Outsourcing in the Digital Age and Wrongful Dismissals

Written on behalf of Peter McSherry
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The internet was ablaze with heated discussions over the past two weeks upon learning that some Freshii restaurants have turned to outsourcing a role that previously seemed impossible to outsource: the retail cashier at fast-food restaurants.

According to media reports, when many customers enter Freshii, they are asked to order using “Percy” instead of with an in-person cashier. “Percy” is the iPad-like device that uses video conferencing to connect customers with a cashier based abroad who takes the order. Employees in person still prepare the orders on-site and provide them to the customer. According to further reporting, these individuals taking the orders are not employees but contractors based in Nicaragua or Pakistan and earn their local minimum wage, which may be as little as $3.75 per hour.

In addition to outsourcing cashier roles, some companies use technology to replace in-person cashiers. McDonald’s restaurants and stores like Loblaws and Shoppers Drug Mart all offer self-serve options where customers can place or pay for orders using devices. Amazon has taken it one step further in the United States where sensors and cameras in some of their Whole Foods stores process the removal of items and charge your account as you leave the store.

The International Monetary Fund recently produced a report that anticipates the COVID-19 pandemic will likely accelerate automation and outsourcing of low-wage service roles. Fear of future pandemics and lingering waves of this pandemic, increased use of Zoom and other technologies are cited as accelerating factors. These, combined with tight labour markets, certainly heighten the incentives for outsourcing and automation.

While there was no indication that this Freshii incident of outsourcing caused wrongful dismissals, there is potential that these practices and the acceleration of these practices could impact employment over time. In fact, previously, a major Canadian employer has been under fire for impacting the employment of long-term employees while outsourcing good-paying jobs through contractors who employ individuals in other countries for lower wages. We may see more of these situations in the future.

Is it legal to outsource jobs in Canada?

It is important to be clear that outsourcing is broader than the Freshii situation described above. Most simply, outsourcing involves hiring an external company to perform services that were previously performed in-house by employees. Outsourcing often is a part of cost savings efforts by companies. The most controversial form of outsourcing is usually when the external company engages employees outside of Canada to reduce costs further. This is what appears to have occurred in the Freshii situation and also occurs in other settings like call centres, some professional services and manufacturing.

For most employees in Canada, the employer can choose to terminate employment for any reason that is not discriminatory. There are exceptions – employees who work in unionized workplaces may have additional rights under their collective agreement, and many federally regulated workers have protection against unjust dismissals, as the Canada Labour Code only permits the termination of employment under specific circumstances.

However, for most employees, the employer can decide to terminate employment for any reason that is not discriminatory, including restructuring to outsource the work to an external company. While employees can be terminated for the purpose of outsourcing the function or work, employees still have the right to fair severance in those circumstances. If an employer fails to provide the appropriate severance, it is considered a wrongful dismissal.

What are my rights if my job is outsourced?

When an employee’s role is impacted due to outsourcing, that employee is still entitled to advance notice of the termination of their employment. For many employees in Ontario, this means reasonable notice or pay in lieu of notice.

Determining “reasonable notice” requires an analysis of the surrounding facts of that specific case. While the facts of each case will be examined on their own merits, the court has provided guidance on what it considers. In the seminal case of Bardal v Globe & Mail Ltd, the court set out the four main factors that continue to be the primary factors today:

  • The age of the employee at the time of the dismissal;
  • The employee’s tenure;
  • The nature of the role; and
  • The availability of comparable employment.

The idea behind reasonable notice is to provide the employee with continued compensation while they search for alternate employment. The employee then finds new employment. The employee is essentially no further ahead nor any further behind than if their employment had just continued. However, this does not always work out in practice, and the courts do not award damages based on the exact number of months the employee took to find a new job. Reasonable notice is based on how long the court anticipates it may take an individual in that situation to find alternate employment.

In addition to considering the four factors outlined above, courts may consider other relevant factors, such as the state of the economy or the specific industry the employee worked in. Recently, this has included the impact of COVID-19 and related restrictions. The courts regularly consider factors like did the employee take steps to find reasonable alternative employment? And, prior to this role, was the employee induced from their previous role?

Contact Peter A. McSherry in Guelph for advice on outsourcing and wrongful dismissals

If your employment has been terminated due to outsourcing, you should carefully consider your options. Many employers terminate without reasonable notice or appropriate severance, which might result in a claim for wrongful dismissal.

At Peter A. McSherry Employment Lawyer, we provide each of our clients with a full assessment of their case. We also regularly assist employers in managing difficult employment situations by providing strategic advice on compliance with employment laws and risk management. Contact us at 519-821-5465 or by e-mail to schedule a consultation.