Strategies and Tips for Employment Law (9:VII)

This information applies to British Columbia, Canada. Last reviewed for legal accuracy by the Law Students' Legal Advice Program on August 26, 2020.

Gather Evidence

Employees who face employment issues should document everything so that they will be able to provide better evidence if the case goes to a hearing or trial. Employees who are dealing with work-related or dismissal-related stress should consider seeing a medical professional as soon as possible, as medical evidence can be extremely helpful at the Human Rights Tribunal and in Court. Medical evidence is often necessary if an employee wishes to make a claim for aggravated damages due to the manner of their dismissal, as only actual losses are compensable under this category of damages.

If evidence is in the possession of the employer, consider writing to the employer and asking them to put a litigation hold on all documents generally, and identify specific documents which the employee is aware exist. Warn the employer that if they do not preserve the evidence, you would be asking a court to draw an adverse inference in relation to such evidence if the matter proceeds to litigation.

Make a claim for EI

An employee who is dismissed may receive severance pay eventually; however, sometimes this can involve a long process. If the employee is receiving EI, they may have sufficient financial resources to wait a longer time to receive severance pay, and so they will be less likely to be forced to take a low settlement offer to pay their monthly bills. File for Employment Insurance immediately after being dismissed as Service Canada imposes time limits for filing. Make sure the employee understands that if they receive a severance settlement or judgement later on, they may have to pay back some of the EI benefits received during the severance period.

Make Reasonable Efforts to Mitigate Damages and Track Mitigation Efforts

Employees must make reasonable efforts to mitigate their damages. This is most relevant if the employee has been dismissed; the employee will be making a claim for damages in lieu of reasonable notice in Small Claims Court or the Civil Resolution Tribunal, or a claim for lost wages at the Human Rights Tribunal, and they must make reasonable efforts to mitigate these losses by searching for similar work. The employee should document their search for work. Note, however, that if the employee is successful in finding work, they will have successfully mitigated their damages, and will therefore be entitled to less compensation for lost wages or reasonable notice.

Employees should also be encouraged to keep accurate records of their job search efforts, for potential use as evidence at court.

File a claim as soon as possible

Once an employee finds a new job, they begin to mitigate their damages and this will reduce their severance award. File a claim as soon as possible; if you can reach a settlement agreement or have the case tried before the employee finds a new job, you may avoid this problem.

Complex vs. Simple Claims

If a claim is filed that is relatively simple, the employee is more likely to get through the process more quickly; this is helpful if you wish to try to finish the process before the employee gets a new job and begins mitigating their damages. However, there can also be benefits to adding claims for aggravated or punitive damages or various torts, and benefits to splitting a claim into more than one forum; namely, there is the potential for a greater award and the potential for tax advantages on the damages received. Consider the strength of the claims, how important it will be for the employee to receive money quickly, and the likelihood of the employee finding a new job and mitigating their damages, before deciding whether to make a simple claim for severance pay, or to add additional claims.

Consider the Tax Consequences when Negotiating a Settlement

An employee must pay tax on the portion of an award that is given in place of the wages they would have received during their reasonable notice period.

However, if part of the damages is instead awarded as aggravated or punitive damages (in Small Claims Court or BC Supreme Court), or as damages for injury to dignity, feelings, and self-respect (at the BC Human Rights Tribunal), this portion of the award may not be taxable. Consider structuring a written settlement agreement to allocate a reasonable portion of the award to these potentially non-taxable categories of damages.

Employers will often also allow an employee to allocate an amount of a severance settlement to be paid directly to an RRSP account on a pre-tax basis, up to the employee’s eligible RRSP room.

Note that this chapter, and LSLAP, cannot provide tax advice, and an employee may wish to consult an accountant or tax lawyer or the Canada Revenue Agency to determine exactly which amounts of a final settlement are taxable, and what the best strategy for payment structuring would be for a particular employee. It is helpful to obtain this recommended strategy from the employee’s financial advisor at an early stage, so that the settlement structuring request can form part of the severance negotiations.

Consider splitting the claim into different forums

In some cases, it may be advantageous to split up the various employment issues an employee faces, and proceed in different forums based on which forum will award the greatest amount of money for each legal issue.

For example, one may wish to claim overtime pay and vacation pay at the Employment Standards Branch, and claim severance pay in Small Claims Court. This could be beneficial because overtime pay (at the 1.5 or 2 times hourly rate) is only legally required under the ESA (unless the employee’s contract calls for overtime pay to be paid), so claims for it can only be brought at the Employment Standards Branch; however, severance pay tends to be significantly greater in Small Claims Court.

Often it will be best to keep the entire claim in one forum. Note that section 82 of the ESA states that once a determination has been made by the Employment Standards Branch, the employee may commence another action only if the Director gives written permission or the Director or tribunal cancels the determination. This prevents the possibility of “double recovery”; if an employee received damages for an action in one forum, they may not receive the same damages in another. However, even if an employee has already gone through the Employment Standards Branch to obtain the minimum statutory entitlement for length of service under the ESA, they are still able to make a claim in court for contractual breaches such as wrongful dismissal, and therefore they may potentially obtain additional severance pay (Colak v UV Systems Technology Inc, 2007 BCCA 220, https://canlii.ca/t/1r5sc). Nonetheless, proceeding at the Employment Standards Branch to claim the statutory minimum entitlements for length of service can be problematic for several reasons. Firstly, if the employee is also going to be proceeding in Small Claims Court for wrongful dismissal, a claim at the Employment Standards Branch may simply cause an extra expenditure of effort with no additional benefit. Secondly, if the Employment Standards Branch makes a determination as to whether or not there was just cause for dismissal, this determination is likely to be adopted by Small Claims Court if a claim is later filed there. It should be considered that of these two forums, only the Small Claims Court decisions are made by judges, so if it is anticipated that there may be complex legal arguments on the issue of just cause, it may be beneficial to proceed in Small Claims Court.

Consider Defeating Signed Release Agreements

An employee may have already signed a release agreement that waives any liability against the employer. This is not the end of the claim.

In considering a signed release agreement, you should first ensure that it applies to the situation at hand. For example, a release of all liability pursuant to the Employment Standards Act may not prevent an employee from recovering in common law

If the release agreement is grossly unfair for the employee, it may also be set aside on grounds of unconscionability. The British Columbia Supreme Court has recently adopted Alberta’s test for unconscionability in the context of a severance release as follows: (Manak v. Workers’ Compensation Board of British Columbia, 2018 BCSC 182 at para 90, https://canlii.ca/t/hq954)

A contract is unenforceable for unconscionability if:

• It is a grossly unfair and improvident transaction;
• The victim did not receive independent legal advice or other suitable advice;
• There exists an overwhelming imbalance in bargaining power caused by the victim’s ignorance of business, illiteracy, ignorance of the language of the bargain, blindness, deafness, illness, senility, or similar disability; and
• The other party knowingly took advantage of this vulnerability.

A contract is also unenforceable if it was entered into under duress.

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