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Posts tagged: reasonable notice

Employer Alert: Termination Clause UPHELD by Ontario’s Court of Appeal in Nemeth v. Hatch Ltd

By , January 12, 2018 2:20 pm

On Monday, Ontario’s Court of Appeal concluded in Nemeth v. Hatch Ltd., 2018 ONCA 7 that the following termination clause was legally enforceable and that the terminated employee who had been employed for 19 years was entitled to 19 weeks termination pay:

The Termination Clause

The Company’s policy with respect to termination is that employment may be terminated by either party with notice in writing. The notice period shall amount to one week per year of service with a minimum of four weeks or the notice required by the applicable labour legislation.

My guess is that most employment lawyers who have read this decision are scratching their collective heads, and asking, “What?”

This decision will result in many plaintiff side lawyers taking pause and re-evaluating their cases.

Until this case was released many trial judges were bending over backwards to find uncertainty and ambiguity in termination clauses and striking them down which benefited employees. For a summary of some of these cases click here

The decision in Nemeth v. Hatch Ltd. is a good case in point. An enforceable termination clause meant the employee was entitled to 19 weeks termination pay. If the clause had been found to be unenforceable however then the employee would have been entitled to closer to 19 months notice.

Lesson To Be Learned

At the moment, it is extremely difficult if not impossible to guess whether or not an Ontario trial judge will enforce a termination clause in an employment contract. The Court of Appeal has found a number of such clauses to be enforceable however for the last few years trial judges have been finding ways to get around these cases or as, lawyers say, have concluded these decisions are distinguishable.

In Nemeth v. Hatch Ltd. the Court of Appeal may have been trying to bring more certainty to the law as it relates to the enforceability of termination clauses. In the short term, however, I predict that this decision will create more uncertainty in this area of the law.

An update on mitigation: What happens when a wrongful dismissal case gets to court while the employee is still unemployed?

By , April 3, 2017 8:42 am

The Basics

A wrongful dismissal occurs when an employer does not provide enough notice of termination. An employee can claim damages equal to the remuneration the employee would have earned during the applicable notice period. During the notice period, an employee is subject to the “duty to mitigate,” which means they must look for alternative employment. Notice periods can be as long as 24 months, and even longer in exceptional circumstances. Increasingly, wrongful dismissal cases are getting to court before the reasonable notice period has expired. In these cases, the employee is still subject to the duty to mitigate for the balance of the notice period. In a recent case, the Superior Court of Justice had to answer the question of how the issue of future mitigation should be recognised in the calculation of damages given the fact that the period of reasonable notice had not yet expired.

Patterson v IBM Canada Ltd, 2017 ONSC 1264

In Patterson v IBM Canada Ltd., the hearing took place in February 2017, just over eight months after the Mr. Patterson’s employment was terminated. The judge found that the reasonable notice period in Mr. Patterson’s case was 18 months.

Mr. Patterson claimed that, given his job search history thus far, his prospects of finding alternative employment were low, and he should therefore receive the full 18 months’ pay. IBM suggested the court should discount any award of damages by 10% to reflect the possibility of future mitigation, i.e. that Mr. Patterson may obtain employment during the remainder of the notice period.

The judge noted that the courts have used several approaches in these cases, the two main ones being the “trust and accounting” approach (where the plaintiff is required to account to the defendant for future income if any is earned during the notice period) and the contingency approach (which is the approach IBM was suggesting).

In this case, the judge preferred the contingency approach, and reduced Mr. Patterson’s damages accordingly. The judge found that if the trust and accounting approach were to be applied, Mr. Patterson would have no incentive to continue in his job search. Furthermore, the contingency approach avoids the possibility of future legal entanglements between the parties.

Lessons to be Learned

There is no consensus on which approach an Ontario judge will follow when a wrongful dismissal case is decided before the end of the reasonable notice period. If you are planning on dismissing a long-term employee, it is important to consult with a lawyer to discuss whether a severance package with a built-in contingency approach can be offered, rather than leaving that decision to a judge after spending significant legal costs. The lawyer can also explain the extent of the employee’s obligation to mitigate (look for work) throughout the litigation process.

“The material and information in this blog and this website are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this blog or its links. No person should act or refrain from acting in reliance on any information found on this website or blog. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.”

Are terminated employees entitled to their unpaid bonuses?

By , January 30, 2017 4:18 pm

We have previously written about when employees have been found to be entitled to receive their bonus at the time of termination.

To recap, when an employee is terminated without cause, they are entitled to receive notice or pay in lieu of notice. Wrongful dismissal damages are intended to place the terminated employee in the same financial position they would have been in had such notice been given. When the court is calculating wrongful dismissal damages, it will typically include all of the compensation and benefits that the employee would have earned during the notice period. However, whether a bonus the employee would have received should be included in such an award is a complicated question that depends partly on whether it has become an integral part of the employee’s salary.

Bain v UBS Securities Canada Inc.

In this case, Mr. Bain, a 14-year employee, earned a base salary of $385,000 plus  bonus.

Although at the beginning of his employment his bonus was paid by cash, payment changed so that his bonus was paid partly by cash and partly by shares in UBS.

Mr. Bain lost his job when it became redundant. He was paid his entitlements under the Employment Standards Act but was not paid his bonus for 2012 or for the three months that he worked in 2013.

After concluding that Mr. Bain was entitled to receive 18 months’ reasonable notice, the judge turned to the question of whether Mr. Bain should receive his bonus for 2012 and the three months he worked in 2013. The judge decided that the bonus was an integral part of Mr. Bain’s remuneration: he received it, albeit in different amounts, every year; he had always been awarded a bonus in his 14 years of employment and it was a significant component of his income. In fact, Mr. Bain had negotiated a minimum bonus as a term of his employment contract when he decided to join UBS.

The judge noted that UBS had a detailed compensation scheme in place and had the stated goal of transparency and fairness in the granting of bonuses. The fact that the bonus was solely in the discretion of management did not relieve UBS from its obligation to follow a process that was fair and reasonable, using objective criteria applied consistently among employees. The judge also noted that Mr. Bain’s 2012 evaluation contained many “exceeded objectives” assessments, and that his numbers were higher for 2012 than for 2011. The judge looked at evidence from other managers and the bonuses they received, which ranged from $402,300 to over $2 million.

UBS attempted to argue that a new compensation plan was introduced in 2011 that stipulated employees had to be employed with UBS to be paid their bonus. The judge could not conclude that Mr. Bain had accepted this fundamental change to his entitlement to a bonus, or that the new limitations were brought to his attention. The judge concluded that to accept UBS’ argument would mean that Mr. Bain became disentitled to a bonus because of the unilateral actions of UBS, over which Mr. Bain had no control. The judge concluded that Mr. Bain should receive his bonus for 2012, the three months he worked in 2013 and the bonus he would have earned over his 18 month notice period.

Lessons to be learned:

  1. In some circumstances, an employee may be entitled to the bonus they would have earned had they not been dismissed, which includes the bonus they would have earned during their notice period.
  2. An employer may limit an employee’s right to receive bonus payments upon termination, in certain circumstances.
  3. An employer must ensure that this limit is brought to the attention of the employee and forms a part of the employment contract.

The material and information provided on this blog and this website are for general information only and should not, in any respect, be relied on as legal advice or opinion. The authors make no claims, promises or guarantees about the accuracy, completeness, or adequacy of any information linked or referred to or contained herein. No person should act or refrain from acting in reliance on any information found on this website or blog, without first retaining counsel and obtaining appropriate professional advice from a lawyer duly licensed to practice law in the relevant jurisdiction. These materials do not constitute legal advice and do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.

Fixed Term Employment Contracts Still A Bad Idea

By , January 11, 2017 3:07 pm

We’ve written before on how fixed term employment contracts are not a good idea. A recent decision from the Ontario Superior Court of Justice confirms the law on this point so far, and serves as yet another lesson to employers considering offering such a contract to temporary employees.

Ballim v Bausch & Lomb Canada Inc.

In October 2015, Ms. Menezes spoke to Ms. Ballim about possible employment with Bausch & Lomb (“the Company”) to replace her as she was going on maternity leave. Ms. Ballim was interested in the opportunity and attended two interviews, the latter being with Mr. Moniz.

In November 2015, Mr. Moniz sent an email to Ms. Ballim with the subject matter “Offer.” The email stated it was a one-year contract, and attached an employment agreement that Ms. Ballim was to sign.

The employment agreement provided that Ms. Ballim’s employment was on a contract basis, that her employment would be commencing on November 18, 2015 and that she would receive payment of $2,230.77 bi-weekly in 26 installments equating to an annual base salary of $58,000. Ms. Ballim executed the employment agreement and began work immediately.

Approximately one month after commencing her employment, Ms. Ballim asked for an unpaid leave of absence to travel to South Africa on compassionate grounds. Ms. Ballim’s request was approved, she was to return to work on February 18, 2016 at the latest. In reality, Ms. Ballim did not return until February 22, 2016. Upon her return, Ms. Ballim was informed that her employment was being terminated.

Because Ms. Ballim had been employed for three months, the Company took the position that she was only entitled to one week notice of termination under the Employment Standards Act. On a gratuitous basis, it provided her with an additional week.

Ms. Ballim obtained new employment in May 2016 and earned a salary of $72,000.

Ms. Ballim brought a motion for summary judgment arguing that she had a fixed term contract of one year. If she was successful, she would be entitled to recover all damages for the unexpired term of the contract. The Company argued that the plaintiff was hired for an indefinite term and that as such, she was only entitled to reasonable notice.

Was the Contract a Fixed Term Contract?

The judge found that the offer to Ms. Ballim consisted of both the email and employment agreement. This finding was important as it was the email that stated it was a one-year contract, not the employment agreement. The Company tried to argue that the contract was for an indefinite term as Ms. Menezes could have returned to work at any point in time.

The judge disagreed: the contract had a start date; Ms. Ballim was to be paid every two weeks in 26 installments, which was consistent with the accompanying email that expressly provided for a one-year duration. Although no precise end date was specified, it could be easily inferred to be one year from November 18, 2015.

Given this finding, the Company was required to pay Ms. Ballim to the end of the term. As per the Ontario Court of Appeal decision of Howard v Benson, these damages were not subject to mitigation. Therefore, she was entitled to damages from the breach of contract for the balance of 38.5 weeks.

Lessons to be Learned

  1. It is generally a bad idea to ask an employee to enter into a fixed term contract.
  2. If a fixed term contract must be used, it must include an (enforceable) early termination clause.
  3. The termination clause should also require the employee to mitigate their damages if the contract is terminated early.

“The material and information provided on this blog and this website are for general information only and should not, in any respect, be relied on as legal advice or opinion. The authors make no claims, promises or guarantees about the accuracy, completeness, or adequacy of any information linked or referred to or contained herein. No person should act or refrain from acting in reliance on any information found on this website or blog, without first retaining counsel and obtaining appropriate professional advice from a lawyer duly licensed to practice law in the relevant jurisdiction. These materials do not constitute legal advice and do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.”

Litigation Risk Associated with Employee Terminations

By , November 17, 2016 4:36 pm

Employment Contracts Eliminate Litigation Risk

An employee and employer can agree on how much notice of termination the employer must provide the employee before the employment relationship commences. This agreement can be included in a termination clause in an employment contract.

Litigation Risk Arises When Employees Are Entitled to Reasonable Notice of Termination

Readers of this blog know that I strongly recommend that every new hire sign an employment contract with a legally enforceable termination clause. Absent such an agreement an employee is generally entitled to reasonable notice of termination.

An employee and employer can and often do disagree on what constitutes “reasonable” notice of termination. A recent case illustrates the vagaries of wrongful dismissal litigation.

A case Study: Michelle Summerfield vs. Staples Canada Inc.

The Facts

Staples Canada Inc. terminated Ms. Staples employment without cause after almost 5 years’ service. At the time of her termination she was 39 years old, her total remuneration was about $ 84 000, and she worked in a sales capacity.

The Litigation

Ms. Staples commenced a wrongful dismissal action. The only issue in dispute was the length of the reasonable notice period so the parties agreed to have this issue resolved by way of a summary judgment motion.

The Legal Test

The parties agreed that when determining the length of the reasonable notice period the judge should apply the Bardal factors; that is; the character of her employment (i.e. a sales position); the length of service (i.e. almost 5 years); the employee’s age (i.e. 39 years old) and the availability of similar employment given her experience, education and qualifications.

The Litigation Risk

The employer submitted cases where judges found a 3 to 5-month notice period is allegedly similar circumstances. The employee submitted cases where judges found a 6 to 9-month notice period was appropriate. The range of reasonable notice (i.e. 3 months to 9 months) represented the litigation risk in this case.

My Thoughts On This Case

I know nothing about this case except what I have read in the decision. My guess is that the employer made a without prejudice offer of 3 to 4 months pay. The judge referred to such an offer but stated the terms of the offer were not disclosed to the court.

The judge awarded Ms. Summerfield 6 months pay in lieu of notice less the 5 weeks’ termination pay she received or $ 34171.92 which I think is on the high end of the reasonable notice in this case. In this case, I think the employee rolled the dice and won.

I suspect that the legal fees incurred by both parties FAR exceeded the difference between the employer’s without prejudice settlement offer and the 6-month damage award.

Lesson To Be Learned

If the employee had signed an employment contract with a legally enforceable termination clause then the employer could have saved over $ 34 000 AND the legal fees associated with this wrongful dismissal action. In this latter regard, the employer will be required to pay its own legal costs and probably most of the employee’s legal costs.

For over 25 years, Doug MacLeod of the MacLeod Law Firm has been advising employers on all aspects of the employment relationship. If you have any questions, you can contact him at 416 317-9894 or at [email protected]

The material and information in this blog and this website are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this blog or its links. No person should act or refrain from acting in reliance on any information found on this website or blog. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.

 

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