Three months’ notice awarded for short-service employee: Aggressive litigation tactics condemned

In Gracias v. Dr. David Walt Dentistry 2022 ONSC 2967, the Ontario Superior Court rendered a summary judgment decision regarding a wrongful dismissal action. The plaintiff, Sonia Gracias, was employed with Dr. David Walt Dentistry for a period of approximately six months as a dental hygienist, when she was terminated without cause on March 15, 2020. She was 39 years old at the time of dismissal.

Gracias commenced litigation for wrongful dismissal on or about April 29, 2020, in pursuance of reasonable notice of dismissal, along with other damages. The matter progressed to a motion for summary judgment, which was heard on April 28, 2022, before Justice Paul Perell, who rendered his reasons for decision on May 17, 2022.

Throughout the litigation process and at the hearing, the defendant raised a number of issues, such as enforceability of the plaintiff’s employment agreement and termination provision included therein; an allegation that the plaintiff falsified her mitigation efforts and failed to mitigate her damages; and taking an overall “hardline” approach in this matter.

Reasonable notice, Waksdale

Justice Perell awarded Gracias a three-month notice period, notwithstanding her short service of approximately six months. This was a fantastic result for Gracias and for employees moving forward, as short-service employees are typically only awarded a nominal notice period.

In reaching this decision, Justice Perell had to address Gracias’ employment agreement, which purported to waive her right to reasonable notice of dismissal. The agreement also included a number of restrictive covenants which purported to permit the company to terminate Gracias with just cause, and without any compensation as a result of breaching same. The relevant provisions have been reproduced at para. 57 of the decision.

In Waksdale v. Swegon North America Inc. 2020 ONCA 391, the Ontario Court of Appeal held that a termination provision which purports to withhold an employee’s severance entitlements in a with cause termination (even if they are in fact later terminated without cause), renders the termination provision as a whole unenforceable, as it contracts out of the Employment Standards Act, 2000 (ESA). This is due to the fact that the ESA still affords employees their minimum severance entitlements when terminated with just cause. The court in Waksdale further held that termination provisions and employment agreements are to be read collectively, rather than on a piecemeal basis.

In the case at hand, Justice Perell referred to this ratio as the “Waksdale Rule,” applying this approach to Gracias’ employment agreement.

Although the termination provision located at para. 14 of Gracias’ employment agreement did not include a “with cause” termination provision, purporting to withhold Gracias’ severance entitlements if terminated with cause; the conflict of interest, confidentiality, and social media provisions located at paras. 21-24 of the contract stated that Gracias’ employment could be terminated with cause and without any compensation, if a breach of said provisions occurred.

Accordingly, at paras. 93-96 of the decision Justice Perell held that Gracias’ employment agreement was not enforceable in waving her right to reasonable notice of dismissal, as the contract purported to permit the company to terminate Gracias with just cause and without any severance entitlements; a clear breach of the ESA and Waksdale.

This is a fantastic victory for employees, as it allows them to still pursue their full and unrestricted severance entitlements even if their contract includes an otherwise restrictive termination provision when read alone. Should the contract include other provisions which purport to contract out of the ESA, the contract may no longer be enforceable in limiting their severance entitlements.

Canada Emergency Response Benefits not deductible

Like many employees who faced job losses during the COVID-19 pandemic, Gracias applied for and received CERB payments following her termination. Courts throughout Canada have taken a split approach, with some noting that CERB payments are in fact deductible against wrongful dismissal damages, while others have taken an opposite approach, noting that a deduction is not applicable.

In this case, Justice Perell helped address the divide for Ontario employees, ruling that CERB  payments are not subject to any deduction against a severance package awarded:

[114] In contrast, in the Ontario case of Iriotakis v. Peninsula Employment Services Limited, the Nova Scotia case of Slater v. Halifax Herald Limited, and in the British Columbia case of Snider v. Reotech Construction Ltd., CERB payments were not deducted from a wrongful dismissal reward. [Iriotakis v. Peninsula Employment Services Limited [Indexed as: Iriotakis v. Peninsula Employment Services Ltd.] 154 O.R. (3d) 373, Slater v. Halifax Herald Limited 2021 NSSC 210, Snider v. Reotech Construction Ltd. 2021 BCPC 238]

[115] I agree with the reasons in IriotakisSlater, and Halifax Herald, and hold that CERB is not a mitigation credit in the immediate case.

This clarification will be helpful for Ontario employees, as employees can now point to another decision in the province of Ontario in their favour, noting that CERB benefits are not subject to any offsets/deductions on a wrongful dismissal award.

‘Dogs of litigation’

In reviewing the defendant’s conduct throughout the litigation proceedings, Justice Perell took serious issue with their approach which he referred to as “the dogs of litigation.”

The defendant alleged that the plaintiff manufactured and falsified some of her mitigation records, which exceeded well over 100 job applications. This is a very serious allegation, which the defendant was unable to prove at the hearing.

The defendant also called on an IT expert to provide video evidence and an affidavit, indicating how a party may manipulate PDF software. The defendant further called on several employers to swear an affidavit, purportedly indicating that they never received a job application from Gracias.

Justice Perell rejected these allegations and the defendant’s evidence, noting at para. 47 of the decision:  “there was no purpose to fabrication, and it would be idiotic for her to falsify evidence.” For a more comprehensive review of Justice Perell’s comments on the defendant’s fraud allegations, see paras. 4, 47-53 of the decision.

Overall, this decision is a fantastic victory for employees’ rights. A compelling three-month notice period awarded for a short-service employee helps push notice periods forward and provide greater income assistance following a dismissal.

Higher standards have been set for employers attempting to limit an employee’s severance entitlements; and unproven theories and aggressive litigation tactics will not be tolerated. Further clarification from the court on CERB not being deductible is also another win for employees and helps to address the divide on this matter.

This article was written by Andrew Monkhouse and Simon Pelsmakher and was originally published by The Lawyer’s Daily on June 8, 2022. Andrew Monkhouse is the managing partner of Monkhouse Law and was lead counsel arguing the Gracias case. Andrew has represented clients at all levels of court in Ontario as well as to the Supreme Court of Canada. He is licensed to practise law in both Ontario and British Columbia. Simon Pelsmakher is an associate lawyer at Monkhouse Law who practises in the area of employment and labour law. Simon has represented clients at virtually all levels of court in Ontario, and was co-counsel on the Gracias file, together with assistance from Daniel Hunter from Monkhouse Law.

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