EMPLOYMENT LAW
🔹 1. THE THREE REGIMES OF THE LAW OF WORK IN CANADA
The law of work in Canada is divided into three main regimes, each of which governs a different type of working relationship.
First, employment law (common law) governs non-unionized employees and is based on contract principles. This regime focuses on wrongful dismissal, reasonable notice, and damages.
Second, employment standards legislation (such as the Employment Standards Act, 2000) establishes minimum protections for employees, including minimum wage, hours of work, and termination notice. These standards cannot be contracted out of and represent a legal floor.
Third, labour law (collective bargaining law) applies to unionized workplaces. In this regime, employment terms are governed by collective agreements, and disputes are resolved through arbitration rather than courts.
🔹 2. WHAT MAKES THE CONTRACT OF EMPLOYMENT UNIQUE
The contract of employment is different from ordinary commercial contracts because it involves a power imbalance and has a significant impact on the employee’s identity and dignity.
In Reference Re Public Service Employee Relations Act (Alta.), the Supreme Court stated that work is fundamental to a person’s identity, self-worth, and emotional well-being. This means employment law must consider more than just economic exchange.
In Slaight Communications Inc. v Davidson, the Court emphasized that employment is inherently a hierarchical relationship, where the employer holds power and the employee is in a position of subordination. As a result, employment law exists to protect employees and counterbalance this inequality.
🔹 3. EMPLOYEE VS INDEPENDENT CONTRACTOR
Determining whether a worker is an employee or an independent contractor is important because only employees receive protections under employment law.
In 671122 Ontario Ltd. v Sagaz Industries Canada Inc., the Court held that the central question is whether the worker is in business on their own account.
The Court identified several relevant factors, including the degree of control the employer has over the worker, whether the worker owns their own tools, whether they can hire helpers, the level of financial risk they assume, and their opportunity for profit.
No single factor is decisive. Instead, courts look at the overall relationship to determine whether the worker is truly independent or economically dependent on the employer.
🔹 4. TERMINATION AND SEVERANCE UNDER EMPLOYMENT STANDARDS
Employment standards legislation sets minimum entitlements for termination and severance.
Under the Employment Standards Act, 2000 (Ontario), an employer must provide notice of termination or pay in lieu of notice once an employee has worked for at least three months. The amount of notice increases with the length of service, up to a maximum of eight weeks.
Severance pay is separate and is only available if the employee has worked for at least five years and the employer meets certain size or payroll thresholds. Severance is calculated based on years of service.
Importantly, employers cannot contract out of these minimum standards. Any attempt to provide less than the statutory minimum is void.
🔹 5. WRONGFUL DISMISSAL (COMMON LAW)
A wrongful dismissal occurs when an employee is dismissed without proper notice or pay in lieu of notice.
At common law, employment contracts of indefinite duration include an implied term of reasonable notice.
📌 Case: Machtinger v HOJ Industries Ltd.
Facts:
Two employees had contracts that provided less notice than the statutory minimum.
Issue:
Should they receive only the statutory minimum or full common law reasonable notice?
Decision:
The Supreme Court held that the termination clauses were void because they violated employment standards legislation.
Rule:
If a termination clause is invalid, the employee is entitled to common law reasonable notice, which is often much more generous.
🔹 Reasonable Notice (Bardal Factors)
In Bardal v Globe & Mail Ltd., the Court held that reasonable notice must be assessed based on the circumstances of each case.
Relevant factors include:
Length of service
Age of the employee
Character of employment
Availability of similar work
🔹 6. DEFENCES TO WRONGFUL DISMISSAL
A. JUST CAUSE
An employer can avoid paying notice if they can prove just cause, meaning the employee engaged in serious misconduct.
📌 Case: McKinley v B.C. Tel
Facts:
An employee was dismissed for alleged dishonesty about his medical condition.
Issue:
Does any dishonesty automatically justify dismissal?
Decision:
The Supreme Court rejected the automatic rule.
Rule:
Dishonesty only amounts to just cause if it is serious and undermines the employment relationship.
Key principle:
The Court adopted a contextual approach, meaning the nature, degree, and impact of the misconduct must be considered.
B. OTHER DEFENCES (briefly)
Other possible defences include:
Frustration of contract (e.g., long-term illness making work impossible)
Resignation (if the employee quits voluntarily)
🔹 7. DAMAGES IN WRONGFUL DISMISSAL
A. NOTICE DAMAGES
The primary remedy is damages equal to the compensation the employee would have earned during the reasonable notice period.
B. BAD FAITH DAMAGES
Employers must act in good faith in the manner of dismissal.
📌 Case: Wallace v United Grain Growers Ltd.
Facts:
An employee was dismissed abruptly and falsely accused of poor performance.
Decision:
The Court awarded additional damages because of the employer’s bad faith.
Rule (original):
Bad faith could justify extending the notice period.
C. UPDATED RULE – HONDA
📌 Case: Honda Canada Inc. v Keays
Facts:
An employee with a disability was dismissed after refusing to meet a company doctor.
Decision:
The Court rejected the automatic extension of notice (Wallace damages).
Rule:
Damages for bad faith are only awarded if the employee proves actual, foreseeable harm.
Key principle:
Damages must follow the rule in Hadley v Baxendale, meaning they must be reasonably foreseeable at the time of contract formation.
D. PUNITIVE DAMAGES
Punitive damages are only awarded in exceptional cases where the employer’s conduct is harsh, vindictive, and reprehensible.
In Honda, the Court held that such damages were not justified because the employer’s conduct did not meet this high threshold.
🔹 FINAL BIG PICTURE
Employment law in Canada balances:
Protection of employees (due to power imbalance)
Contract principles (notice and damages)
Fairness in termination
MASTER SUMMARY (MEMORIZE THIS)
Employees are entitled to reasonable notice unless just cause exists
Contracts cannot provide less than statutory minimums
Dishonesty only justifies dismissal if it is serious
Bad faith damages require proof of real harm
Punitive damages are rare and exceptional