Termination of Employment

• Author: Geoffrey England
• Pages: 283-424

283

CHAPTER 9

TERMINATION OF

EMPLOYMENT

This chapter examines the main ways in which the employment rela-

tionship can be terminated. First, the relationship may be terminated

by agreement of the parties, for example, where employment is speci-

f‌ied to last for a f‌ixed term or for the performance of a def‌ined task, and

the term expires or the task is completed. It also includes the situation

where the employee reaches the retirement age designated by the em-

ployer. Second, the employer may terminate the relationship by giving

the employee the requisite notice, or wages in lieu thereof, as specif‌ied

by the contract of employment or the applicable employment standards

legislation. Third, the employee may be summarily dismissed with-

out notice or wages in lieu thereof for misconduct or incompetence.

Fourth, the relationship may be terminated by the employee resigning.

This way includes situations where the employee quits by giving due

notice as required by the employment contract or applicable employ-

ment standards legislation and where the employee quits in response

to a “repudiatory breach” of the employment contract on the employer’s

part (normally referred to as “constructive dismissal”). Fifth, termina-

tion of the employment relationship may involve breach of special legis-

lation. Relevant here are the role of the “unjust discharge” legislation

in the federal jurisdiction, Quebec, and Nova Scotia, and the unique

position of public “off‌ice holders” who are dismissed in breach of a

statutory procedure or the administrative law duty of fairness. Other

specialized statutes, such as health and safety, human rights, and col-

lective bargaining legislation, can also come into play when an employ-

INDIVIDUAL EMPLOYMEN T LAW284

ee is terminated, but these are examined in detail either elsewhere in

this book or in other specialized texts. The statutory unjust discharge

legislation is especially signif‌icant in regard to the availability of broad

“make whole” remedies. Sixth, in the case of wrongful dismissal, the

employee may avail himself or herself of the remedies available at com-

mon law. These are examined and compared with the statutory “make

whole” remedies. And seventh, the employment relationship may be

terminated by operation of the doctrine of frustration of contract.

Today, the critical question in the law of termination of employ-

ment is where to strike the point of balance between, on the one hand,

safeguarding the employee’s interest in being treated fairly in termina-

tion situations and receiving adequate severance payments, and, on the

other hand, safeguarding the employer’s interest in enhancing prof‌it-

ability by minimizing the costs of terminating employees. We shall see,

for example, that several courts have sought to reduce the length of com-

mon law notice periods in order to enable employers to better weather

the storm of increasing foreign competition. Unfortunately, more em-

pirical investigation of the economic effects of most of the termination

laws examined in this chapter is needed in order to guide legislators

and judges in f‌ixing the point of balance.1 Some commentators argue

that providing overly generous termination protections to employees

will deter employers from laying off redundant workers in economic

downturns; deter employers from replacing overpriced employees with

cheaper workers; induce employers in economic upswings to use easily

disposable “non-employee” contract labour or introduce labour-saving

technology as a substitute for hiring employees who will be expensive

to dismiss in the future; and impede labour mobility by discouraging

employees in declining sectors from resigning — thereby prejudicing

their termination benef‌its — so as to enter growth sectors. However,

other commentators argue that generous termination protections may

improve the productivity of employees by increasing their loyalty and

commitment to the f‌irm; facilitate the labour readjustment process by

making layoffs more palatable to employees; induce employers to make

1 See R. Di Tella & R. MacCulloch, “The Consequences of Labour Market Flexibility:

Panel Evidence Ba sed on Survey Data,” Harvar d Business School [unpublished],

available from aut hors at rditella@hbs.edu or rober tmacculloch@compus erve.com;

J. Friesen, “The Res ponse of Wages to Protective Labour L egislation: Evidence

from Canada” (1996) 49 Indus. & L ab. Rel. Rev. 243; S.R.G. Jones & P. Kuhn,

“Mandatory Not ice and Unemployment” (1995), 13 J. Lab. Econ. 599; N. Le ckie,

An Internat ional Review of Labo ur Adjustment Policies and Practices (K ingston, ON:

Industri al Relations Centre, Que en’s University, 1993), especial ly at 7–8 and 39–45;

E. Lazea r, “Job Secur ity Provisions and Employ ment” (1990) 105 Q. J. Econ. 699.

Termination of Employ ment285

fundamental changes to their organizations with a long-term payoff,

instead of resorting to the quick f‌ix of implementing layoffs; and re-

duce the costs of unemployment to society as a whole.

A. TERMINATION BY AGREEMENT OF THE

PARTIES

The contract of employment can be brought to an end by express con-

sent of both parties at any time in accordance with general contract law

principles. The diff‌icult question in the employment context is ensur-

ing that the employee genuinely consents to a termination settlement

rather than having it imposed on him or her by the employer’s superior

power. The courts will strike down an ostensibly consensual termina-

tion settlement if it is “unconscionable” — if the employer has unfairly

exploited the employee’s inferior bargaining position in order to nego-

tiate terms that are substantially less favourable to the employee than

the prevailing industry standard. For example, unconscionability will

likely be found if the employee is forced to accept the offered terms be-

cause of a serious f‌inancial problem, agrees under protest or at a time of

emotional distress, or has not consulted a lawyer.2 Furthermore, if the

employer has threatened the employee with discharge unless he or she

agrees to resign, or if the employee resigns because the employer has

unilaterally changed an important term or condition of employment,

the employee can sue for damages for constructive dismissal.3

Some employment contracts expressly state that they will termin-

ate automatically after the expiry of a f‌ixed term, or upon completion of

a def‌ined project. There is no wrongful dismissal on the employer’s part

or wrongful resignation upon the employee’s part when the contract

terminates in this way.4 Furthermore, non-renewal of the employment

contract after the expiry of the term or completion of the task is lawful.

Since the effect of f‌inding a contract to be for a f‌ixed term or task is to

deprive the employee of entitlement to “reasonable” notice of termina-

tion, the courts require unequivocal and explicit language to establish

2 Examples: Howell v. Reitma ns (Canada) Ltd. (2002), 21 C.C.E.L. (3d) 208

at 214 (Nf‌ld. S.C.T.D.); Lambert v. Digital Rez Software Corp., [2002] B.C.J.

No. 915 (S.C.); Stephenson v. Hilti (Canada) Ltd . (1989), 29 C.C.E.L. 80 at 89

(N.S.S.C.T.D.). Compare Dolter v. Media House Production Inc.(2002), 227 Sask.

R. 153 (C.A.), where no unconscionability wa s found.

3 See Section D, below in t his chapter.

4 Examples: Flynn v. Shorcan Brokers Ltd., [2006] O.J. No. 470 (C.A.); Lambert v.

Canadian Ass n. of Optometrists (1994), 6 C.C.E.L. (2d) 129 at 131 (Ont. Gen. Div.).