What is Wrongful Dismissal?

The definition of wrongful dismissal
Key terms you should know
Three categories of wrongful dismissal
What are my entitlements when I am terminated?
If am entitled to common law “reasonable notice” or pay in lieu, how is it calculated?
What if I was treated badly during my termination?
Do wrongful dismissal damages affect employment insurance?
How can Ertl Lawyers Help?

The definition of wrongful dismissal

Your termination of employment is “wrongful” if the employer fails to provide you with proper advance notice of your termination or pay in lieu (i.e. money).

It is important to understand that the reason for your dismissal does not make it “wrongful”.

Note: The manner of your termination can matter, particularly where it was conducted in bad faith. A bad faith termination could give rise to certain types of damages in addition to wrongful dismissal damages.

Key terms you should know

Notice
Notice means “advanced notice” of your termination. For example, your employer tells you that, on a future date, your job is terminated. This is also known as working notice, because you actually work – and get paid – until the termination date.

Notice Period
The law of wrongful dismissal is focused on how long it would take someone like you to find a comparable job. That period of time is called the “notice period”. So, if it would take someone like you 6 months to find a comparable job, the law takes the position that you should have been given 6 months’ advance notice that your job was being terminated. That period is called the “notice period”

Pay In Lieu of Notice (aka “Money” or “Severance Pay”)
Pay in lieu of notice means the employer pays you “money” instead of giving you advanced notice. So, instead of working through to some future termination date, you are terminated immediately, and the employer pays you money instead.

Wrongful Dismissal Damages
If a terminated employee is not given either proper notice or pay in lieu, their legal entitlement is limited to “money” (in the legal world that money is referred to as “damages”). Normally, we use this term only after a legal claim is started. But, there is no harm in referring to what you are owed (at the time of termination) as damages. It’s all about the money.

Three categories of wrongful dismissal

Category 1: Without Cause
An employer terminates you without cause (i.e. no fault of your own) and fails to provide adequate advanced notice of termination or pay in lieu.

Category 2: With “Cause” or With “Just Cause”
An employer inappropriately alleges “cause” (for example, due to misconduct) and fails to pay you any compensation whatsoever.

Category 3: Constructive Dismissal
An employer makes a fundamental change to your employment relationship (e.g. reduced pay, fewer hours, demotion) without your consent. Usually this is done without proper advanced notice of the change. This is called constructive dismissal.

For a more in-depth discussion of constructive dismissal, visit our constructive dismissal page.

What are my entitlements when I am terminated?

Your entitlements on termination are based on three things:

Legislation: most employees are entitled to a minimum notice period (or pay in lieu) under the Employment Standards Act, 2000 (or under the Canada Labour Code if you are federally regulated)

Employment Contract: your employment contract might expressly provide how much notice or pay in lieu you are entitled to.

The Common Law: applies when you don’t have a written contract, when your written contract doesn’t have a termination provision, or the termination provision in your contract is void or unenforceable for some reason.  Under the common law, employees are entitled to “reasonable notice” or pay in lieu.

If am entitled to common law “reasonable notice” or pay in lieu, how is it calculated?

Reasonable notice is an “estimate” of how long it would take you to find comparable employment.

We look to previous court cases for guidance. The courts have looked at a variety of factors when determining “reasonable” notice, but the most important are:

• Your age
• Your length of service
• Your job category
• The availability of jobs in the marketplace

Our severance pay calculator can give you a rough estimate of what “reasonable” notice is for you, based on your age, your length of service, and your job category. It’s based on previous court cases.

What if I was treated badly during my termination?

With some exceptions, the manner of your termination does not generally affect the calculation of “reasonable notice” (which is based on how long it will take you to find another job).

But, there are instances where the manner of termination is so outrageous and so reprehensible, that it may give rise other types of damages:

• Moral damages: These types of damages might be awarded where the termination was conducted in bad faith, and resulted in emotional distress.

• Punitive damages: This is when a court “penalizes” or “punishes” a defendant. Its meant to act as a deterrent.

• Human rights damages: These might be awarded if an employer terminated someone based on a protected ground (i.e. sex, age, race, etc.)

Are wrongful dismissal damages taxable?

Yes. Money paid to an employee to compensate them for lost wages is considered employment income.

If the money is paid out in installments (often called salary continuation), you will be taxed in the normal way, as if you were still receiving pay cheques.

If the money is paid out as a lump sum, the money is taxed upfront according to the following formula:

• 10% for amounts less than $5,000
• 20% for amounts between $5,000 and $15,000
• 30% for amounts greater than $15,000

Do wrongful dismissal damages affect employment insurance?

Yes. If you’ve received EI and then receive wrongful dismissal damages, you will have to repay the EI.

If you receive wrongful dismissal damages before you receive EI, then your entitlement to EI will be “postponed”. For example, if your ex-employer agreed to pay you 5 months of wrongful dismissal damages, you would not be entitled to EI until after those 5 months have expired.