Another reason why an employment contract should contain a termination clause

October 9, 2013 Doug MacLeod, MacLeod Law Firm Employee Relations, Employment/Labour Standards, HR Policies and Procedures, Human Resources, Notice, Damages and Settlements, Payroll, Pensions and Benefits, Wages and Compensation

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A recent case illustrates yet again why it is important for an employer to include a legally enforceable termination clause in an employment contract for all employees.

The Bernier case: The facts

In 1999, Ms. Bernier was hired as a manager. She signed a written employment contract which stated that her employment could be terminated without cause on 30 days notice.

Thirteen years later when Ms. Bernier was 54 years old, the employer terminated her employment without just cause. At the time, she was entitled to receive, among other things, 8 weeks notice of termination (i.e. 56 days) under the Employment Standards Act. Her remuneration was about $200,000 per year including salary, bonus, car allowance and benefits.

The decision

Ms. Bernier brought a motion for summary judgment and the judge made the following decision in her favour without the need for a trial.

The 30 day termination clause was NOT enforceable because an employer cannot contract out of the minimum standards set out in the Employment Standards Act.
Ms. Bernier was entitled to “reasonable” notice of termination which depended on “the nature of the employment, the length of the employment, the employee’s age, and the realistic possibility of finding similar employment appropriate to the experience, responsibility and qualifications of the employee.”
The judge found Ms. Bernier was “highly skilled and moderately specialized”, her position was “one of considerable responsibility in a comparatively specialized industry.” and concluded that her “age, experience, and level of responsibility put her on the higher side of the range of notice periods” and found an 18 month notice period.
Ms. Bernier should receive a bonus during the 18 month reasonable notice period. In this regard, “the evidence before me is that the bonus, while calculated in accordance with the Defendant’s corporate performance each year, was a regular feature of the Plaintiff’s compensation that she had come to expect.”
The employer should pay $25,000 of Ms. Bernier’s legal costs.

Lessons to be learned

Termination clauses can save employers considerable costs. Although the court did not quantify Ms. Bernier’s damages, based on annual compensation of $200 000 and an 18 month notice period, damages would be $300 000. The employer was ordered to pay $25 000 of her legal costs and also had to pay its own legal costs. In contrast, if the contract had stated she was entitled to 2 weeks notice for each year of service then the employer could have limited termination costs to $100 000 (i.e. $200 000/52 x 26) and not paid any legal fees.
Wrongful dismissal actions involve considerable litigation risk. Litigation is uncertain. Although the Ontario Court of Appeal has rejected the “one month per year of service” rule of thumb I suspect many employment lawyers would have expected most judges to find a 12 to 15 month “reasonable notice” period in this case; not 18 months.
Rule 20 motions in wrongful dismissal actions involve considerable litigation risk. In this action, the judge decided the case without a trial. In other cases, however, judges have refused to decide a wrongful dismissal action by way of summary judgment and have ordered the employee to pay the costs of the motion and ordered the case to proceed to trial.

Doug MacLeod
MacLeod Law Firm
doug@macleodlawfirm.ca
416 317-9894

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Doug MacLeod, MacLeod Law Firm

Employment and labour lawyer at MacLeod Law Firm

For the past 30 years, Doug MacLeod, founder of the MacLeod Law Firm, a Canadian labour and employment law firm, has been advising and representing employers in connection with employee terminations. If you have any questions, you can contact him at 416 317-9894 or at doug@macleodlawfirm.ca. Read more