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Posts tagged: wrongful dismissal

The Benefits of Failsafe Provisions

By , July 17, 2018 8:53 pm

The Ontario Court of Appeal recently released a decision on the enforceability of termination clauses in employment agreements that contain failsafe provisions.

Background

A “failsafe provision” is a portion of a termination clause that provides that, regardless of what the termination clause provides, an employee who is terminated on a without cause basis will always receive at least the minimum notice of termination, benefit continuation and severance pay the employee is entitled to receive under employment standards legislation.

Amberber v IBM Canada Ltd.

Mr. Amberber’s employment contract contained a termination clause that entitled him to notice of termination equal to the greater of (a) one month’s salary, or (b) one week of your current annual base salary, for each completed six months worked since his start date, up to a maximum of 12 months’ salary. This amount expressly included all payments to which the employee might be entitled under employment standards legislation and at common law. This part of the clause, which the motion judge termed as the “options provision,” was followed by a failsafe provision.

After he was terminated, Mr. Amberber sued IBM Canada Ltd. (“IBM”) for wrongful dismissal and claimed he was entitled to pay in lieu of notice at common law. At the motion, Mr. Amberber advanced three arguments. The motion judge only gave effect to one of the arguments: the termination clause failed to rebut the presumption of common law reasonable notice of termination.

The motion judge found that although the termination clause was one paragraph, it broke down into two parts. The inclusive payment provision immediately followed the options provision, so the motion judge interpreted that the provision applied to the first part. Because the inclusive payment provision was not repeated at the end of the clause, it was not clear that the inclusive payment provision was meant to apply to the failsafe provision. The motion judge found that the inclusive payment provision could just as easily have been included at the end of the paragraph and could have just as easily been specified to apply to both scenarios.

On appeal, the motion judge’s decision was overturned. The Ontario Court of Appeal found that the motion judge made a fundamental error when she subdivided the termination clause into what she regarded as its constituent parts and interpreted them individually. Rather, the clause must be interpreted as a whole, and when read as a whole, there could be no doubt as to the clause’s meaning. To hold that the inclusive payment provision applies to only one part of the clause but not the other, gave the clause a strained and unreasonable interpretation. The Ontario Court of Appeal reminded judges that the court should not strain to create an ambiguity where none exists.

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.

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.”

Preparing an Employee Severance Package: Five Reasons to Hire A Lawyer

By , March 31, 2017 1:29 pm
  1. A lawyer can explain your obligations under the Employment Standards Act. Did you know there are employees who are not entitled to vacation pay, overtime pay, termination pay and severance pay under this law? For employees who do not work a regular work week did you know there is a formula to determine how to calculate termination pay?
  1. An employer can explain your obligations to provide reasonable notice of termination at common law. If the employee has not signed an employment contract with an enforceable termination clause then a lawyer can provide you with an idea of what is “reasonable” notice of termination in the circumstances. An lawyer can also inform you whether you are legally required to pay an employee who has received a bonus during the notice period.
  1. An employer can explain whether you are exposed to non-wrongful dismissal damages. For example, if the employee is disabled or has recently returned from sick leave or a pregnancy leave the employer may be exposed to damages under human rights legislation.
  1. A lawyer can suggest the best way to structure termination payments. Sometimes a lump sum payment is the best option and sometimes periodic payments are a better option. Another issue to carefully consider is which benefits to continue and for how long? Did you know that some insurers will not continue some employee benefit coverages after an employee is terminated?
  1. A lawyer can suggest ways to minimize the out of pocket costs associated with a termination. This includes steps you can take to help the employee find alternative employment which generally reduces an employer’s monetary exposure. For example, in what circumstances is it a good idea to offer the terminated employee a reference or outplacement counselling?

 

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.

 

 

Court of Appeal Gives Clarity to Termination Clauses

By , March 3, 2017 9:43 am

As we have written in the past, the enforceability of termination clauses is a hotly contested area of employment law. Employers who draft proper termination clauses in employment contracts can significantly limit their liability when terminating employees.

A termination clause that is poorly written will not be enforced by a court. If the clause is not enforceable, then the employee is usually entitled to a longer notice period (or more termination pay). This is why employee counsel often attack the enforceability of a termination clause.

A recent decision by the Ontario Court of Appeal (“OCA”) has found that a termination clause was not enforceable and as a result, the employer was ordered to pay the terminated employee almost double the termination pay she would have received under the termination clause.

Minimum Standards for Notice of Termination, Benefit Continuation & Severance Pay

Under Ontario’s Employment Standards Act, 2000 any employee with 3 months’ service is entitled to up to 8 weeks’ notice of termination and the employer is required to continue employee benefits during this notice period. In addition, if the employee has been employed for 5 years and the employer’s payroll is over $ 2.5M, then the employee is also entitled to one week severance pay for each year of service up to 26 weeks.

Wood v Fred Deeley Imports Ltd.

In this case, the Employer terminated an 8-year Employee after it sold its assets to Harley-Davidson. The Employer provided the Employee 13 weeks’ working notice, where it paid her salary and benefits. After the working notice, the Employer provided the Employee with  8 weeks’ termination pay. The Employer took the position that the 13 weeks’ notice and 8 weeks’ termination pay was what it owed the Employee pursuant to her termination clause.

Termination Clause

In this case the termination clause stated: “[The Company] is entitled to terminate your employment at any time without cause by providing you with 2 weeks’ notice of termination or pay in lieu thereof for each completed or partial year of employment with the Company. If the Company terminates your employment without cause, the Company shall not be obliged to make any payments to you other than those provided for in this paragraph…. The payments and notice provided for in this paragraph are inclusive of your entitlements to notice, pay in lieu of notice and severance pay pursuant to the Employment Standards Act, 2000.”

Initial Decision     

The judge found that this termination clause was enforceable. Despite not expressly mentioning that the Employer would continue contributing to the Employee’s benefit plans, the judge found that it was enforceable as it provided more than the minimum payment under the ESA. The judge also noted that the Employer continued its benefit contributions throughout the notice period. The Employee appealed this finding to the OCA.

OCA Decision

The OCA overturned the motion judge, finding that the termination clause was unenforceable because it did not provide for benefit plan continuation.

The termination clause said nothing about benefit contributions, and the following language specifically excluded benefit contributions: “the Company shall not be obliged to make any payments to you other than those provided for in this paragraph”, and “the payments and notice provided for in this paragraph are inclusive of your entitlement to notice, pay in lieu of notice and severance pay pursuant to the [ESA].”

The Employer argued that even though benefit continuation was not stated in the termination clause, the word “pay” included both salary and benefits. The OCA disagreed and found that the word “pay” was ambiguous, as it clearly does not include both salary and benefits. Where the language is unclear, courts will interpret it in favour of the employee.

Although the above finding was enough to find the termination clause unenforceable, the OCA went one step further by finding that the failure to comply with the severance pay obligation under the ESA also rendered it unenforceable.

The termination clause was worded in such a way that the Employer could deprive her of severance pay. By stating that she would receive two weeks notice of termination per year of service, it was not clear whether the notice was for termination or severance pay, which are two separate obligations. Because the termination clause did not clearly satisfy the Employer’s obligation to pay the Employee her statutory severance pay, the clause was found unenforceable.

Because the termination clause was unenforceable, the Employer was ordered to pay the Employee 9 months’ in lieu of reasonable notice, instead of the 21 weeks (~5 months) the Employer originally provided to the Employee. Because the termination clause was not enforceable, the Employer had to pay the Employee almost twice the amount owed under the termination clause, plus legal costs. This is the cost of a legally unenforceable termination clause.

Lesson To Be Learned

Employers can drastically limit their termination pay obligations to employees by including a legally enforceable termination clause in an employment contract. Although the case law is still unsettled, this recent decision by Ontario’s highest court should put employers on notice that termination clauses must, at a minimum, comply with all ESA obligations. Employers should consult an employment lawyer to determine whether their termination clause is enforceable.

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.

 

Employer Ordered to pay $ 425 000 of Wrongfully Terminated Employee’s Costs

By , February 27, 2017 1:00 pm

In many wrongful dismissal cases, the legal costs associated with taking a case to trial exceeds the value of the legal claim. That is why the vast majority of these cases settle before trial.

Rolling the dice and taking a case to trial can have serious financial consequences.

Doyle v. Zochem Incorporated

Consider a recent case involving the termination of a 44-year-old female supervisor with 9 years’ service. She earned a salary of about $ 85 000, worked in a male dominated workplace, and her termination came shortly after filing a sexual harassment complaint.

As I wrote in an earlier blog, the trial judge awarded her 10 months pay in lieu of reasonable notice, $ 60 000 in moral damages because of the way she was terminated, $ 25 000 for the way the employer handled her human rights complaint, and interest for a total of about $ 150 000.

Earlier this year, the Ontario Court of Appeal upheld the trial judge’s decision.

Cost Award is 283% Higher than Wrongful Dismissal Damages

This blog discusses the $ 425 000 cost order the court made against the employer in connection with the trial.

The trial of this wrongful dismissal action took 28 days. The employer made a claim of after acquired cause. This means the employer initially took the position that the employee was terminated without cause but then claimed it discovered evidence after the termination which would have justified a with cause termination so that the employee was not entitled to any termination pay. The evidence relating to after acquired cause took up much of the trial. The trial judge concluded the after acquired evidence was a flimsy defence supported by flimsy evidence.

Factors to Consider When Assessing Costs

As a general proposition, the judge stated costs should follow the event (i.e. the losing party should pay some of the winning party’s costs), be proportional to the issues in the action and the outcome, and be reasonable to the losing party to pay. Other factors to be considered is the conduct of the parties and whether one party plays “hardball.”

Difference Between Actual Costs, Substantial Indemnity Costs & Partial Indemnity Costs

In this case, the employee’s lawyer said her actual fees were $ 496 661 (or $ 422 162 on a substantial indemnity basis or $ 322 830 on a partial indemnity basis). The employer’s lawyer said their fees were $ 682 413.

Neither party made an offer to settle that complied with Rule 49 of the Rules of Civil Procedure; that is, before the trial the employee did not agree to settle for less than $ 150 000 and the employer did not offer to settle for more than $ 150 000.

Costs Order in this Case

The judge ordered the employer to pay the employee $ 322 830 of her legal costs (i.e her costs on a partial indemnity basis) plus H.S.T. plus disbursements plus $ 12 000 for settling costs for a total of $ 424 584.33

Lessons to be Learned

  1. Alleging after acquired cause is a risky strategy particularly if there is flimsy evidence supporting the allegation.
  2. If the parties assess the case significantly differently then seriously consider retaining a mediator. This is required for wrongful dismissal actions commenced in Toronto. In my experience, a good mediator is able to get parties on the same page and persuade the parties it is in their interests to enter into a without prejudice settlement instead of incurring the time, costs and legal uncertainly associated with a trial.
  3. If a plaintiff refuses to accept a reasonable settlement offer then the plaintiff may be ordered to pay the defendant’s costs after the date of the offer, despite the plaintiff winning their trial. On the other hand, if a defendant refuses a reasonable settlement offer then the defendant may be ordered to pay more of the plaintiff’s costs after the date of the offer.

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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