When considering terminating an employee, employers may be tempted to build a case for just cause to avoid onerous severance obligations. This is a risky strategy. In Canada, employers have a duty of good faith and honest dealing to employees, which includes the manner of termination. The courts have been quick to admonish and punish employers for attempting to manufacture just cause for the sake of avoiding contractual or common law obligations. Maintaining unfounded allegations of just cause can entitle employees to aggravated (mental distress) and punitive damages which far surpass the hoped for severance savings.
In Chu v. China Southern Airlines Company Limited, the defendant accused the 68 year old plaintiff of incompetence and “time theft”. The plaintiff had worked as a Marketing and Business Development Manager for 7 years until 2018 when a new general manager was brought into their Vancouver office. The new GM was dismissive of the plaintiff’s role and responsibilities and began eliminating the marketing department. The plaintiff, along with other members of his department, were unilaterally transferred to the sales department to work as a customer service representatives. The plaintiff was required to learn and apply a complex ticketing system with minimal training. After some criticisms about his performance, he was further demoted to work as an airport operations worker at YVR. The new role was fast paced and physically demanding and required the plaintiff to again learn a new set of airport operations codes and other procedures. The plaintiff’s pay was also reduced. While the plaintiff could have alleged constructive dismissal for either demotion, he persisted in an attempt to maintain his employment. He did what he could in his new roles but struggled to meet expectations. The defendant, amongst other things, criticized the plaintiff for being slow and for failing to meet the time sensitive requirements for the new role and eventually terminated the plaintiff for cause.
In his decision, Justice Verhoeven took a dim view of the defendant’s just cause allegations. The Justice described the defendant’s actions as “cruel and insensitive” and found the allegations were either minor, unintentional mistakes or meritless and manufactured. After dismantling the defendant’s cause case, the Justice found the plaintiff was wrongfully dismissed. Considering the plaintiff’s age (68), length of service (~8 years plus 3 years as an independent contractor for the defendant), character of employment, and availability of other employment, he awarded damages based on a reasonable notice period of 20 months or $58,800—an extraordinary award. Notably, the Justice assessed the plaintiff’s reasonable notice period based on his original role and level of responsibility as Marketing and Business Development Manager, rather than his more recent demotions. The Manager role more accurately reflected the plaintiff’s work experience, particularly as the latter two roles were unilaterally forced upon him and he was unsuited for them.
The Justice also held that that the employer had breached its duty of good faith and fair dealing in the manner of the plaintiff’s dismissal. To compensate the plaintiff for mental distress from the defendant’s bad faith conduct, the court awarded $50,000 in aggravated damages. To further condemn the defendant’s bad faith actions, the court awarded an additional $100,000 in punitive damages. Both are on the higher end for such conduct.
In the decision, the Justice made a number of useful comments about the defendant’s actions:
- Incompetence must be serious to establish just cause. Further, the employee must fail to meet an objectively reasonable standard of performance that was clearly communicated to them. They must be given suitable training, reasonable time to meet the standard, and warnings.
- If an employee is transferred to a new role, allegations of poor performance or incompetence in a previous role will have little or no relevance for just cause.
- Minor, unintentional mistakes that do not result in any serious consequences do not count as cause.
- Employers cannot rely on an employee’s poor performance for cause if they unilaterally transfer an employee into a position they know is unsuitable for the employee. Additionally, the demotion would amount to constructive dismissal.
- Unfairly criticizing an employee, particularly in humiliating or embarrassing ways (e.g. public reprimand), will be considered bad faith.
- Making serious and false allegations (e.g. dishonesty, fraud, conspiracy, sexual harassment, poor performance) in a publicly available court pleading is considered bad faith and is harmful to an employee.
- If an employee was unilaterally demoted to an unsuitable role then terminated shortly afterwards, their previous role may be used for determining reasonable notice. In other words, demoting a manager to an entry level role will not avoid the employee being assessed as a manager for the purpose of reasonable notice.
The employer in this case probably could have terminated and perhaps settled for 8 months if it just eliminated the plaintiff’s job and had been willing to pay fair severance. Instead, by seeking to demote then terminate for cause, it will likely pay in excess of $300K in awards and legal fees.
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