Employees in Ontario, and across Canada, frequently spend time and effort negotiating their termination clauses, especially when it comes to employment agreements for their senior executives. Given the character of a senior executive’s position, and the commensurate pay package that usually comes with that position, senior executives will typically demand greater entitlements on termination than other employees. The benefit to both the employer and the senior executive is that a negotiated and well-written termination clause can provide certainty to both parties that if the time for termination arrives, both parties can proceed based on the negotiated termination clause. However, what happens when the employer does not abide by its own termination clauses? The case of Timmins v. Artisan Cells, 2024 ONSC 7123 can be instructive on what not to do as an employer.
Background
The employee in the Artisan Cells case was hired on by the employer as a vice-president and was subsequently promoted several times to Chief Development Officer (“CDO”) with responsibility for the employer’s entire Canadian business. The employee was entitled to a salary of C$475,782.48, as well as stock options, annual bonus, RRSP contributions, benefits, and other perks.
The termination clause in the employees’ contract provided that if the employee were terminated on a without cause basis the employee would receive the greater of the following: the employee’s entitlements under the Employment Standards Act, 2000, (the “ESA”) or three months of notice or pay-in-lieu of notice.
After three years of service, the employer decided to terminate the employee’s employment. Rather than providing the three months of notice provided in the employment agreement, the employer provided only one week of termination pay which was below the employee’s ESA entitlement of three weeks, not to mention the employee’s contractual entitlement. Instead, the employer demanded that the employee signs a release to receive the balance of the employee’s contractual entitlement.
Claim at Court
The employee sued the employer for wrongful dismissal and based his claim on the employee’s conduct. The employee claimed that the employer repudiated the employment agreement by providing less than the contractual notice required, and therefore the employer could not rely on the termination clause to limit the employee’s entitlement to just the contractual notice. The employee would be entitled to reasonable notice.
Prior to trial, the employer decided to strike its defence, and the claim went undefended. The court therefore decided on the matter based on the employee’s affidavit and transcript of the employer’s representative’s examination for discovery. There was little reason for the court to side with the employer given the undefended action, and the court therefore ruled in favour of the employee. With that said, even had the employer defended the action, success for the employer would have been highly unlikely.
Where the termination clause specified a notice period of three months, the court noted that the employee was not able to find a comfortable job and was applying for jobs which were not comparable. Given that the employee did make efforts to mitigate, and given the difficulty of finding comfortable work, the court awarded the employee nine months of notice based on the employee’s total compensation over the nine-month period. This was an amount of $456,908.82, which included an annual bonus payment.
Had the employer complied with the termination clause in the employee’s agreement, there was a good chance that the employee may have only been entitled to three months’ notice of termination. Instead, the employer chose a different path, resulting in a significantly higher notice period for the employee.
Takeaways for Employers
Employers must always ensure that their termination clauses are enforceable and aligned with the employee in question. Whether the employee is an executive level employee or a lower-level employee will play a role in determining the appropriate notice people and negotiations regarding the appropriate notice period. Nevertheless, in cases where the employer has negotiated a termination clause, it is imperative that the employer actually complies with that clause. Even the best written termination clause will be defeated if the employer repudiates it via non-compliance. That can lead to significant damages as this case shows.
If you haven’t reviewed your termination clauses recently, there’s no better time than the present. At Bridge Legal & HR Solutions, we specialize in providing expert legal advice with up-to-date knowledge of legislation. With our support, organizations can navigate these legal changes with confidence and integrity. To learn more about how we can support you, contact Bridge Legal & HR Solutions – (647) 794-5442 or at admin@bridgelegalhr.ca.
