As the year draws to an end, the time is right to reflect on how the labour and employment landscape has changed over the last 12 months. Certainly, 2008 was marked by an abundance of significant decisions by courts and tribunals at all levels touching on a number of contentious labour and employment issues. In fact, we cannot remember a year in which the Supreme Court of Canada (SCC) has rendered more employment-related judgments. To help put it all in perspective, what follows is an overview of the key decisions from 2008 — a “cheat sheet” of sorts — to help you navigate the road ahead.  

Curbing Damages for Wrongful Dismissal

This year will certainly be remembered for the long-awaited SCC judgment in Keays v. Honda Canada Inc.1 Employers across the country breathed a sigh of relief as the SCC overturned the largest award of punitive damages in a wrongful dismissal action in Canadian history. The decision also clarified a number of important principles for employers, notably:  

  • It limits the scope of damage awards in wrongful dismissal claims by doing away with the “Wallace bump-up” (i.e., extensions of a reasonable notice period as a result of bad faith conduct during termination). From now on, the employee will have to prove actual, compensable damages to justify such an award.
  • It limits the availability of punitive damage awards to exceptional cases, where the employer’s “advertent wrongful acts … are so malicious and outrageous that they are deserving of punishment in their own right.”
  • It strengthens an employer’s ability to manage absenteeism in the workplace by confirming an employer’s right to monitor employees who are chronically absent from work.  

The Keays judgment came on the heels of the Ontario Court of Appeal’s decision in Mulvihill v. City of Ottawa, which also placed significant limits on the availability of bad faith or “Wallace damages” in wrongful dismissal cases.2  

In Mulvihill, the court unanimously overturned the trial judge’s award of Wallace damages. In doing so, the court rejected the notion that certain types of employer actions during the termination process (in this case, invoking cause for termination and later withdrawing it, and terminating the employee while on sick leave) will automatically give rise to Wallace damages. The court reinforced that an award of Wallace damages will only be made where sufficient evidence exists to justify making such an award.  

In another landmark decision on wrongful dismissal damages, the SCC reaffirmed an employee’s duty to minimize or mitigate the losses resulting from an unjust dismissal in Evans v. Teamsters Local Union No. 31.3  

Going one step further, the SCC held that, in some circumstances, a dismissed employee could be required to return to work or remain at work for the same employer, in order to mitigate his or her damages. Put another way, an employer could satisfy its notice obligation by making a dismissed employee an offer to return to work for the balance of the notice period. The test for determining whether re-employment is an appropriate option is an objective one — would a reasonable person consider the offer as a legitimate employment opportunity? If the employee is offered a position at the same salary with similar benefits and status, and if the personal relationships haven’t deteriorated to the point of hostility, and if no litigation has been brought, then the offer would likely be considered a reasonable one.  

However, the court made a point of noting that damages awarded because the employer acted in bad faith in the manner of dismissal (i.e., “Wallace damages”) are never subject to mitigation.

The Ongoing Debate over Drug and Alcohol Testing

The past year has been marked by controversy among Canadian courts over employee drug and alcohol testing, specifically for employees in safety-sensitive positions. The ongoing debate results from apparently inconsistent decisions from the courts in Ontario, Alberta and Québec.  

In Chiasson v. Kellogg Brown & Root, the Alberta Court of Appeal upheld an employer’s right to perform mandatory pre-employment alcohol and drug screening tests for safetysensitive positions.4 Moreover, the court held that the recreational use of drugs and/or alcohol is not protected under human rights legislation because it does not constitute a disability. As a result, employers do not have a duty to accommodate in such cases.5  

However, if the job applicant or employee is legitimately suffering a disability arising from an alcohol or drug addiction, then accommodation may still be required. This will be determined on a case-by-case basis.  

Finally, the court recognized that its ruling in Chiasson may be at odds with the decision of the Ontario Court of Appeal in Entrop v. Imperial Oil Ltd., and, to the extent that this is so, declined to follow Entrop.

A few weeks earlier, the Québec Court of Appeal took a strikingly different approach. In Section locale 143 du Syndicat canadien des communications, de l'énergie et du papier v. Goodyear Canada inc., the court struck down the portion of an arbitrator’s award that would have permitted an employer to conduct random alcohol and drug testing of its employees who work in safety-sensitive positions. Indeed, the court held that such testing was contrary to Québec’s Charter of Human Rights and Freedoms.6  

These conflicting decisions mean that drug and alcohol testing of individuals in safety-sensitive or high-risk positions remains controversial and subject to numerous legal challenges. For employers in Québec and Ontario, it will now take very specific circumstances to get around the application of the positions taken by their courts.  

New Limits Placed on the Employer’s Duty to Accommodate a Disabled Employee

Employers have finally been given a break by the SCC when it comes to the extent of their duty to accommodate disabled employees. The judgment in Hydro-Québec v. Syndicat des employé-e-s de techniques professionnelles et de bureau d’Hydro-Québec, section locale 2000 (SCFP-FTQ) confirms that there is a limit on this duty. In order to establish undue hardship, an employer is not required to prove that it is impossible to accommodate the employee’s characteristics, or that the employee will be totally unable to perform his or her work in the foreseeable future.7  

Moreover, the SCC confirms that the following will constitute undue hardship:  

  • a measure that would require an employer to modify working conditions in a fundamental way; or
  • a measure that would completely alter the essence of the employment contract (i.e., by negating the employee’s obligation to perform work).  

Further, the SCC judgment recognizes an employer’s right to terminate employment when, despite the measures taken by the employer, the employee remains unable to resume his or her work for the reasonably foreseeable future.  

Finally, the SCC found that an employer faced with a case of excessive absenteeism can take the entire situation into consideration, including the disabled employee’s record and all of the efforts already made in assessing its duty to accommodate.  

Further Restricting the Use of Criminal History in Hiring Decisions

In Montréal (City) v. Québec (Commission des droits de la personne et des droits de la jeunesse), the SCC held that refusing to hire on the basis of a criminal conviction for which a pardon has been obtained is discrimination under the Québec Charter of Human Rights and Freedoms and will only be justified where the employer can demonstrate exceptional circumstances.  

In Québec, the Charter prohibits discrimination in employment “owing to the mere fact that [the individual] was convicted of a penal or criminal offence, if the offence was in no way connected with the employment or if the person has obtained a pardon for the offence.” Despite this specific prohibition, the SCC conceded that an employer can consider the facts that led to the conviction in assessing whether a candidate has the qualifications required for a job, in particular where good moral character is a requirement for the position (in this case a constable with the Montréal police force).  

However, once a pardon has been obtained, a presumption exists that the event should no longer reflect adversely on a person’s character. Moreover, the decision not to hire cannot be based on the mere fact of the initial finding of guilt. As such, to justify invoking the pardoned offence to refuse employment on the basis of moral character, the employer’s inquiry must uncover conduct or facts that, when considered in light of all of the circumstances, support a conclusion that the person is unfit for the job.  

Changing the Standard of Judicial Review

Until recently, the general rule applied by courts sitting on judicial review was that if the administrative tribunal was in the best position to decide the question at issue, then the decision of the administrative tribunal had to be “patently unreasonable” for the court to strike it down. In other words, the court deferred to the expertise of the administrative tribunal and would only strike down the decision if no reasonable person would have come to the conclusion the tribunal did. The decision of the SCC in Dunsmuir v. New Brunswick changes this by eliminating the “patently unreasonable” standard of review.8 From now on, decisions of administrative tribunals will be reviewed to determine simply whether they are “correct” or “reasonable.”  

The stated purpose for this move away from the established standards was to clarify the approach to be taken on judicial review and provide real guidance for litigators and courts. While the practical outcome of this decision remains to be seen, there is speculation that lower courts may see this change as a reason to give less rather than more deference to administrative agencies. This is because a court no longer has to find that the administrative tribunal’s decision was “patently unreasonable” in order to intervene and reverse a decision.  

Competition by Departing Employees

On October 9, 2008, the SCC issued its decision in RBC Dominion Securities Inc. v. Merrill Lynch Canada Inc.9 In this case, a manager from RBC “brazenly” organized a group departure, with himself and nearly all of the investment advisors and support staff of RBC’s branches in Cranbrook and Nelson, B.C. going to work for RBC’s direct competitor, Merrill Lynch Canada Inc., without giving any notice to RBC. Further, in the weeks leading up to their move, they surreptitiously removed or copied and sent to Merrill Lynch records of RBC’s entire client base. RBC’s operations in Cranbrook and Nelson were crippled.  

On the positive side, this case confirms that non-fiduciary employees have the following duties:  

1. A duty to give reasonable notice of resignation — In this case, the former employees were ordered to pay damages of $40,000 for failure to give reasonable notice of termination of employment. This was the amount of profits they would have contributed to RBC during the 2.5-week notice period.  

2. A duty of good faith in the discharge of his or her employment contract — One of the RBC manager’s job duties in this case was to retain the employees of RBC who were under his supervision. By organizing their mass departure, the manager breached his duty of good faith. Consequently, the trial judge awarded damages in the amount of $1,483,239 against him for the loss of profits RBC suffered as a result of his failure to perform his duties in good faith. This loss was based on a five-year period, discounted for various contingencies. The SCC upheld this part of the trial judge’s award.  

3. A duty of confidentiality — The trial judge described the copying of RBC’s client records as a “planned, prolonged, secret scheme to arrange a wholesale transfer of information to a competitor.” The trial judge concluded that this conversion of RBC’s records called for the imposition of punitive damages. It ordered Merrill Lynch to pay $250,000 in punitive damages, each of the former RBC investment advisors to pay $5,000 in punitive damages, and the former RBC manager to pay $10,000 in punitive damages.  

The Court of Appeal upheld this award of punitive damages. However, the court did make it clear that the duty of confidentiality does not necessarily extend to preventing departing employees from taking their own client contact information, particularly where the client’s interests so indicate.  

On the downside, the SCC confirmed that former non-fiduciary employees have no legal duty not to compete unfairly against their former employer, even during the reasonable notice of resignation period. Therefore, if you are concerned about potential competition from departing employees, you should use restrictive covenant agreements, such as noncompetition or non-solicitation agreements. These agreements must be reasonable with respect to the length of time and the geographic area in which the employee is prohibited from competing.  

Looking Forward

As noted at the outset, this has been an especially fruitful year for important employment-related decisions, one that has been marked by an unprecedented number of significant judgments from the SCC. We have no reason to believe this trend will not continue. Already, the SCC has announced that it will hear the appeals of two former Wal-Mart employees alleging that they were terminated for union activities in the ongoing saga over the closure of the just-unionized Jonquière store in Québec.