The question of ‘what constitutes reasonable notice’ is one of the most frequently litigated issues in employment law. There are numerous decisions from every level of court in Ontario which discuss the obligations of an employer to provide a reasonable period of notice to dismissed employees. However, it is a relatively rare occurrence that the Court deals with the inverse – the reasonable period of notice due to an employer by an employee who resigns. While most of us are familiar with the old adage of giving your ‘two weeks’ notice, the recent decision in Gagnon may call into question the sufficiency of such short notice.
Pierre Gagnon, the owner and principal of Gagnon and Associates (“GA”), a successful heating and ventilation firm, hired Barry Jesso in 1997. At the time, Jesso was hired by way of verbal agreement which stipulated his title and salary. Initially hired to look after shipping and receiving, Jesso soon worked his way to a full-time sales position, in which he excelled. Each year, GA and Jesso would renegotiate his salary and attempts were made to reduce the agreements to writing. During his tenure at GA, Jesso’s remuneration rose considerably, starting at just over $22,000 in 1997 and reaching upwards of $180,000 in 2004 and 2005.
While an outside observer might have concluded that the relationship between GA and Jesso was harmonious, they would be mistaken. By 2006, the relationship had deteriorated. Jesso believed he was underpaid and GA believed he was overpaid. He and another employee approached HTS Engineering, a competitor of GA, and soon accepted positions with HTS. On July 14, 2006, Jesso handed in his letter of resignation, effective the same day. However, he offered to work two additional weeks to complete his duties, conditional on GA’s acceptance of his calculation of sales commissions owing to him – $30,072.58.
Mr. Gagnon was understandably less than pleased with the situation. He denied that he owed Jesso any money and refused to accept the terms of the resignation. Jesso never returned to work. He soon began working with HTS and a number of former GA clients followed him. At trial, Mr. Gagnon argued that Jesso’s failure to give him adequate notice prevented from implementing a transition plan and cost the company significant sales. He claimed that in acting as he did, Jesso breached his duty of loyalty and good faith to GA.
In approaching the case, Justice Gordon identified the following issues:
- What were the terms of the Jesso’s employment contract with GA?
- Did Jesso give sufficient notice of his resignation to GA?
- Did Jesso owe GA a duty of loyalty and good faith to GA and, if so, was it breached?
- What damages, if any, are due to GA?
The employment contract
As a starting point, the Court found that the employment contract between GA and Jesso consisted of the verbal agreement in 1996 as modified by the subsequent yearly negotiations. The Court found that none of the written agreements modified this contract, as none of them offered Jesso any new consideration. Thus, the Court found that the contract only specified Jesso’s job title and salary; there was no stipulation as far as notice periods and non-competition.
The period of reasonable notice
On the issue of notice, the Court confirmed that determining an adequate period of notice in absence of a contractual provision is a contextual exercise, whether for an employer or employee. The Court determined that the period of notice due to an employer “will be a function of the employee’s position with the employer and the time it would reasonably take the employer to replace the employee or otherwise take steps to adjust to the loss. Applying that to the facts of the case, the Court found that Jesso gave essentially no notice of his resignation, despite being an senior employee. This was compounded by the fact that Jesso knew the other senior sales person would be resigning the same day. The Court found that the appropriate notice period in the circumstances was two months.
Duty of good faith
Relying on the Supreme Court decision in RBC Dominion v Merrill Lynch, Justice Gordon confirmed that employees do owe a duty of good faith to their employer, but that subject to any non-competition clauses or fiduciary duties, an employee is free to leave their employment and compete with their employer. However, the Court confirmed that an employee is not entitled to compete with the their employer while still employed and may not misuse confidential information.
The Court found that, in the circumstances, Jesso’s decision to leave and take a job with a competitor did not breach his duty of good faith. However, the Court found that he may have acted improperly in possibly disclosing GA’s income figures when moving to HTS. However, the Court found that subject to such possible disclosure, Jesso did not breach his duty of good faith.
As a preliminary matter, Justice Gordon found that Jesso was entitled to the payment of the commissions in the amount of $38,501.24. The Court next turned to whether Jesso’s sudden departure had resulted in any provable damages. The Court looked at the drop in GA’s sales over the months that followed Jesso’s departure and agreed that it was attributable to the departure of GA’s two top salespersons. The Court divided the loss in half (one half being attributable to each of the departed employees) and concluded that Jess’s departure had caused a loss of $35,164.00.
While much ink has been spilled on the subject of how much notice an employee is due, the question of reasonable notice for a departing employee is more rarely addressed. However, it is clear from Jesso that employees owe their employers a reasonable period of notice and that the analysis proceeds in a similarly contextual manner. Employees should always be aware of this and, if they are planning their exit, to seriously consider what a reasonable period of notice will be.
If you are contemplating exiting your employment or have another employment law issue, contact the experienced employment law team at Devry Smith Frank LLP.
to Ira Marcovitch, Student-at-Law and Marty Rabinovitch