Compensation in Lieu of Reinstatement: Notice Model or Economic Loss Approach?

Employment Law & Wrongful Dismissal Lawyer Stacey Ball

In an unjust dismissal case, the presumptive remedy an adjudicator can award is reinstatement with back pay. However, under certain circumstances, the adjudicator may decide that returning the employee back to the workplace is unwise. Therefore, the award can be compensation in lieu of reinstatement. In such cases, how are the damages calculated? This is the question that has been put in front of adjudicators, including in the case discussed below.

Szabo v. Canadian Pacific Railway Company (CP): The Facts

Mr. Szabo was dismissed by Canadian Pacific Railway on April 25, 2020, following an incident a couple of weeks prior that was considered to be a serious safety infraction. Mr. Szabo’s role was that of terminal trainmaster at Kipp Yard in Lethbridge, Alberta. This meant he was responsible for the safety of all the trains coming through his yard. The serious safety infraction that ultimately led to his dismissal was Mr. Szabo failing to inspect the brakes on the rail cars, as was required. Once it was confirmed to him that no previous inspection took place, he failed to stop the train after it had left his station to ensure the proper inspection took place.

Both parties agreed that the failure to inspect the brakes took place. However, Mr. Szabo did not want to take responsibility for the event, as he believed it was the responsibility of others, which was not the case. Mr. Szabo also had previous disciplinary issues, but nothing related or close to the seriousness of this particular infraction.

Adjudicator Decision to Adopt Economic Loss Model

Adjudicator Asbell ultimately decided Mr. Szabo was unjustly dismissed from his role at CP. Due to an irreparable breakdown in the relationship between the two parties, reinstatement is no longer feasible. As such, Mr. Szabo is to be made whole for the period from the date of his dismissal to the date of the award. In other words, he is to be compensated for all the money and benefits he would have earned during that period. However, to be subtracted from that figure is the amount of money he would have lost due to the disciplinary actions from his infraction.

The second part of the compensatory package Mr. Szabo was awarded relates to the monies in lieu of reinstatement from the date of the award and beyond. Section 242(4)(c) of the Canada Labour Code also enables an adjudicator to award any equitable remedy to counteract all the losses due to the dismissal. In this case, that means Mr. Szabo is entitled to an equitable remedy: monies in lieu of reinstatement. While this is not a case involving a unionized worker, the Supreme Court of Canada stated in the landmark Wilson decision that the remedies in the unjust dismissal context should reflect the remedies enjoyed by employees in the collective bargaining realm.

The two approaches to calculating damages in scenarios where reinstatement is not an appropriate remedy for an unjust dismissal are: the “notice model” and the “economic loss model”. The notice model is used by the courts in wrongful dismissal cases, which is based on a formula tied to the number of years of service the employee had. It also takes into account the “loss of protections and rights that would have otherwise continued under the collective agreement”. The second approach is the economic loss model, otherwise known as the fixed-term approach. It attempts to quantify damages based on the importance of security of tenure in the unionized sector and the guarantees normally associated with holding a unionized position.

In this decision, Adjudicator Asbell determined that moving forward, calculating damages in lieu of reinstatement under the Code would be done by the economic model approach. Even though non-union employees under the Code are not subject to a collective agreement, they should receive similar protections and security. Using the economic model approach, adjudicators will more properly value the losses experienced by employees due to their dismissal. The damages will assume the employee will remain in their job until their expected retirement date, subject to contingencies, such as, but not limited to:

  • The employee’s age;
  • Their tenure and position with the employer;
  • Current state of health;
  • Projected length of time before retirement;
  • Likelihood of employee being dismissed by the employer for cause in the future based on their prior conduct and behaviour;
  • Likelihood of early retirement;
  • Changes in career path given job and educational levels.

The Order:

Using the above factors, Mr. Szabo was considered fairly likely to be dismissed within the next 12-16 months had he been reinstated. Therefore, Mr. Szabo’s total award was an order for back pay for lost wages and benefits from the time of dismissal to the award, in addition to damages in lieu of reinstatement for the 16 months following the order.

For help in all matters of employment law in Toronto call us today.

Call: (416) 921 7997 Ext.225

    Request an Appointment