Disclaimer: This article does not constitute legal advice. Information contained herein is intended to provide knowledge about Canadian employment laws to small business owners and to encourage small business owners, entrepreneurs and independent contractors to seek further education about the laws and statutes that govern their businesses. This article is the property of Okanagan Small Business Services, Inc. © 2019. All Rights Reserved. This document may not be reproduced, distributed or transmitted in any form without the prior written consent of the publisher (Okanagan Small Business Services, Inc.).
Sometimes, despite an employer’s best efforts, an employee just doesn’t work out. Maybe it’s a personality clash, maybe they’re lazy, maybe they tried to date your daughter, or maybe you suspect they are stealing from you. Whatever the case may be, every employer eventually finds themselves in a situation where they are considering letting an employee go.
Terminating an employee in British Columbia is not how it’s portrayed on TV. An employer cannot simply say “you’re fired” and carry on with their day. Employee terminations must be handled with thoughtful consideration and care to avoid the possibility of a wrongful dismissal claim. You may be wondering what “wrongful dismissal” is, and we’ll get to that in a minute. First, we are going to talk about how an employer can dismiss (a.k.a. “fire”) an employee in BC. There are three ways:
DISMISSAL WITH CAUSE
Dismissal with cause is when an employer believes they have a good reason to fire their employee, so they do so without giving the employee any notice or pay in lieu of. An example of dismissal for cause would be catching your employee taking money out of the till and saying to them “You’re fired, get out of my shop immediately!” In this example, the employee has been fired on the spot (without notice) and not paid any severance (pay in lieu of notice). While this may seem like a perfectly reasonably response to catching an employee stealing, under Common Law, things are not so cut and dry. Canadian employment laws provide significant protection for employees – even in cases of employee misconduct (such as theft).
In Canada, the only legal way an employer can fire an employee without notice (or pay in lieu of) is when they have “just cause” to do so. However, establishing just cause is not easy. The onus of proof is on the employer to establish that the employee breached the employment contract in a fundamental way and that a working relationship is no longer possible. FYI, this is very hard to establish.
In cases of employee misconduct, the courts use a contextual approach to consider the nature and severity of the misconduct to determine if dismissal is a proportionate response given the circumstances. Many factors will be taken into account to make this determination, including the employee’s length of service, previous discipline record, and other relevant considerations. On that note, I will reiterate: establishing just cause is not easy. The courts are much more in favor of “second chances” and “progressive discipline” than they are of ending an employment relationship altogether.
IMPORTANT NOTE: We have a loophole for employers to avoid this potential problem, which we will reveal at the end of this article.
Now let’s discuss what can happen if you dismiss an employee “for cause” but the employee doesn’t believe you have “cause”. If this happens, the employee can bring a wrongful dismissal claim against you. A wrongful dismissal claim can cost a small business owner thousands of dollars in legal expenses, but that isn’t even the worst part... The worst part is that if the employee is successful in their claim (meaning the courts agree with the employee that you did not have “cause” to fire them), the employee may be awarded significant damages (a.k.a. money) that you will be required to pay them as compensation for your failure to provide reasonable notice or pay in lieu of. At this point you may be wondering “well what is reasonable notice or pay in lieu of?”. We will discuss that next.
DISMISSAL WITHOUT CAUSE
In BC, an employer can fire an employee “without cause” (in other words, for any reason) as long as the employer gives the employee reasonable notice or pay in lieu of. Great, right? Not really. Unfortunately, “reasonable notice” or “pay in lieu of”, can be significant. There are two driving forces at play here: 1) the BC Employment Standards Act (ESA), and 2) Common Law. We’ll discuss an employer’s obligations under each of these forces in turn.
EMPLOYMENT STANDARDS ACT (ESA) OBLIGATIONS
Under the ESA, employees are entitled to either a) working notice, b) compensation for length of service (CLOS), or c) a combination of these two options. The rule of thumb for how to calculate “working notice” or “CLOS” under the ESA is: an employee is entitled to 1 week of pay per year of service.
The "1 week of pay per year of service" rule caps out at the 8-year mark. An employee with 8 or more years of service is entitled to a maximum of 8 weeks of pay.
To a small business owner with an intolerable employee, this may sound pretty reasonable – a small price to pay for your peace of mind! But don’t do your happy dance just yet, because the ESA requirements are separate from, and in addition to, what is considered “reasonable notice” under common law.
COMMON LAW OBLIGATIONS
Reasonable notice under common law is substantially more generous than ESA requirements. Common law notice is not a payment for past work (as is the ESA’s “compensation for length of service”); it is damages for the employer breaching the employment contract. The general rule of thumb for calculating reasonable notice under common law is: an employee is entitled to 1 month of pay per year of service.
The "1 month of pay per year of service" rule generally caps out at 24-months of pay, however, this “cap” is solely at the discretion of the courts. What this means for small business owners is this: if you have an employee who has worked for you for 2 years and you want to fire them “without cause”, they may be entitled to 2 weeks of pay under ESA in addition to 2 months (or more) of pay under common law. As you can see, firing an employee can become very expensive, very fast.
REMINDER: We have a loophole to this problem, which we will reveal to you at the end of this article!
The third way an employer can dismiss an employee is constructive dismissal. Constructive dismissal is a backhanded way to dismiss an employee. The employer does not explicitly “fire” the employer, instead they either a) unilaterally change the terms of the employment contract (such as reducing the employees pay or changing their job duties), or b) create a work environment that is intolerable for the employee to work in.
Constructive dismissal is shady and unprofessional – don’t do it! However, if harming your professional integrity isn’t enough of a deterrent, there is this: constructive dismissal can also bring a wrongful dismissal claim.
OK, so now that we have explained the three ways that an employer can fire an employee in BC, we will reveal the loophole that can help you avoid a wrongful dismissal claim in the event you need to dismiss an employee. Are you ready for it? Here it is… Policy Manuals & Employment Agreements.
The power of a professionally drafted policy manual and a professionally drafted employment agreement can not be understated. These two power tools can effectively reduce or eliminate an employer’s obligation to give common law notice or pay in lieu of when dismissing an employee without cause.
If you want to protect yourself from wrongful dismissal claims, contact the friendly HR professionals at Okanagan Small Business Services today to discuss having a policy manual and employment agreements drafted. We’ve got your back!
Phone: (778) 738-0338
Williams-Whitt, K., Begg, M., Harris, T. & Filsinger, K. (2017). Employment law for business and human resources professionals. Alberta and British Columbia. Toronto, ON: Emond Montgomery Publications Limited
Danielle Harshenin is the Director of Human Resources at Okanagan Small Business Services. She is passionate about sharing her HR knowledge with local small business owners.