In an unjust dismissal grievance arbitration, where the employer fails to establish cause for dismissal, the usual remedy is reinstatement of the grievor and payment of all of their lost wages. In exceptional circumstances, however, reinstatement of a dismissed grievor may not be appropriate. In these circumstances an arbitrator may exercise their discretion to award damages to the grievor in lieu of reinstatement. Damages awarded by grievance arbitrators are intended to compensate the grievor for loss of their benefits under the applicable collective agreement, and involve different considerations than a calculation of damages payable to a non-unionized employee for wrongful dismissal at common law.

When are damages in lieu of reinstatement awarded?

The Supreme Court of Canada confirmed that departure from the remedy of reinstatement of a wrongfully dismissed grievor should only occur in “exceptional circumstances” where the employment relationship has been “totally destroyed.”¹ Given the high threshold of “exceptional circumstances,” grievance arbitrators will exercise their discretion carefully before awarding damages in lieu of reinstatement.

In De Havilland v. CAW-Canada, Local 112, a list of “exceptional circumstances” was compiled by the grievance arbitrator following a thorough review of cases where damages in lieu of reinstatement were appropriate. The arbitrator noted several indicators that an employment relationship may be “totally destroyed”:

1. The refusal of co-workers to work with the grievor.
2. Lack of trust between the grievor and the employer.
3. The inability or refusal of the grievor to accept responsibility for any wrongdoing.
4. The demeanor and attitude of the grievor at the hearing.
5. Animosity on the part of the grievor towards management or co-workers; and
6. The risk of a “poisoned” atmosphere in the workplace.²

In considering the above circumstances, an arbitrator’s overarching concern is whether the employment relationship is “viable” notwithstanding any conflict between the grievor, the union and the employer.

A number of factors may affect the viability of continued employment, including whether the parties are willing to accept responsibility for any misconduct, direct evidence in respect of the level of trust between the grievor and the employer and whether the grievor’s position involves safety issues in the workplace.

How are damages calculated?

Damages in lieu of reinstatement are not comparable to pay in lieu of notice at common law. Where pay in lieu of notice at common law is intended to compensate a dismissed employee over the amount of time they require to find a reasonably comparable alternate position, damages in lieu of reinstatement do not have this intent. Instead, damages in lieu of reinstatement are intended to compensate a dismissed unionized employee for the loss of the benefits that they enjoyed under the applicable collective agreement. These benefits include the protections afforded by just cause provisions, the right to be reinstated if they are terminated without just cause, job security provisions and other benefits rooted in the concepts of seniority.

To calculate damages in lieu of reinstatement, grievance arbitrators will consider all circumstances relevant to fashioning a lasting and final solution to the parties’ dispute. Damages awarded will therefore reflect the seniority that the grievor had accumulated prior to their termination, as well as the fact that the grievor may have continued to work for the employer for a lengthy period of time had they been reinstated. The principles of general contract law – that a party is entitled to be put in the same position that they would have been but for the breach of the collective agreement, and that losses that are too remote or too speculative should not be compensated – still apply to a determination of damages in lieu of reinstatement, however, these principles will not be applied inflexibly.³

Arbitrators have used two approaches to calculate an appropriate quantum of damages in lieu of reinstatement. The first approach is to consider the sum of wages that the grievor may have earned from the date of their termination until their retirement date, and then to apply percentage deductions for applicable contingencies. Applicable contingencies include whether the grievor may have been subsequently justifiably terminated for just cause, been laid off, or may have resigned their employment.⁴ Alternatively, an arbitrator may award a number of weeks of the grievor’s wages per year of their seniority, plus a gross-up percentage (typically 10-20%) to account for loss of fringe benefits and protections under the collective agreement, plus any other amounts that may be appropriate (such as statutory severance pay in Ontario).⁵ The appropriate number of weeks of the grievor’s wages may be informed by common law notice decisions or, where applicable, terms of a collective agreement applicable to indefinite layoffs.

Another important difference between damages in lieu of reinstatement and a calculation of notice at common law is the consideration given to earnings in mitigation. Unlike at common law, arbitrators are not obligated to provide a deduction for earnings in mitigation. Some arbitrators have taken the position that damages in lieu of reinstatement are to compensate the grievor for loss of benefits under a collective agreement, and accordingly applying mitigation to these amounts is therefore not appropriate.⁶ Other arbitrators have found that mitigation earnings should be considered given that the grievor’s back pay would have been reduced by their mitigation earnings had they been entitled to reinstatement.⁷ However, where the arbitrator does agree to consider a grievor’s earnings in mitigation, it is uncommon for them to apply mitigation earnings as a dollar-for-dollar deduction to the award of damages.

Key takeaways

• Reinstatement of a grievor who is found to have been wrongfully dismissed is the presumptive remedy ordered by an arbitrator.
• Damages in lieu of reinstatement may be awarded where an arbitrator finds that the employment relationship is no longer viable. To establish the viability of continued employment, the employer should provide direct in respect of the level of trust between the parties.
• Damages in lieu of reinstatement may be calculated by either totalling the sum of the grievor’s wages from the date of termination until a proposed date of retirement and deducting applicable contingencies, or alternatively by multiplying a number of weeks of the grievor’s wages by the grievor’s years of seniority. In either case, a gross-up of an appropriate percentage will be applied to account for the grievor’s loss of protections under the collective agreement.
• An arbitrator will exercise their discretion to determine whether, and to what extent, a grievor’s earnings in mitigation are deductible from an award of damages in lieu of reinstatement.

For more information on this topic, please contact the authors, Russell Groves and Salim Visram.

[1] A.U.P.E v. Lethbridge Community College, 2004 SCC 28 at para 51.
[2]De Havilland Inc. v. CAW-Canada, Local 112, 1999 CarswellOnt 5421 [de Havilland].
[3]TC, Local 362 and Middleton, Re, 2022 CarswellAlta 825.
[4]See for example Hay River Health & Social Services Authority v P.S.A.C, 2010 CarswellNat 5733,.
[5] See for example Hendrickson Spring Stratford Operations v U.S.W.A., Local 8773, 2009 CarswellOnt 9289; British Columbia Ferry Services Inc. v B.C.F.M.W.U., 2005 CarswellBC 4132 and de Havilland, where the arbitrator awarded one month of the grievor’s wages for each year of seniority, plus a fifteen percent gross up for loss of fringe benefits, plus an additional twenty weeks’ wages that the grievor would have received as termination and severance pay under the Ontario Employment Standards Act, 2000.
[6] De Havilland Inc. v CAW-Canada, Local 112, 1999 CarswellOnt 5421.
[7] Bahniuk v Canada (Attorney General), 2016 FCA 127.