Although it may seem unnecessary, employers should contemplate what will be written in a termination letter when their employment contracts are drafted. A recent case illustrates why it is important for employers 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, eight 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.
Ms. Bernier brought a motion for summary judgment and the judge made the following decision 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
1. 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 two 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.
2. 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.
3. 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.