Employment Contracts Eliminate Litigation Risk

An employee and employer can agree on how much notice of termination the employer must provide the employee before the employment relationship commences. This agreement can be included in a termination clause in an employment contract.

Litigation Risk Arises When Employees Are Entitled to Reasonable Notice of Termination

Readers of this blog know that I strongly recommend that every new hire sign an employment contract with a legally enforceable termination clause. Absent such an agreement an employee is generally entitled to reasonable notice of termination.

An employee and employer can and often do disagree on what constitutes “reasonable” notice of termination. A recent case illustrates the vagaries of wrongful dismissal litigation.

A case Study: Michelle Summerfield vs. Staples Canada Inc.

The Facts

Staples Canada Inc. terminated Ms. Staples employment without cause after almost 5 years’ service. At the time of her termination she was 39 years old, her total remuneration was about $ 84 000, and she worked in a sales capacity.

The Litigation

Ms. Staples commenced a wrongful dismissal action. The only issue in dispute was the length of the reasonable notice period so the parties agreed to have this issue resolved by way of a summary judgment motion.

The Legal Test

The parties agreed that when determining the length of the reasonable notice period the judge should apply the Bardal factors; that is; the character of her employment (i.e. a sales position); the length of service (i.e. almost 5 years); the employee’s age (i.e. 39 years old) and the availability of similar employment given her experience, education and qualifications.

The Litigation Risk

The employer submitted cases where judges found a 3 to 5-month notice period is allegedly similar circumstances. The employee submitted cases where judges found a 6 to 9-month notice period was appropriate. The range of reasonable notice (i.e. 3 months to 9 months) represented the litigation risk in this case.

My Thoughts On This Case

I know nothing about this case except what I have read in the decision. My guess is that the employer made a without prejudice offer of 3 to 4 months pay. The judge referred to such an offer but stated the terms of the offer were not disclosed to the court.

The judge awarded Ms. Summerfield 6 months pay in lieu of notice less the 5 weeks’ termination pay she received or $ 34171.92 which I think is on the high end of the reasonable notice in this case. In this case, I think the employee rolled the dice and won.

I suspect that the legal fees incurred by both parties FAR exceeded the difference between the employer’s without prejudice settlement offer and the 6-month damage award.

Lesson To Be Learned

If the employee had signed an employment contract with a legally enforceable termination clause then the employer could have saved over $ 34 000 AND the legal fees associated with this wrongful dismissal action. In this latter regard, the employer will be required to pay its own legal costs and probably most of the employee’s legal costs.

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]