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Posts tagged: reasonable notice period

Case Study: Why You Need to Periodically Review Your Employment Contract

By , October 11, 2017 9:08 am

A well-drafted employment contract is the best employment law investment an employer can make. It protects an employer from significant liability and will usually save thousands of dollars in termination costs.

An employment contract should be reviewed periodically because judges are refusing to enforce termination clauses if they are not drafted properly.

In a recent case, Covenoho v. Pendylum Ltd.,2017 ONCA 284, Ontario’s highest court concluded a termination clause was not legally enforceable because it might breach the Employment Standards Act (“ESA”) in the future.

The Facts

Joss Covenoho signed a one year fixed-term contract with Pendylum Inc. The employer terminated her agreement without advance notice when she had been employed for less that 3 months. The termination clause stated in part that the contract could be terminated before the end of the fixed-term “if the Pendylum Client to which you have been contracted terminate[s] its contract with Pendylum for your services”.

Decision by Motion Judge

The motion judge concluded that since the employee had been employed for less than three months, she was not entitled to any notice of termination. Under the ESA an employer is not required to provide any notice of employment to an employee during the first three months of employment.

Decision by Court of Appeal

The Court of Appeal reversed the motion judge’s decision and found that the termination provisions were void. It ruled that “the terms must be construed as if (the employee) had continued to be employed beyond three months; if a provision’s application potentially violates the ESA at any date after hiring, it is void”. In this case, if Ms. Covenoho had been terminated after three months of work, then the termination clause would have violated the ESA because she could have been terminated without any notice of termination (or any payment in lieu of notice) contrary to the ESA.  The court also ruled the employee was entitled to receive the salary that she would have earned for the balance of the fixed-term contract.

Lessons for employers:

1)   Employers should periodically review their termination clauses to ensure they are properly drafted and do not provide shorter notice than required by the ESA.

2)  As we have written about before, it is generally a bad idea to enter into a fixed term contract. If a fixed term contract must be used, it must include an enforceable early termination clause.

On October 16 and October 20 MacLeod Law Firm is holding seminars in Toronto and Barrie that will cover three topics. One topic is why employment contracts need to be reviewed periodically. Cases like this one is one reason but there are other reasons. Information on the seminar can be found here.

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 directly 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.

 

Wrongful Dismissal Update: Three Ways to Minimize Termination Pay

By , July 27, 2015 10:09 pm

As readers of this blog are aware, many wrongful dismissal actions are now being decided by way of summary judgment motions.

This blog summarizes a recent successful summary judgment motion involving a former IBM Canada employee.

The Facts

Ms. Leeming, a 60-year old employee, was terminated by IMB without just cause after 8 years of employment. The only issues to be decided were how much notice of termination she was entitled to receive, and whether she failed to mitigate her damages when she started up her own business after only looking for employment for three months.

How much Notice of Termination Should IMB have Provided the Employee?

IMB argued Ms. Leeming was entitled to about 16 weeks termination pay because she signed an employment contract which referred to a termination policy that was found on IMB’s intranet. She did not read this policy and the trial judge found that the policy was not enforceable.

Ms. Leeming argued she was entitled to 16 months notice of termination however the trial judge concluded she should have received 10 months notice of termination. In coming to this conclusion he noted: While not an unrestricted, unregulated, or arbitrary determination, deciding what is a reasonable notice period is perhaps more legal art than legal science.”

Was it Reasonable for the Terminated Employee to Start her Own Business?

In the three-month period following the termination of her employment, Ms. Leeming applied for 22 jobs and was interviewed for two positions but she did not receive an offer of full-time employment. Thereafter she started a franchise that provided digital marketing solutions for small and medium size businesses. She did not have any experience or training in this business. When concluding that her decision to start her own business was reasonable, the trial judge quoted with approval from a Court of Appeal decision which stated: “The respondent’s establishment of a new consulting business was clearly a means of mitigation. The fact that the early years of the respondent’s self-employment did not live up to his monetary expectations does not mean that this was an unreasonable attempt at mitigation.”

Lessons to be Learned

  1. Require all employees to sign an employment contract, which includes a termination clause. In this case, IBM could have limited Ms. Leeming’s termination pay to 12.36 weeks (because she received four weeks working notice of termination) instead of the 43.33 weeks it was ordered to pay her. For more information on the benefits of using employment contracts, click here.
  1. If an employee is terminated without just cause, offer to provide the employee with a reference. It can help the employee secure new employment faster, which is in the employer’s financial self-interest. In this case the trial judge noted: “ IBM did not provide Ms. Leeming with a letter of reference. It provided her with a two sentence letter verifying her employment with IBM.” Although the judge did not state that he increased the notice period because IBM did not provide a reference it is possible that he did.
  1. If an employee is entitled to receive reasonable notice of termination then consider offering the employee outplacement counselling which can help the employee secure new employment more quickly. This is also in the employer’s financial self-interest.

 

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

 

 

 

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