Employers who fail to incorporate a binding termination clause into their written employment agreements may face significant, and unexpected, liability for severance. This lesson was learned the hard way by Qualified Metal Fabricators (“QML”) in a recent case out of Toronto.
QML employed Mr. Roy Singh as an assembler from May 2011 until his dismissal, due to an alleged shortage of work, in May 2015. Upon termination, QML paid Mr. Singh 4 weeks’ termination pay in compliance with the Employment Standards Act, 2000, and allegedly the terms of his written employment agreement.
The termination clause in Mr. Singh’s employment agreement read as follows:
Mr. Singh brought a claim against his former employer for wrongful dismissal, and discrimination on the basis of disability. With regard to his claim for discrimination, Mr. Singh alleged that he had been dismissed due to the company’s unwillingness to provide accommodation, in the form of future absences from work, for diabetes and severe headaches.
QML argued before Justice Stinson that the employment agreement signed by Mr. Singh was enforceable, and that as such he was not entitled to receive any further payment from the company. Mr. Singh asserted that the termination clause contained in the employment agreement failed to eliminate his right to common law reasonable notice, as it was silent on this point.
Justice Stinson accepted Mr. Singh’s position, and determined that he was entitled to receive common law reasonable notice. Specifically, Justice Stinson stated:
In our case, it was open to the employer to draft a contract that excluded common law notice. It instead proffered an Employment Agreement that was silent on the subject…I am not prepared to find that the Employment Agreement operated to nullify or detract from the implied common law requirement of reasonable notice of termination.
As a result, Mr. Singh was found to be properly owed four months’ pay in lieu of reasonable notice – a significant increase from the 4 weeks’ he had received. QML submitted that the amount owed to Mr. Singh should be reduced to reflect his failure to mitigate, by looking for comparable re-employment.
Justice Stinson found that Mr. Singh’s evidence as to his mitigation efforts “was not entirely consistent, and it is therefore of questionable reliability.” Despite this, however, Justice Stinson refused to find that Mr. Singh had failed to mitigate. This was an interesting finding, and indicative of the often lenient approach the courts take toward the evidence of individuals to find comparable re-employment.
Mr. Singh was unsuccessful in his claim for human rights damages, on the basis that his dismissal was tainted by discrimination. Justice Stinson was unable to draw any connection between the company’s decision to terminate Mr. Singh’s employment and his request for time off due to illness.
This is an important decision for employers and employees alike:
- It is a reminder that employers should ensure that their employment agreements reflect the terms they intend to apply;
- It serves to remind employees to be informed about their severance entitlement, and to ensure they are treated fairly in the event of a dismissal; and
- It is a harsh reminder of the cost of litigation. QML spent at least $40,000.00 – a combination of the damages awarded by the court, their own legal fees, and a $12,000.00 contribution to Mr. Singh’s legal fees, as the successful party.
By Paul Willetts