How to Use Common Law Precedents to Predict the Outcome of Your Wrongful Dismissal Suit?

As an HR Director in Canada, determining a fair and legally sound severance package is a recurring and high-stakes challenge. The term “wrongful dismissal” doesn’t imply misconduct by the employer; it typically means an employee was terminated without cause and not provided with adequate notice or pay in lieu of notice. While the Bardal factors—age, length of service, role seniority, and availability of similar employment—provide a basic framework, relying on them alone is like navigating with an outdated map. The legal landscape is constantly being reshaped by judicial decisions that refine, reinterpret, and sometimes completely overturn established norms.

Many leaders default to standardised severance calculators or surface-level legal advice, which often fails to capture the nuances of a specific case. This approach overlooks the critical role of precedent and the evolving interpretation of employment contracts by Canadian courts. The real key to confidently predicting outcomes and managing liability isn’t just knowing the rules, but understanding how judges apply them. The critical question is not simply “What is the formula?” but rather, “How would a court likely deconstruct this specific employee’s contract and termination circumstances in light of recent, relevant case law?”

This article provides a strategic framework for HR Directors to move beyond basic calculations. We will explore a methodology for analysing precedent, modelling financial risk, and proactively managing termination liability. By deconstructing key rulings and understanding judicial trends, you can develop a more accurate and defensible approach to severance, turning legal uncertainty into a manageable business risk. This analysis will equip you to make informed decisions, whether negotiating a settlement or preparing for potential litigation.

This guide will walk you through the foundational precedents, the tactics for legal argumentation, and the evolving doctrines that shape Canadian employment law. The following sections provide an analytical toolkit for assessing your contractual obligations and potential exposure.

Why a Supreme Court Ruling from 1995 Still Dictates Your Contractual Liability Today?

The principle of stare decisis—the policy of courts to abide by precedents—is the bedrock of common law. A single, powerful ruling from the Supreme Court of Canada (SCC) can establish a principle that remains influential for decades. The case of Machtinger v. HOJ Industries Ltd. (1992) is a prime example, establishing a rule that continues to invalidate countless termination clauses today. The court ruled that if a termination clause in an employment contract provides for less than the minimum statutory notice period required by provincial legislation (like an Employment Standards Act), the entire clause is void. It is not “read up” to the minimum; it is struck down completely.

This outcome means the employee is then entitled to “reasonable notice” at common law, which is almost always significantly longer and more costly for the employer than the statutory minimums or what was intended in the contract. This precedent underscores a critical risk for HR Directors: a single drafting error can unravel a carefully constructed contractual limitation on liability. It’s not about intent; it’s about strict compliance. The ruling established a powerful default in favour of employee protection, a theme that has only strengthened over time.

Therefore, every termination clause in your employment agreements must be “Machtinger-proof.” This means a rigorous, proactive audit is not optional, but essential. Even clauses that appear compliant on the surface can be challenged if they contain ambiguous language or fail to explicitly cover all statutory entitlements upon termination. The legacy of this 1990s ruling is a constant reminder that in employment law, historical precedents are not just academic—they are active risks that dictate present-day financial liability.

How to Argue That a Negative Precedent Does Not Apply to Your Unique Situation?

While courts are bound by precedent, no two cases are identical. The primary tool for arguing that a seemingly adverse ruling should not apply is the art of “distinguishing on the facts.” This legal strategy involves a meticulous analysis to identify material differences between the precedent case and your current situation. For an HR Director, this means moving beyond the headline of a ruling and digging into the specific details that drove the court’s decision.

The goal is to demonstrate that the rationale behind the previous decision is irrelevant or unjust when applied to your unique set of circumstances. Key areas for factual distinction include the employee’s role and responsibilities, the specific wording of the contract, the industry context, or the conduct of the parties involved. For instance, a precedent set for a senior executive with unique, client-facing responsibilities may not apply to a mid-level manager in a purely internal operational role, even if their length of service is similar.

A successful argument requires more than just pointing out differences; it requires explaining why those differences matter. Consider the Lake v. La Presse case. An employee was terminated from a General Manager position, and the employer argued he failed to mitigate by not applying for a “Director” role. The court looked past the job titles, focusing on the substance of the duties. It found the roles were comparable and the employee’s mitigation efforts were therefore inadequate. This case shows how courts deconstruct facts, and provides a roadmap for how you can do the same. If the precedent involves a sales role and your case involves an IT role, the nature of the job market and transferable skills are materially different facts to be argued.

Judicial Trends: Why Are Courts Becoming More Pro-Employee in Restrictive Covenant Cases?

Restrictive covenants, such as non-competition and non-solicitation clauses, represent a direct clash between an employer’s right to protect its business interests and an individual’s right to earn a livelihood. Historically, courts have viewed non-competition clauses as a restraint of trade and have enforced them only in exceptional circumstances. This judicial skepticism has intensified, creating a clear pro-employee trend across Canada.

Courts now apply a rigorous test: is the restriction reasonable in terms of duration, geographic scope, and the nature of the activities being restricted? Any ambiguity in the clause will be interpreted against the employer (the doctrine of contra proferentem). If a court finds a clause to be even slightly too broad or unclear, it will strike it down entirely rather than modify it to be reasonable. This trend is amplified by legislative action; for example, recent legislative changes in Ontario under the Working for Workers Act have banned most non-competition agreements, sending a strong signal to courts in other provinces about public policy priorities.

For HR Directors, this means the days of using boilerplate, overly broad restrictive covenants are over. These clauses are now a significant source of legal risk. A non-compete that might have been enforceable a decade ago is now likely to be struck down, leaving the employer with no protection. The judicial focus has shifted to whether a less restrictive clause, like a well-defined non-solicitation agreement, would have adequately protected the employer’s legitimate business interests. If the answer is yes, the non-compete is almost certain to fail.

This comparative table illustrates the varying, yet consistently skeptical, approaches across Canada.

The Danger of Relying on a UK Precedent in a Canadian Commercial Dispute

While Canada’s common law system has its roots in English law, the two have diverged significantly over the past several decades, especially in the realm of contract and employment law. A common mistake made by parties (and sometimes even their counsel) is to cite a UK precedent in a Canadian court, assuming its principles are directly transferable. This can be a fatal error in strategy, as Canadian courts have deliberately forged their own path on key doctrines.

The most prominent example of this divergence is the duty of good faith in contractual performance. In 2014, the Supreme Court of Canada in Bhasin v. Hrynew established that good faith is a general organising principle in all Canadian contracts. This means parties must perform their contractual duties honestly and not act in ways that undermine the other party’s benefits under the agreement. This principle has profound implications for employment law, particularly during termination. An employer cannot, for example, terminate an employee just before a large bonus is due to be paid simply to avoid the payout, even if the contract technically allows for termination at any time.

This contrasts sharply with the more traditional UK approach, which has historically been reluctant to imply a broad duty of good faith, prioritising the literal interpretation of the contract’s express terms. Relying on a UK case that upholds a strict, literalist interpretation of a contract would be deeply unpersuasive in a Canadian courtroom where the principle of good faith performance is now entrenched.

When to Settle: Using Case Law Probability Modelling to value a Claim

For an HR Director, the decision to settle a wrongful dismissal claim or proceed to litigation is fundamentally a risk management calculation. Case law probability modelling provides a structured, data-driven framework for this decision. It involves moving beyond a gut feeling about the case’s merits and instead quantifying the potential outcomes. This process translates legal analysis into the language of business: financial exposure and probability-weighted cost.

The first step is to establish the “best-case scenario” for the employee in court, which is the maximum potential damages. This is primarily the common law notice period. While the Bardal factors are the starting point, a more accurate estimate comes from reviewing recent, comparable cases on databases like CanLII. For example, recent court decisions confirm that 24 months generally represents the high-end cap for notice periods, reserved for long-serving, senior employees, though exceptional circumstances can push this higher. By finding cases with similar employee profiles (age, tenure, role) in your province, you can establish a realistic range for the potential notice period award.

Next, you must factor in other potential damages, such as lost bonuses, benefits, and the possibility of aggravated or punitive damages if there is evidence of bad-faith conduct during the termination. Once you have a total potential liability figure, you must critically assess the probability of success on each point. Are there weaknesses in your termination clause? Is the employee’s failure to mitigate provable? Assign a percentage probability to winning and losing. The “expected value” of the claim is then the potential liability multiplied by the probability of losing, plus the legal costs you will incur regardless of the outcome. Comparing this expected value to the employee’s settlement offer provides a rational basis for your negotiation strategy.

When Is a Contract So Unfair That a Judge Will Refuse to Enforce It?

Even a technically well-drafted contract can be set aside if a court deems it “unconscionable.” Unconscionability is an equitable doctrine that allows judges to refuse to enforce a contract or a specific clause that is so grossly unfair it would be offensive to the court’s sense of justice. In Canadian employment law, this doctrine has become a powerful tool for protecting vulnerable employees from exploitative contractual terms. The test for unconscionability involves two key elements: an inequality of bargaining power between the parties, and a resulting agreement that is substantially improvident or unfair.

In the employment context, an inequality of bargaining power is almost always presumed to exist. An individual job applicant, particularly for a lower-skilled position, rarely has the leverage to negotiate terms with a large corporate employer. The focus of the analysis, therefore, shifts to the second part of the test: the fairness of the resulting bargain. A clause that takes advantage of this power imbalance to an excessive degree is at high risk of being found unconscionable.

The Supreme Court’s landmark decision in Uber Technologies Inc. v. Heller (2020) provides a clear illustration. The Court found that Uber’s arbitration clause, which required drivers in Ontario to resolve disputes through a costly process in the Netherlands, was unconscionable. The prohibitive cost effectively denied the drivers access to justice. As a review of top cases from 2020 notes, the power imbalance between Uber and its drivers was a key factor. This ruling signals that courts will look beyond the mere wording of a contract to its real-world effects on the weaker party.

This principle of fairness is deeply embedded in Canadian jurisprudence. As one Ontario Court articulated a key tenet of contractual interpretation:

When an employment contract includes a condition for the receipt by an employee of a benefit and the employer has discretion to frustrate that condition, that discretion must be exercised fairly.

– Ontario Court, Employment law precedent on contractual fairness

For HR Directors, this means ensuring that contracts are not only legally compliant but also substantively fair. A termination clause that provides only the bare minimum of notice, combined with a broad and restrictive non-compete and a mandatory arbitration clause in a foreign jurisdiction, could be viewed as a whole as an unconscionable bargain, risking the unenforceability of the entire agreement.

The Duty to Mitigate: Why You Can’t Just Let Losses Pile Up After a Breach?

When an employee is wrongfully dismissed, they are not entitled to simply sit back and collect damages for the entire notice period. They have a legal obligation known as the “duty to mitigate.” This requires them to take reasonable steps to find comparable new employment to reduce or mitigate the losses resulting from the termination. For an employer, proving that an employee has failed in this duty can significantly reduce the amount of severance pay owed. However, the burden of proof rests entirely on the employer.

To successfully argue a failure to mitigate, an employer must prove two things: first, that the employee failed to take reasonable steps to search for a new job, and second, that had they taken those steps, they would have likely found a comparable position. “Comparable” is a key term, assessed based on salary, status, responsibilities, and location. An employee is not required to accept a much lower-paying job or a significant demotion just to mitigate their losses. Courts give employees a reasonable period of time to search for truly comparable roles before expecting them to widen their search.

As an HR Director, your role in a dispute is to work with legal counsel to gather evidence of the employee’s mitigation efforts (or lack thereof). This involves monitoring public job boards for suitable positions that were available during the notice period and documenting the employee’s job search activities through the discovery process. It is crucial for the terminated employee to keep a detailed log of their efforts. The absence of such a log can be used to argue that their search was not diligent.

An effective mitigation log, which an employer should look for as evidence, would typically include the following details for each application:

• Date of application submission
• Company name and full contact details
• Position title and job reference number
• An assessment of whether it was a comparable role, with justification
• The application method used (e.g., online portal, email, recruitment agency)
• Any response received and the date of the response
• Details of any interview stages completed
• The final outcome and any feedback received

Arguing failure to mitigate is a fact-intensive exercise, but it can be a powerful tool for reducing liability. It holds the employee accountable for their side of the post-termination obligation and ensures that damages awards are based on actual, rather than potential, losses.

How to Interpret “Ambiguous” Terms in New Statutes to Ensure Compliance?

Employment law is not static; it is constantly evolving through both new case law and new legislation. When governments introduce new statutes, such as amendments to a provincial Employment Standards Act or new workplace safety regulations, the language used can often be broad or “ambiguous.” For an HR Director, correctly interpreting these new terms is crucial for ensuring compliance and avoiding future liability. An incorrect interpretation, however well-intentioned, is not a defence.

The first principle of statutory interpretation in the employment context is that legislation designed to protect employees is given a “broad and liberal” interpretation. This means that where a term is ambiguous, courts will favour the interpretation that provides the greatest protection to the employee. Furthermore, the doctrine of contra proferentem applies: any ambiguity in a document (including a statute that an employer incorporates into its policies) is interpreted against the party that drafted it or seeks to rely on it—in this case, the employer.

A critical example of this interpretive strictness is the Ontario Court of Appeal’s decision in Waksdale v. Swegon North America Inc. (2020). The court ruled that if any part of an employment contract’s termination provisions is illegal (for instance, a “for cause” clause that violates the Employment Standards Act), then all termination clauses in the contract are rendered unenforceable. The contract must be read as a whole. This precedent, as noted in a Fasken legal analysis, reinforces the need for absolute clarity and compliance across all related clauses. An ambiguous or illegal “for cause” clause can poison a perfectly valid “without cause” clause.

To ensure compliance, HR Directors should consult their province’s Interpretation Act, which provides formal rules for understanding legislation. The process involves identifying the specific ambiguous term, considering the overall purpose of the statute, and applying the employee-centric principles favoured by the courts. When a new statute impacts fundamental employment rights, documenting your interpretation process and seeking a legal opinion is a vital risk management step. This creates a defensible record showing that you took diligent and reasonable steps to comply with the new law.

Proactively managing employment contracts is not a one-time task but an ongoing strategic function. The next logical step is to implement a regular audit of your existing agreements, stress-testing them against the evolving legal principles discussed. Evaluate your termination clauses, restrictive covenants, and discretionary bonus language now to prevent costly disputes later.