Court applies the rule in Waksdale, gives insight on calculating reasonable notice damages

by Rhonda B. Levy and George Vassos of Littler

A recent wrongful dismissal opinion from the Ontario Superior Court of Justice weighed the impact of the pandemic and alleged failure to mitigate when deciding how much reasonable notice damages were owed the plaintiff. In Gracias v. Dr. David Walt Dentistry, 2022 ONSC 2967, the court did not accept the employer’s claim that the employee failed to mitigate damages by falsifying job applications after her employment termination.  The court awarded a three-month notice period less the Employment Standards Act, 2000 (ESA) entitlements already paid, and concluded that her Canada Emergency Response Benefit (CERB) should not be deducted from the damages.

This decision is useful to employers because, among other things, it demonstrates a court’s response to allegations that an employee falsified mitigation documents, applies the rule in Waksdale, and takes a market-specific approach to evaluating the impact of the COVID-19 pandemic on the reasonable notice period.  The decision is also useful to employers because it demonstrates that Canadian courts continue to take an inconsistent approach to whether CERB payments should be deducted from reasonable notice damages.   

Background

On March 15, 2020, at the outset of the COVID-19 pandemic, the employee was dismissed without cause from full-time employment as a dental hygienist and paid her ESA entitlement of one-week’s pay in lieu of notice.  The employment contract (Contract) provided:

Your employment may be terminated without cause for any reason upon the provision of notice equal to the minimum notice (or pay in lieu of notice) and severance (if applicable), as required to be provided under the terms of the Employment Standards Act. If your employment is terminated without cause, the Employer will continue your benefit coverage (if any) for such period as the Employment Standards Act shall require. By signing below, you agree that upon receipt of your entitlements under the Employment Standards Act, no further amounts shall be due and payable to you, whether under the Employment Standards Act, any other statute, or at common law. In no circumstances will you receive less than your entitlements to notice, severance (if applicable), and benefits continuation (if any), pursuant to the Employment Standards Act.

The employee’s annual salary was $75,000 and she received $16,000 in CERB payments.  On September 16, 2020, the employee was hired by another employer.

The employee had initially instituted claims for $50,000 in damages for discrimination for contraventions of the Ontario Human Rights Code, and $50,000 in punitive damages, but later abandoned both claims.  The employee  sued for $43,750 ($6,250/month) in common law damages as compensation for wrongful dismissal based on a seven-month notice period, claiming the termination provisions in her Contract were unenforceable because her Contract unlawfully contracted out of the ESA.  

She requested a reference from the employer but it was not provided.

The parties disagreed on whether and to what extent the pandemic impacted the employee’s efforts to find a new job. The employee stated it diminished her prospects of a replacement job because dentists were laying off staff rather than hiring. The employer stated the pandemic should have made it easy for a person with the employee’s qualifications and experience to find a new job.

The employer argued the employee’s action should be dismissed because her Contract barred her from claiming more than ESA entitlements and, alternatively, that the notice period was one month, but there were no damages because the employee received a $16,000 CERB during the notice period. Finally, the employer argued that the claim should be dismissed because of a failure to mitigate.  The employer claimed the employee falsified evidence of her efforts to find a new job with fabricated records of internet applications.  The employer resisted the motion for summary judgment with affidavit evidence from the principal of a digital forensics firm it retained to evaluate the truth of the documents relating to the employee’s job search, and from the principals of four dental clinics to whom the employee testified she applied for work.

Decision

Applicable Legislation

The court decided that a full trial was unnecessary as the case was appropriate for summary judgment, and noted that sections 5, 54, and 57 of the ESA, set out below, were relevant for the motion’s determination:

No contracting out

5 (1) Subject to subsection (2), no employer or agent of an employer and no employee or agent of an employee shall contract out of or waive an employment standard and any such contracting out or waiver is void.

Greater contractual or statutory right

(2) If one or more provisions in an employment contract or in another Act that directly relate to the same subject matter as an employment standard provide a greater benefit to an employee than the employment standard, the provision or provisions in the contract or Act apply and the employment standard does not apply.

{…}

No termination without notice

54 No employer shall terminate the employment of an employee who has been continuously employed for three months or more unless the employer,

(a) has given to the employee written notice of termination in accordance with section 57 or 58 and the notice has expired; or

(b) has complied with section 61.

{…}

Employer notice period

57 The notice of termination under section 54 shall be given,

(a) at least one week before the termination, if the employee’s period of employment is less than one year;

[…]

The court also stated that Ontario Regulation 288/01 (Termination and Severance of Employment), set out below, was relevant for the motion’s determination:

Employees not entitled to notice of termination or termination pay

2. (1) The following employees are prescribed for the purposes of section 55 of the Act as employees who are not entitled to notice of termination or termination pay under Part XV of the Act:

[…]

3. An employee who has been guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.

Mitigation Fraud Allegation

The court characterized the employer’s fraud claim as a “wrathful attack” that failed on its merits; it believed the employee’s evidence that she did not falsify the documents and found that the employer’s evidence was “too flawed and incomplete” to draw the inference that she had done so. The court noted, however, that while the employee’s defense to the attack should have been on the merits, her counsel wrongly argued that the evidence should be disallowed or treated as irrelevant because of the collateral fact rule. The employee’s evidence was with respect to her efforts to mitigate and this was a fundamental issue in a wrongful dismissal case rather than a collateral issue.  Accordingly, the court concluded the employer’s evidence was admissible.

The court then considered the merits of the fraud allegation and, upon weighing the evidence, found no failure to mitigate and believed the employee’s evidence that she made the job applications.  The court considered it far more plausible that the suspicious anomalies found in some of the emails in the employee’s mitigation log were caused by mistake in her use of Indeed.com or use of her personal email account, rather than by fraud.  With respect to the dentists who testified that they did not find evidence of applications from the employee, the court stated this was consistent with the more plausible explanation that the employee’s emails were misdirected by mistake and not fabricated after the fact.

Wrongful Dismissal Claim

Next, the court considered the employee’s wrongful dismissal claim and identified the following issues:

1. Was the employee not entitled to common law damages and entitled only to her ESA entitlements, which she had already received?
2. How should the employee’s damages for wrongful dismissal be assessed?  In addition to establishing the general principles for determining a reasonable notice period, the court considered the significance to the reasonable notice period of previous part-time employment; COVID-19; CERB; and the absence of a reference letter.

The Employment Contract and the Entitlement to Common Law Damages for Dismissal without Cause

The court outlined general principles for determining the notice period:

• When an employee has an employment contract of undefined duration, they are entitled at common law to reasonable notice of dismissal if the dismissal is without cause;
• Employers and employees can rebut the presumption of reasonable notice by agreeing to a different notice period; however, pursuant to the Waksdale rule (i.e., the proper method for determining whether a termination clause in an employment agreement is enforceable is to analyze the agreement as a whole rather than on a piecemeal basis), their agreement will be enforceable only if it complies with the minimum employment standards of the ESA;
• A provision in an agreement between employer and employee that would preclude an employee from their entitlement to reasonable notice of dismissal without cause is unenforceable if the agreement viewed in its entirety contravenes s. 5 of the ESA, which provides that no employer and no employee shall contract out of or waive an employment standard and any such contracting out or waiver is void;
•  If a term of the employment contract denies the employee the benefits they would be entitled to under the ESA, any term of the contract that would preclude the employee from a common law notice period is unenforceable even if the employee received all the benefits they were entitled to under the ESA;
• If a termination provision of the employment contract contravenes the ESA, the valid termination provisions of the contract are not saved by a severability clause and the employee will be entitled to their entitlements under the common law; and
•  If a provision within a termination clause conflicts with the minimum standards prescribed by the ESA, all termination provisions are unenforceable.

Applying these principles to the case, the court found:

• The Contract expressly and clearly precluded her from an entitlement to reasonable notice for a dismissal without cause;
• The Waksdale rule applied, however, and therefore the employee was entitled to reasonable notice rather than immediate dismissal;
• While a termination without cause provision in an employment contract may be lawful, the termination for cause provision in the Contract contracted out of the ESA and it was void; and
• The unlawful termination provision cannot be severed, and it taints the entirety of the termination provisions. The termination for cause provisions deny the employee any notice and her benefits under the ESA, for conduct that may not amount to wilful misconduct, the benchmark set by the ESA.

The court also noted that Ont. Reg. 288/01 provides that an employee is entitled to notice of termination, termination pay, and severance pay unless the employee “has been guilty of wilful misconduct, disobedience, or wilful neglect of duty that is not trivial and has not been condoned by the employer.” The court opined that the termination for cause in the Contract were not compliant with the ESA and, accordingly, she was entitled to her common law entitlements.

Common Law Damages for Dismissal without Cause

The court outlined well-established general principles relating to damages for dismissal without cause and their calculation, including that the effect of COVID-19 may justify a longer notice period because of the attendant difficulty finding other employment.

Significance of Previous Part-time Employment

For the following reasons, the court disagreed with the employee’s argument that she provided continuous, uninterrupted part-time work beginning in September 2017 and was therefore entitled to notice based on her total years of service, which was two years and seven months:

• In her Statement of Claim, the employee stated that she began her employment with the employer on or about September 23, 2019; and
• Her part-time work was so intermittent and minimal that it could not be regarded as sufficiently continuous or significant to be a factor in the assessment of the notice period.

Significance of the COVID-19 Pandemic

Although the court acknowledged the harmful impact of the pandemic on the economy, it noted that it did not have a uniform effect on all job markets and it was a matter of evidence whether or not the pandemic harmed any particular job market. The court preferred the employer’s evidence that there was a robust market for dental hygienists, and stated that in this case the downturn in the economy did not justify a longer notice period. The court noted its conclusion was supported by the employer’s evidence that of the 140 applications made by the employee, almost 100 of them were in response to job recruitment postings on Indeed.com.

Is the CERB Deductible from the Damages for Dismissal Without Cause?

After reviewing the different outcomes of judicial decisions in Canada that considered whether CERB should be deductible from damages for wrongful dismissal without cause, the court agreed (without saying why) with the courts of Ontario and Nova Scotia in Iriotakis (discussed here) and Slater v. Halifax Herald Limited, 2021 NSSC 210 that CERB payments should not be deducted from damages.   

Significance of a Reference Letter

The court considered whether the failure to provide a reference should lengthen the notice period. Noting that an employer had no obligation to provide assistance to a former employee, the court stated that given the parties’ “bitter and strained relationship,” it was understandable that the employer did not provide a letter.  The court regarded its absence as “a sterile factor.”

Application of the Principles of Damages for Wrongful Dismissal to the Immediate Case

In the court’s opinion, the appropriate notice period ranged between one to three months.  In balancing the factors set out below, the court awarded three months’ notice:

• The employee was looking for a job several weeks before dismissal, which indicated how discontented both parties were about the employee’s role;
• The employee was not valued, and did not have management responsibilities;
• The duration of employment was less than six months;
• The employee was in the prime of her career with considerable work experience, and that together with her age and credentials, presented competitive advantages in the job market;
• COVID-19 was not a major impediment to finding a new position; and
• The mitigation efforts were reasonable.

Bottom Line for Employers

Although the court in Walt Dentistry acknowledged the existence of “suspicious anomalies” in emails listed in the employee’s mitigation log,  the decision is a cautionary tale that employers that wish to put forth fraud allegations must provide incontrovertible evidence of falsification.

Walt Dentistry also provides an example of how a court may apply the rule in Waksdale.  It reminds employers that although they are free to provide in their contract that the employee will not be entitled to reasonable notice for dismissal without cause, if they do not comply with ESA minimums, a court will find that the contract is void and will award common law entitlements.

Furthermore, Walt Dentistry suggests that an employee’s minimal part-time employment may not be considered sufficiently continuous to be considered in the assessment of common law reasonable notice.  Additionally, the decision indicates that in evaluating reasonable notice, courts will consider specific evidence of the impact of the pandemic on the employee’s particular job market, rather than on the economy generally.

Without reasons, the court decided that CERB payments should not be deducted from the reasonable notice damages.  As we have seen in prior decisions,1 there has been some inconsistency in the approach Canadian courts have taken regarding whether damages in lieu of reasonable notice should be reduced by CERB payments. We are not aware of a Court of Appeal decision considering this issue, although we anticipate that will happen.

Finally, Walt Dentistry reinforces that an employer has no obligation to assist a former employee by providing a reference letter, especially when their relationship is “strained and bitter.”