Municipal Employees and Amalgamations
by Robert B. Reid and Leanne E. Standryk

The increase in municipal amalgamations throughout Ontario has brought with it great uncertainty for those individuals employed by those municipalities. Concerns are mostly related to the possibility job loss. The amalgamated entity may decide to either continue or terminate an individual's employment relationship. The intention of this article is to ease some of this uncertainty by providing some general information regarding employee rights upon termination as well as upon continued employment in the context of municipal amalgamations.  It is important to note that this article is written with the non-unionized employee in mind. Individuals employed by municipalities whose positions are subject to collective agreements will be subject to the usual lay-off and recall rights that exist in most collective agreements in Ontario.

CATEGORIES OF EMPLOYEES

Senior municipal employees have historically been afforded different legal status than others. The municipal work force has been divided into categories as officers, clerks or civil servants and labourers.

An officer generally includes someone who holds a permanent position of responsibility of an executive or administrative nature with definite rights and duties. The position is generally established by the legislature or through by-law enacted by the municipal corporation. According to the Municipal Act the City Clerk, Treasurer/Principal financial officer and Auditor are officers of the municipal corporation. However, a specific municipality may have passed by-laws appointing the City Fire Chief, Planner or other senior employees to the position of officer.

The distinction between an officer and those acting as servants or employees is that the officer has the authority to exercise some measure of discretionary authority and the responsibility to perform vital duties of the corporation. The servant simply obeys and does not discharge independent duties but acts under the supervision and control of others.

THE RIGHTS OF MUNICIPAL OFFICERS ON TERMINATION

A. The Traditional Approach

In the context of a termination of employment which may arise for a variety of reasons including the amalgamation of municipalities, officers have historically been treated differently from regular employees. Officers of a municipality have been said to hold office "at will" or "at the pleasure of council". The consequence is that a municipal officer may be subject to dismissal at any time without notice or cause. This offers the municipal corporation a complete defence to an action for wrongful dismissal. The municipal corporation is however subject to a duty to act fairly and the officer employed at pleasure is entitled to:

1. be treated fairly;
2. written notice that the council will be considering the termination of his or her employment on a specific date in the future;
3. be advised with as much specificity as possible as to why council will be considering his or her termination;
4. be advised that she/he may attend the meeting to make representations on his/her behalf as to why council ought not to terminate the employment;
5. be advised that he/she may have legal counsel present to assist in making the representations; and
6. be offered the right of a full hearing should the employee so wish;

B. The Modern Approach

A review of the current case law indicates that the courts are no longer making a clear distinction between officers/employees at pleasure and the regular employee. The new trend is to give senior staff of municipalities the same legal rights held by any other employee.

An employment dismissal in the context of an amalgamation will generally be treated as a dismissal without legal cause. This is distinguished from a termination with legal cause which occurs generally because the employee has brought the termination upon him or herself. An employer may dismiss any employee without legal cause so long as there is advance notice (working notice) or pay in lieu provided to the employee. The issue then becomes how much advance notice or pay in lieu should an employee receive?

Reasonable notice is required so that the employee has an opportunity to seek new employment before the old job ends, thus minimizing any financial loss. If the employer fails to give actual notice, it must give the employee a termination/severance package in lieu of that notice.

EMPLOYMENT STANDARDS LEGISLATION

Minimum notice periods are set out in the Employment Standards Act and apply to most employers in Ontario. These provisions can not be waived or contracted away, and apply regardless of the individual circumstances of the employee or the employer. The act requires 1 week written notice per year of service up to a maximum of 8 weeks based on the length of service, or, if notice is not given, "termination pay" as pay in lieu of that notice. For employers with over $2.5 million in annual payroll, or where there is a termination of over 50 employees, there is an additional requirement to pay "severance pay" to employees with 5 or more years of services. Severance pay is calculated at 1 week per year of service up to a maximum of 26 weeks. This must be paid and cannot be satisfied by an additional period of notice.

COMMON LAW DAMAGES

Judges consider what amount of notice is reasonable in each case where an employee is dismissed without legal cause. A termination followed by a notice period that is too short is a "wrongful dismissal" in the eyes of the Court. Generally speaking the common law recognizes notice periods that are greater than the minimums established under the applicable employment legislation. These so-called "common law damages" flowing from the dismissal without legal cause will be based on a variety of factors. Reasonable notice is calculated with particular regard to the individual's age and length of service. In theory, a younger person can find a job more easily than an older one, as can an employee who has not been out of the job search market for too long. Other factors such as whether the employee was hired away from secure employment, re-location costs, or promises of long term employment are considered in appropriate cases.

There is a general agreement that 24 months is the maximum for any case, and that the Employment Standards legislation sets out the absolute minimums. An average notice period for employees who are not at either the high or the low end of the seniority totem pole tends to be in the range of 2 to 4 weeks per year of service. Having said this, one should be wary of this easy "rule of thumb" as the discretion to increase or decrease the notice period lies in the consideration and application of each individual's personal circumstances. Each individual situation should be reviewed with an experienced employment lawyer before the termination occurs and any offer is made.

MITIGATION

Notice is not designed to be a bonus to the employee or a penalty to the employer. It is however, a means to extend an employee's income for a reasonable period of time to enable the individual to secure new employment. Just as the employer is obligated to provide notice, the employee must mitigate or minimize losses which flow directly from the dismissal. For example, if an employee finds a new job at the same rate of pay starting the day after the termination, the claim is zero, regardless of the individual's age, length of service, or position in the company. Similarly if the new job pays less, the damages would be the "top up" from the new wage to the old during the reasonable notice period. Simply stated, an employee is obligated to seek and accept alternate employment for which s/he is reasonably qualified and which is reasonably close to the type of work previously performed.

It is good advice for an employee faced with termination to take a pro-active stance and canvass and secure employment options during the notice period. A failure to do so may prevent the employee from recovering any damages resulting from the dismissal.

An employer who is aware of the employee's duty to minimize damages may insist on proof of the employee's efforts to find other work. As well, it may be appropriate for an employer to offer a severance package which is payable as a salary continuance over a period of time rather than in one lump sum payment. This allows the employer to see what success at mitigation is achieved. An employer may build in an incentive to encourage the employee in the hunt for a new job. For example, an employer may offer to pay a bonus to the employee who finds alternate work by paying the financial equivalent to half of the remaining notice period. The employee would therefore receive more money than a Court would order, and the employer would benefit from a avoiding payment of the full notice period.

JOB RELOCATION OR OUTPLACEMENT COUNSELING

Job relocation counseling may be an means to minimize damages on termination. Since the employer benefits when a terminated employee finds new work at an early stage, an employer may fund job relocation to assist the employee in finding new work. The out placement agency receives the fee directly from the employer and attempts to assist the employee in finding new work by helping to update his/her resume, polishing interview skills and assisting with necessary job skill improvements. The fee is dependent upon the extent and duration of the services to be provided. Particularly with a senior or long service employee, outplacement counseling can be helpful and well received.

The overall benefit from outplacement counseling cannot be over stated, it softens the blow of the termination, minimizes some of the negative psychological effects that accompany the loss of one's job and offers an effective method for the terminated employee's transition into a new work place.

DISABILITY AND OTHER BENEFITS DURING THE NOTICE PERIOD

The context of providing reasonable notice (or pay in lieu) includes the related health care and other benefits during the notice period. All to often benefits are not continued throughout the notice period. Theoretically speaking, an employee should receive all the benefits and perks that s/he would otherwise receive if permitted to work the notice period.

Health care can be a tricky situation particularly if the individual is in poor health. Almost every health care program allows a conversion privilege without proof of insurability for life insurance within 30 days of termination. If this is part of the employee's package, specific mention should be made in the termination letter so that the employer is protected if the individual fails to take the option of a private policy.

The consequences of long term disability which occurs during a notice period are also problematic. Long term disability generally ends with the end of active employment. Therefore if an employee becomes disabled during his/her notice period but after termination, it is possible that the employer can be put into a position of insurer for the whole period of disability.

The employer should try to arrange insurance coverage for the employee for the full notice period. If none is available, and especially if the person is in poor health or advancing age, working notice might be a viable option, or perhaps a more generous severance offer is called to "buy a release" and avoid the potential problem.

Where an employer does not offer or is precluded from continuing employee benefits throughout the notice period, it is appropriate to offer a monetary settlement so that the employee may arrange for benefits privately.

THE OFFER OF CONTINUED EMPLOYMENT

If the new entity decides to continue employment, it will most likely honour the existing terms of the previous employment contract. Any denial or unilateral alteration of the existing terms without providing reasonable notice may give rise to an argument for constructive dismissal.

It is not mandatory for the new entity to offer continued employment pursuant to the terms of the previous contract. Where the new entity does not like a term of the previous contract but wishes to offer and individual continued employment it is open for the new entity to terminate the employment relationship without legal cause and offer continued employment pursuant to a new offer of employment under new terms and conditions.

CONSTRUCTIVE DISMISSAL

If the new entity fails to honour the terms of the employment relationship by significantly changing the existing job, by way of a demotion, a significant loss of status, a substantial increase in job responsibility (without a corresponding pay increase), etc. an employee could allege that she or he has been constructively dismissed.

The basis of constructive dismissal is that when an employee quits by virtue of the changes made by an employer, it is not a voluntary resignation but more closely linked to a termination. The theory is that an employer should not be able to avoid the obligation to give notice or pay in lieu by forcing an employee to quit.

To succeed with a claim for constructive dismissal an employee must establish that the employer has breached a fundamental term of the employment contract thereby entitling the employee to treat the employment contract as terminated. To determine whether there has in fact been a constructive dismissal, the Court will look at:

1. the terms of the employment relationship;
2. whether the change in question is a change to a fundamental term of the contract; and
3. whether there the change is substantial in nature.

Where all three factors are found to exist, the employee will be entitled to resign and claim that he or she has been constructively dismissed.

It is not always easy to determine whether a constructive dismissal has taken place when a job changes, particularly in light of the recent increase in company reorganizations and amalgamations. When there has been a change in the employment relationship such as job re-location, changes in benefits such as vacation, commission structure etc., the question becomes that of degree. The degree of the change is the key issue when reviewing the extent of the change and it is not always easy to predict whether a judge will find that a constructive dismissal has taken place.

As discussed in the context of employee terminations, the employee must remember his or her obligation to minimize loss. Where the change does not appear high-handed or particularly embarrassing to the employee, or where it would go almost undetected by co-workers, Courts have reduced damages due to the employees failure to continue to work and minimize loss. The important question is where or not a reasonable employee would tolerate the change? If the answer is no, the employee will be excused from the obvious opportunity to minimize loss by staying in the old job while exploring employment opportunities elsewhere. If the employee quits and sues for wrongful dismissal, he or she does so at their own peril since the employer will have a defence arising from the individual's failure to minimize loss.

If an employee is given reasonable notice of the changes there will be no damages for constructive dismissal in the same way that providing reasonable notice in advance is a full defence to a claim for wrongful dismissal. If the employee is not content with the changes they should take a pro-active stance and use the period of notice to seek alternative employment. An employee who accepts the changes to his or her employment without any adverse comment and who continues in the employment relationship for a significant period of time after the changes have been implemented, may be taken to have waived any right to claim constructive dismissal on the basis of acquiescence to the new arrangements.

PENSION ENTITLEMENT ON CONTINUED EMPLOYMENT

The municipal employee receives an OMERS pension. In the context of an impending amalgamation the employee can be certain that the OMERS pension will move from the existing municipal entity to the new municipal entity without interruption.

CONCLUSION

A potential municipal amalgamation can causes great uncertainty and frustration for existing employees. When confronted with an employer amalgamation or restructuring it is most important to be informed of the various rights and entitlements arising by virtue of the employment relationship. Only then can one evaluate the options and safeguard interests.

Appropriate legal advice should be sought. Open discourse with the employer may lead to a mutual review of available options including outplacement counseling. Knowing the law, available options and following a plan are the best ways to prevent unnecessary consequences and preserve relations.