
Legal fees
- Yes, a former employer should be prepared to make a reasonable contribution toward the legal fees of a dismissed employee.
General Damages
- Terminating an employee in a manner that is unfair or is in bad faith by being untruthful, misleading, or unduly insensitive may result in additional damages being awarded to the terminated employee.
- The basis for these additional damages is an implied duty that employers must deal with their employees in good faith, including in the course of termination.
The list of items provided above is only a guideline for things that employees should consider when looking at a severance package that has been proposed. There may be other nuanced components to consider.
As a result, particularly when a number of different items are listed, or only one figure is provided as the amount of severance being offered without breaking down the severance offered in to its individual components, terminated employees should make the tax-deductible investment of obtaining proper legal advice from a qualified employment lawyer, the cost of some or all of which may be reimbursed by their former employer.
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