The increasing number of claims and legal actions brought on by current and former employees has caught the attention of Canadian employers.
Since the recession and subsequent downsizing in the corporate world, many employees have become more aware of their rights and are willing to protect them. Reasons for legal action vary from wrongful dismissal and negligent evaluation to sexual harassment and racial discrimination.
Employers can no longer afford to be complacent. Organizations that don’t take the necessary precautions may find themselves exposed to substantial claims.
Although court settlements typically have been larger in the U.S., recent Canadian court cases have resulted in awards that run into the hundred thousands. Further, a Canadian parent with a U.S. subsidiary is exposed to the same monumental claims in respect of its U.S. operations as would a “native” U.S. corporation.
The evolution of the “employee contract” has also had a dramatic impact on an employer’s liability. There was a time when, in the absence of a contract for a specific duration, employers and employees were free to terminate their relationship at any time. Employers did not need a cause to terminate their employees, and employees did not need a cause to quit. In today’s business climate, the doctrine of employment-at-will no longer exists. Employees have more potential claims against their employers than ever before, not just in situations where an employee is “let-go”, but also with respect to hiring, promotion, discipline and other employment-related issues.
Whether expressed or implied, all employers, at least in Canada and the United States, have an employment contract with their employees. An express contract sets out the terms and conditions of employment and the terms and condition under which employment may be terminated. An employment contract does not have to be in writing. It can be an implied contract in the form of an employee handbook or an informal or oral agreement. Regardless of the nature of the contract, underlying them all is the “convenant of good faith and fair dealing” in the employment relationship.
A significant example of the rights of an employee under an employment contract was illustrated in May, 1997. The Ontario Court of Justice (OCJ) awarded a former senior officer of one of Canada’s largest banks damages for wrongful dismissal totalling approximately $1.7 million. Quoting from an earlier decision of the British Columbia Court of Appeal, the OCJ stated that, “One term which, if not express, may be implied in a contract of employment is that the employer will not make such a change in the duties and status of the employee as to constitute a fundamental breach of the contract”. Again quoting from other previous judgements, it went on to say that “A demotion or reduction in job
responsibilities can constitute a constructive dismissal. This is generally true even if there was a legitimate business justification for the reorganization of business which is the reason for the demotion and reduction in responsibilities”.
Other substantial cases that have been related to wrongful dismissal, sexual harassment and discrimination include the following:
• Although a decade elapsed before the judgement was rendered, Ontario Hydro was made to pay $800,000 in damages in a wrongful dismissal case which was tinged with racial overtones.
• A federal government department cited incompetence for firing a female employee two years after she had complained of racial and sexual harassment. The department was ordered by the Federal Court to reinstate the employee. The court also asked the human rights tribunal (which previously had awarded her two years’ salary instead of the salary for six years which she had lost) to reconsider the financial settlement.
• The chief executive of a Crown corporation owned by the PEI Development Board sued his employers for wrongful dismissal. In awarding him damages for $778,000 plus legal costs and
back interest, the judge stated that the government had “acted in a precipitous and somewhat
cavalier manner because of the political sensitivity” of the situation and that the evidence had
established that the defendants had acted “in an improper, high-handed and insensitive fashion
in terminating employment”.
Evolving case law and the proliferation of federal and provincial laws governing employment also make claims by employees more common and costly. The courts are interpreting broadly the obligations, created by common law and statute, which are imposed on fiduciaries and trustees and, therefore, creating significant fiduciary responsibility. Even routine management decisions can lead to personal liability for a company’s directors and officers.
While most corporations have trained human resource professionals to handle employment issues, the reality is that many other people are involved in the supervision, hiring and discharging of employees and claims often arise from the actions of those involved. Even trained professionals, however, can get complacent.
With the heightened awareness of employee rights, employers would be ill-advised if they remained insensitive to the need for human resource policies to minimize their potential liabilities. In fact, corporations, regardless of size, should have an effective employment liability loss prevention program to alert its management to the laws and regulations which govern employment-related claims. Senior management of every corporation should, in fact, review from time to time its human resource policies to ensure that federal and provincial Laws are not violated.
