Monday, September 30, 2013

Does the ESA Protect Common Law Pay in Lieu of Notice?

For background, I encourage reading Professor Doorey's recent entry on his Law of Work blog.

The core topic is a very interesting development, with a dismissed employee suing the Ministry of Labour for telling him that he was only entitled to eight weeks' notice of termination (being his entitlement under the Employment Standards Act), which led him not to pursue his rights and remedies at common law for wrongful dismissal (which would no doubt have been far more significant).

It's an interesting case, raising interesting issues, and I look forward to seeing how it is dealt with.

However, Professor Doorey also raises an interesting question in terms of the interaction between the ESA and common law.  You can read his argument yourself, but I'll try to briefly sum it up fairly here:

The ESA not only establishes statutory minimum employment standards, like minimum wage and termination pay, but it also protects contractual entitlements in excess of the minimum standard.  So the general minimum wage is $10.25 per hour...however, if you and I agree that I'll work for you for $20/hour, then I can make an employment standards claim for outstanding wages based on my full wage rate, and not merely on the basis of minimum wage.  (There's a narrow exception to this, in terms of minimum shift pay, but I'll resist the urge to digress.)

Wages are defined expansively in the ESA, including "remuneration payable by an employer to an employee under the terms of an employment contract".  Therefore, Professor Doorey argues, where the common law implied term of reasonable notice applies, shouldn't the ESA protect the wages owing through the reasonable notice period?  Shouldn't an employee be able to recover common law pay in lieu of notice through an ESA claim (up to the maximum for ESA claims)?  And most importantly, isn't an employer statutorily obligated to provide full common law pay in lieu of notice within the timeframes set out in the Employment Standards Act, rather than simply paying the statutory minimum termination pay and then withholding the rest as leverage for a full and final release?

The Alternative Viewpoint

First, let's talk about the theoretical underpinnings of wrongful dismissal law:  It's trite law that (in the absence of a contractual term to the contrary) common law implies and presumes a term that an employer can't fire an employee, absent just cause, except on provision of 'reasonable notice'.  Everyone who works in this field will also agree that provision of working notice is quite exceptional:  In the vast majority of cases, when an employer fires an employee, it is effective immediately, and the employee gets "pay in lieu of notice".

However, the case law is also fairly clear that "pay in lieu of notice" is not an implied contractual entitlement.  It's pretty well-settled law at this point that the framework is thus:

If I am an employee, and I don't have a written contract speaking to notice of termination, then I am entitled to "reasonable notice" of termination, meaning that, when my employer wants to let me go, he should tell me, "The contract will be terminated as of x months from now."  That's how one would comply with the implied contractual obligations.  Once the notice period expires, I go home, my employer pays me for the work I've done, and there are no further obligations in most circumstances.

In practice, therefore, if my employer fires me effective immediately, in most cases this would be a breach of my contractual entitlement to reasonable notice, entitling me to damages in accordance with common law principles - i.e. to put me into the same position I would be in had the contract been complied with.

That being said, while I am entitled to damages, the law regards my employment relationship as being over the moment my employer tells me it is.  This was at issue in the case of Love v. Acuity Investments, from the Court of Appeal, and while I disagree with the ultimate result in that case, I don't disagree with the Court of Appeal's analysis insofar as they found that the employment relationship ended when the employer terminated him without notice, and did not notionally continue to the end of a theoretical notice period.  When my employer fires me effective immediately, my obligation to provide services for my employer is at an end, as is my employer's obligation to pay my salary.

There is a general consensus in the jurisprudence on this point, and it's important, so I'll reiterate it:  The contractual obligation is to give notice, and when an employer fails to give notice, this is a breach of contract entitling the employee to damages, and does not result in a notional continuation of the relationship.

So "pay in lieu of notice" is a practical construct, being shorthand for damages suffered by reason of the employer's failure to comply with its contractual obligation to give notice.  When an employer is ordered to pay in a wrongful dismissal action, this is not in the nature of ordering performance of the contract, but rather in the nature of ordering compensation for losses arising by reason of a contractual breach.  It's a fine distinction in many cases, but it is nonetheless important.

This is why it isn't included in the ESA's definition of "wages":  It isn't money owing under the terms of the contract.  What the terms of the contract contemplate is an opportunity for the employee to continue to keep working and earning wages over the course of the notice period.

And this distinction has further consequences, too:  Because common law pay in lieu of notice is in the nature of damages, and not contractual monies owing, it is subject to the mitigation principle.  (Consider Bowes v. Goss Power Products, where a written contract provided for pay in lieu of notice, which had the ultimate effect of relieving Mr. Bowes of his duty to mitigate.)  As well, common law wrongful dismissal damages can be treated as a "retiring allowance", eligible for RRSP rollovers and lump-sum withholding rates, unlike statutory or contractual pay in lieu.


This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.

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