No matter what kind of employment problem you are facing—e.g. a claim for wrongful dismissal, constructive dismissal, or a human rights complaint—you may ultimately decide to settle your case for some form of compensation, rather than proceeding to a hearing. In that case, it is worth taking the time to think about the best way to structure your settlement agreement because different kinds of agreements and different kinds of compensation can lead to a wide range of tax consequences.

Seven key considerations in structuring a settlement agreement:

1. Compensation for lost income is fully taxable under the Income Tax Act because it is treated like any other employment income.
2. Compensation for the loss of employment, such as severance pay or reasonable notice (see: What is reasonable notice? ), is also fully taxable under the Income Tax Act. Unless certain limited exceptions apply, these kinds of compensation are considered “retiring allowances” under the Income Tax Act.
3. If part of your employment with your employer took place prior to 1996, you can roll a portion of a retiring allowance payment into an RRSP. The roll-over is tax-free, and you do not need existing room in your RRSP to roll-over eligible amounts. Similar rules exist for any part of your employment that took place prior to 1989.
4. Compensation for damages, such as for mental distress or pain and suffering, are not subject to tax. Damages must be reasonable, however, and there must be some proof to support the claim for damages. The claim for damages also has to be independent from the loss of employment. If the mental distress was caused by the loss of employment, then any damages for mental distress will be considered part of employment income or a retiring allowance and will be taxable.
5.  Damages for human rights violations are also non-taxable. Like damages for mental distress, they must be reasonable and similar to what a human rights tribunal might award. Be especially careful because, in some jurisdictions, legislation puts a maximum cap on damages for human rights in a tribunal’s award. In those cases, the amount characterized as human rights damages in the settlement agreement cannot go over the cap.
6.  Compensation for counselling services is not subject to tax. “Counselling services” have been defined to include job placement, re-employment, and retirement counselling services.
7.  Compensation for legal fees is deductible for employees. Where the payment is made directly from the employer to the employee’s legal adviser, this amount is non-taxable.

Conclusion

Both employees and employers need to take time to consider the structure of the settlement agreement and how to characterize any compensation changing hands. While the parties can reach agreements that maximize the benefits of the settlement for both sides, any settlement must be reasonable and grounded in the facts of the case. An unreasonable settlement agreement may be reviewed by the Canada Revenue Agency. For help determining the best structure of your settlement agreement, you should seek advice from an employment lawyer.

We are here to help: Consult one of our experienced employment lawyers at Raven, Cameron, Ballantyne and Yazbeck LLP to assist you in developing or reviewing a settlement agreement for your employment claim. 

[This article is for informational purposes only and does not constitute legal advice, which cannot be given without consideration of your individual circumstances.]

If you have brought, or are considering bringing, a claim against your employer for wrongful dismissal, you may believe that you can sit back and watch daytime TV, waiting to recover your damages from the employer. That is not the case: you have a duty to “mitigate” your damages.

 Mitigating or reducing your damages by seeking alternate work

Mitigation means reducing the damages you have sustained by reason of the wrongful dismissal. Specifically, it means looking hard for new gainful employment.  The failure to properly mitigate your damages can result in your reasonable notice period damages being reduced.

Tips for mitigating your wrongful dismissal damages

• Look for reasonably comparable employment: You do not need to accept any job on offer. Your duty is to make reasonable efforts to find comparable employment.
• Keep records: It is important that you keep a record of your efforts, both in a hard copy and electronic file.  You should keep track of everything, including on-line searches, interviews, letters sent out and received, coffee and lunch meetings, etc.  At some point you may well be asked by a lawyer for your former employer what you have done to mitigate your damages.  These steps will ensure that have a complete answer.
• Keep track of any expenses incurred: As part of mitigation, you may incur some expenses—for example, to obtain training or to start a small business.  It may be possible to claim certain of these costs from your former employer.

Mitigating by continuing to work for the employer

Issues of proper mitigation also arise in constructive dismissal cases.  If, for example, the employer significantly reduces your salary or demotes you to a lower position, your employer may claim that the most effective form of mitigation consists of remaining in your former lower position for the length of the reasonable notice period.  When an employee is entitled to walk away in a constructive dismissal matter is a difficult one, requiring specialized advice from an employment lawyer.

We are here to help: Consult one of our experienced employment lawyers at Raven, Cameron, Ballantyne and Yazbeck LLP if you are considering making a claim for wrongful dismissal. 

 [The following information applies to non-unionized employees. This article is for informational purposes only and does not constitute legal advice, which cannot be given without consideration of your individual circumstances.]

If you have a potential legal issue related to your employment, the first question you must ask is: what are my rights as an employee? Put another way: what are the terms and conditions of my employment? Those terms and conditions will determine what you are entitled to if you are fired, or whether the employer can change your working conditions without your agreement. The terms of your employment come from three general sources: your employment contract; the common law; and employment-related legislation.

Your Employment Contract Terms and Conditions 

The foundation for the employment relationship between you and your employer is your employment contract. This contract can be verbal or written—as long as there has been an offer of employment on certain terms, and an acceptance of that offer, a contract of employment will be formed. No matter the form of your employment contract, you should review its terms and conditions carefully to ensure you understand them.

In some circumstances, the terms in an employment contract may be found invalid by the courts. For example, if the terms in the contract violate employment standards legislation, discussed below, those terms will be considered void. In rare cases, courts may also find that a term in an employment contract is unconscionable (grossly unfair to the employee, and agreed to as a result of an overwhelming imbalance in bargaining power). When interpreting an employment contract, if a term in the contract is ambiguous and open to multiple interpretations, courts will favour the interpretation that is more favourable to the party that did not draft the contract (usually, the employee).

If you are unsure about the terms and conditions of your employment contract, or their validity, you should seek legal advice from an employment lawyer.

The Common Law

In addition to the terms and conditions that are “expressly” set out in your employment contract, there are also terms and conditions that are “implied” under the common law (a set of legal principles developed through court decisions). If a certain employment right is not addressed through an express term in your contract, it may nonetheless be implied under the common law.

The most common example of an implied term of employment is the requirement for employers to give reasonable notice to employees upon termination. It is possible that your employment contract states how many weeks or months of notice you are entitled to in the event you are terminated; however, if your contract is silent on that point, then your entitlement to notice of termination is determined through common law legal principles. (See our article on “What is Reasonable Notice?”  for more information.)

There are many implied terms in the common law, which impose obligations on both employees and employers. The primary implied obligations for employees are to attend at work and perform the work assigned to you. Employers also have implied obligations, such as the duty to pay employees for work performed, and, as mentioned above, the duty to provide reasonable notice of termination.

It is important to remember, however, that it is possible for you and your employer to agree to terms and conditions in your contract that differ from the common law principles. In order for those different terms to be accepted by a court, they must be clearly stated.

Employment-Related Legislation

Both of the above sources of rights and obligations—the employment contract, and the common law principles—are subordinate to legislation (written laws passed by the federal Parliament or provincial legislature). Unlike common law principles, employers and employees cannot agree to terms of employment that violate legislation.

The main legislation that relates to your employment is employment standards legislation: for employees regulated under Ontario law, the relevant legislation is the Employment Standards Act. This legislation establishes a “floor”, or a minimum set of employment standards, which your employment contract cannot fall below. This legislation addresses many terms of employment, including wages, hours of work, holidays, and the minimum required notice of termination. As mentioned above, if a term in your employment contract falls below the minimum employment standards, it will be considered void by the courts.

It is important to note that certain types of employees, and certain industries, are excluded from employment standards legislation, which means its terms do not apply to those employees. Some employees are subject to federal employment standards legislation, because they work in an industry that falls under the federal Parliament’s jurisdiction. Advice from an employment lawyer should be sought to determine which legislation applies to you.

Other legislation is also relevant to your employment, including legislation in the following areas: occupational health and safety; privacy; workers’ compensation; and human rights. An employment lawyer can help you understand which legislation applies to you, and how it may impact your employment issue.

Conclusion

Your rights as an employee come from many sources, and as a result understanding your rights is no easy task. These rights will impact a claim you may have for wrongful dismissal, constructive dismissal, or other breaches of your employment contract. The best way to fully understand the terms and conditions of your employment is to review them with an employment lawyer, and obtain advice on how your contract, the common law, and legislation all interact to determine your rights as an employee.

We are here to help: Consult one of our experienced employment lawyers at Raven, Cameron, Ballantyne and Yazbeck LLP if you are unsure of the terms of your employment, or are considering making a claim for wrongful dismissal. 

[The following information applies to non-unionized employees. Unionized employees should consult their union representatives to review questions regarding the terms of their employment. This article is for informational purposes only and does not constitute legal advice, which cannot be given without consideration of your individual circumstances.]

If your employer terminates you without just cause (see: “Can my employer fire me for no reason?” ), they are required to provide you with notice of the termination. That notice can be given in two possible forms: “working notice” or “pay in lieu of notice”.

 “Working notice” is when you are given advance notice that your employment is going to end, but you continue to work and receive your regular compensation for the length of the notice period. Once the notice period is up, your employment ends, and the employer has no further obligations. The theory is that the employer has given you sufficient advance notice that your employment will be ending, to permit you to look for other work.  During the notice period, you will be required not only to look for other employment, but also to perform your usual tasks at the usual standard.  Failure to do so could result in termination for just cause .  The employer should provide reasonable time off to attend job.

“Pay in lieu of notice” is the more typical form of notice received when an employee is terminated without cause. In this case, you stops work on the day of termination, but receive payment equal to what you would have received if you had continued working through the notice period.

Length of Notice

Whether notice is given to you as working notice or pay in lieu of notice, the important question becomes: what amount of notice is reasonable notice?

Much like an employee’s general terms and conditions of employment (see: “Know Your Rights—Determining the Terms and Conditions of your Employment” ), there are three main places to look when calculating your notice period: legislation, your employment contract, and the law as developed through legal decisions.

In Ontario, the Employment Standards Act sets out a notice period based on an employee’s length of employment. This is the minimum amount that most employees in Ontario are entitled to. The basic entitlements under the Act are:

Your contract may also contain terms which specify the notice period that will apply if you are terminated without cause. If your contract contains a notice period term, this calculation will apply in most – but not all – circumstances, unless it is inconsistent with the minimums outlined in the Employment Standards Act.

Where there is no provision in your contract, however, you are not restricted to the minimum notice periods set out in the Employment Standards Act. Instead, you are entitled to “reasonable notice,” which is calculated based on the law as it has been developed through legal decisions.

Determining a reasonable notice period requires a review of your individual circumstances with the aim of estimating how long you will take to find a new, comparable job. The main factors that are considered are age, length of service, character of employment (for instance, an employee’s level of responsibility), and the availability of similar employment. In special circumstances, other factors can be considered, such as whether you were induced to leave a previous position by the employer.

A very general rule is that you are entitled to one month per year of service with the employer, up to a maximum of 24 months. This general rule is modified by the criteria listed above, as well as your duty to mitigate and other factors (see Mitigation ). Individual cases are very fact-dependent, and require legal advice.

Conclusion

You are entitled to notice of termination, usually in the form of a working notice period or pay in lieu of that working notice period. Notice periods may be set out in your contract or by reference to the Employment Standards Act. Where no notice period is set by contract, you are entitled to reasonable notice. Because reasonable notice is calculated through an individualized, case-by-case assessment, you should consult an employment lawyer for assistance estimating what a reasonable notice period would be in your circumstances.

We are here to help: Consult one of our experienced employment lawyers at Raven, Cameron, Ballantyne and Yazbeck LLP if you are considering making a claim for wrongful dismissal. 

[The following information applies to non-unionized employees. This article is for informational purposes only and does not constitute legal advice, which cannot be given without consideration of your individual circumstances.]

Unless your employment contract states otherwise, your employer does not need a reason to terminate  your employment as long as it provides you with sufficient notice  of your termination or payment in lieu of notice.  Your employer can, however, terminate your employment without any notice if it has “ “just cause” to do so.  This will include situations in which you have breached your terms of employment either through misconduct, disobedience, or incompetence.

Contextual Approach to Just Cause for Termination

What constitutes just cause depends on a number of factors. In Canada, the courts use a contextual approach to determine whether an employee was terminated for just cause.  They consider the nature and extent of the misconduct, the context and surrounding circumstances and whether the termination or dismissal is warranted (in other words, whether the punishment fits the crime).

Grounds for Termination

1. Neglect of Duty

Whether or not you have a written employment contract, you have an obligation to perform your employment duties. Failure to perform your duties can lead to dismissal. Constantly arriving late for work or simply not showing up for work on a regular basis may be also considered just cause for dismissal if you do not have a reasonable explanation for this behavior.

2. Dishonesty

Trustworthiness is a key factor in any employment relationship. Acts of dishonesty may therefore constitute just cause for dismissal depending on the context and the circumstances of the case. For example, lying to your employer about an important qualification for the position can constitute just cause for dismissal.  Lying to the employer in order to cover up misconduct can also lead to dismissal unless there are mitigating circumstances such as an immediate retraction of the lie.  Whatever the circumstances, honesty is always the best policy.

3. Theft and Fraud

Theft and fraud constitute serious misconduct which, even if isolated, may amount to just cause for termination. Examples of such behavior include improper use of company funds, wrongful use of the employer’s property, abuse of sick leave and conducting personal business on company time. Because these are serious allegations, an employer must be able to prove that you intended to steal or commit fraud. As stated above, the context and surrounding circumstances must be considered in order to determine if there is just cause for dismissal.  For example, an employer may not have just cause to terminate an employee who makes an error in judgment if there was no dishonest motive.  Given the seriousness of allegations of theft or fraud, the employer must also give an employee an opportunity to provide a reasonable explanation for his conduct.

4. Misconduct

An employee may be terminated for cause for engaging in serious misconduct. Such misconduct is usually incompatible with the employee’s duties and prejudicial to the employer’s business.  Examples may include sexual harassment or assault of a co-worker and off-duty criminal conduct which is prejudicial to the employer’s reputation.  Once again, whether the misconduct constitutes just cause for dismissal will largely depend on the nature of the misconduct, the context and surrounding circumstances and whether the termination is reasonable.

5. Incompetence

An employer may not terminate you simply because he is dissatisfied with your performance. In order for an employer to allege just cause in terminating you for incompetence, the employer will have to show that you were warned that you were failing to meet objective standards of performance and that, despite these warnings and the opportunity to improve, you continued to underperform.

Conclusion

Many factors need to be taken into consideration in order to determine whether the employer had just cause to terminate your employment. If you have been terminated without notice for “just cause”, you should seek advice from an employment lawyer.

We are here to help. Consult one of our experienced Employment lawyers at Raven, Cameron, Ballantyne and Yazbeck LLP if you have been terminated from your employment.

 [This article is for informational purposes only and does not constitute legal advice, which cannot be given without consideration of your individual circumstances.]

Morgan Rowe spoke on November 21, 2014 to the University of Ottawa law school’s human rights law course on emerging areas in human rights law.

On November 12, 2014, Andrew Astritis spoke to a labour law class at the University of Ottawa law school about three cases in which Raven, Cameron, Ballantyne & Yazbeck appeared as an intervener before the Supreme Court: Mounted Police Association of Ontario v Attorney General of Canada, Robert Meredith v Attorney General of Canada, and Saskatchewan Federation of Labour v Her Majesty the Queen, in Right of the Province of Saskatchewan. Decisions in these cases, which involve labour rights and freedom of association, are currently pending from the Supreme Court.

On December 10, 2014, Andrew Astritis will be presenting at the 3rd Annual Human Rights Summit hosted by the Law Society of Upper Canada.  Andrew will be speaking on his recent, May 2, 2014, Federal Court of Appeal decision in Johnstone v. Canada Border Services Agency decision on family status accommodation. In this decision Justice Mainville  recognized that there “[t]here should be no hierarchy of human rights” and provided that “protection from discrimination for childcare obligations flows from family status in the same manner that protection against discrimination on the basis of pregnancy flows from the sex of the individual.  In both cases, the individual would not require accommodation were it not for the underlying ground (family status or sex) on which they were adversely affected.”  For additional information or registration, please go to the Law Society of Upper Canada’s website.

Kim Patenaude will be presenting a Post-Conference workshop on “Dealing with Discharge and Discipline: Progressive discipline, mitigating and aggravating factors, disability-related issues, union representation, post-discharge rehabilitation” for Lancaster House on Friday, December 12 at the Westin Harbour Castle in Toronto.

On November 26, 2014, the Federal Court rendered its judgment overturning a decision of a grievance adjudicator under the Public Service Labour Relations Act. The Applicants were a group of employees who alleged they had been denied overtime opportunities contrary to their Collective Agreement. The adjudicator of their grievances rejected the arguments presented by the employer, but nonetheless dismissed the grievances on grounds that had never been argued or discussed during the hearing.

In its judgment (2014 FC 1136), the Federal Court held that the adjudicator had violated the Applicants’ rights to procedural fairness by denying them an opportunity to present evidence and arguments on the issue that formed the ultimate basis for the adjudicator’s decision. This decision confirms that, where an administrative decision-maker wishes to depart from the case as argued by the parties and render a decision on the basis of a new issue or argument, the decision-maker is obligated to give the parties an opportunity to make submissions on that new issue.

The Applicants were represented on the judicial review by Amanda Montague-Reinholdt of our firm.

Our office will be closed on Monday, December 15th from 1:30 pm  to 5:00 pm. We will return to regular office hours on Tuesday, December 16th.