Northern Exposure

Foreign Employee Working at Canadian Affiliate Entitled to Large Severance

By Bruce Grist and Derek Knoechel

The transfer of employees from foreign-based companies to Canadian-based affiliates is an increasingly common feature of the Canadian labor market. Many employers are familiar with the often complicated process of obtaining the necessary work permits for such employees at the beginning of the transfer. However, ending the relationship between the transferred employee and the Canadian-based employer can present its own challenges. Some of these challenges are illustrated by the British Columbia Supreme Court’s recent decision in Nishina v. Azuma Foods (Canada) Co., Ltd.

Foreign employee fired
Nishina was a 43-year-old Japanese citizen who began her employment with Azuma Foods International in California in June 2001. In August 2005, she was transferred to the British Columbia-based affiliate.

The original work permit prepared by the employer was extended and was to expire in August 2008. In September 2007, the employer offered to assist Nishina in applying for a permanent resident card so that she could continue working beyond August 2008.

One month later, in October 2007, the employer terminated Nishina’s employment, alleging cause. She sued for wrongful dismissal. The court determined that the employer’s allegations of cause for termination were unfounded and turned to the issue of damages.

Immigration status supporting lengthy notice period
Despite her short six years of service, only two of which were in Canada, the court awarded Nishina 12 months pay in lieu of notice. The fact that she had a work permit that allowed her to work in Canada, but only for Azuma, justified this lengthy notice period in the court’s view.

The court equated Nishina’s situation to when an employee is dismissed in a one-employer town: “Though qualified and experienced, [the employee] faces a dearth of alternate employment prospects.”

The fact that the work permit wasn’t due to expire until August 2008 and that the employer had offered to assist Nishina in applying for a permanent resident card one month before her termination also may have affected the length of the notice period.

Employer acted in bad faith, but no damages for mental distress
Nishina also claimed bad faith/mental distress damages. The court concluded that the employer breached its obligation to act in good faith in the manner of dismissal. It ought to have known that the manner of dismissal wasn’t only unduly insensitive, but also that Nishina’s lack of immigration status would cause her great difficulties.

While this finding could support a claim for damages for mental distress, Nishina failed to prove that she had suffered quantifiable mental distress or that it was caused by the manner of dismissal rather than the dismissal itself. As a result, this part of her claim was denied.

$20,000 in punitive damages awarded
After finding that Nishina wasn’t entitled to damages for mental distress, the court added an additional $20,000 in punitive damages on the basis that the employer had breached the “implied obligation of good faith and fair dealing in the manner of dismissal.”

The punitive damages award bears a striking resemblance to the old practice of awarding a “notice extension” for bad faith conduct, an approach that the Supreme Court of Canada expressly abolished in 2008. It remains to be seen whether this approach to awarding punitive damages will be followed in the future.

Take-home message for employers employing foreign workers
This case illustrates that employees who are in Canada on employer-sponsored work permits may be seen as particularly vulnerable in the eyes of a Canadian court. If the employee has clearance to work in Canada based only on the position with the employer, a court may extend the common law notice period.

Employers seeking to employ foreign workers or transfer existing employees to Canadian affiliates may wish to takes steps to ensure that termination issues are addressed in writing before employment or the transfer. An “at will” contract entered into with the employee (in the United States or elsewhere) won’t assist in limiting the employee’s notice entitlement since “at will” provisions aren’t enforceable in Canada.  Any such provision must at least meet the relevant provincial minimum standards.