Reasonable Notice – It Works Both Ways | MacLeod Law Firm
Reasonable Notice of Resignation
Many people think an employee is required to provide two weeks notice of resignation by law. However, neither the Ontario government nor the Ontario courts have made this a legal requirement.
The Employment Standard Act does not require an employee to provide a minimum notice of resignation.
The Ontario courts generally require an employee to provide their employer with reasonable notice of resignation. If an employee fails to provide reasonable notice of resignation and the employer has incurred damages as a result, then the employer is able to seek these damages against the employee.
Normally, an employer will bring this kind of claim when an employee has resigned, started working for a competitor, and the employer is also suing the employee for breaching his fiduciary duties and/or his contractual non-solicitation obligations.
A Cautionary Tale: GasTOPS Ltd. v. Forsyth
The Facts
In this case, the employer developed its technology largely through contracts with two clients. Four employees decided to resign and almost immediately started a competing business which targeted the employer’s customers. None of the software programs developed by the employer’s competitors at that time were as sophisticated or as extensive as the employer’s product line.
The Actions Commenced Against the Employees
The employer sued the employees for:
– Breach of Fiduciary Duty
– Misappropriation and unauthorized or unlawful use of confidential information
– Misappropriation and unauthorized or unlawful use of trade secrets
– Misappropriation of corporate opportunities
– Breach of confidence
– Breach of contract. The employer claimed that the employees failed to provide reasonable notice of resignation.
The Decision
The employees argued that the two weeks notice of termination provided was reasonable. The trial judge disagreed and suggested the employees should have provided 10 to 12 months notice of resignation. The Ontario Court of Appeal did not have to decide this issue but did state: “we should not be taken to agree with the 10-12 months suggested by the trial judge or the factors he considered in reaching that period.” This suggests to us that the Court of Appeal believed that the 10 to 12 months notice requirement suggested by the judge was too long in this case.
The employees were ordered to pay the employer over $12,000,000 in damages plus over $4,000,000 in legal costs. The trial took 295 days. Stay tuned to find out whether this case is appealed to the Supreme Court of Canada.
Lessons to be Learned
- An employee may be required to provide an employer with considerably more than two weeks notice of resignation.
- An employer must prove that the employee’s failure to provide notice of resignation has caused damages.
- An employer and an employee can agree on a specific notice of resignation period in an employment contract and thereby agree on what is “reasonable” notice of resignation.
If you have any questions about an employer’s obligations to a terminated employee, please call us at 1–888-640-1728 or email us at [email protected]
There are many ways to attack the termination clause in an employment contract.
I am now surprised if employee counsel does not claim that their client’s termination clause is not legally enforceable - usually because the termination clause does not allegedly comply with the Employment Standards Act.
This blog considers a case, McKercher v Stantec Architecture Ltd., 2019 SKQB 100, where an employee successfully attacked the termination clause in his contract because he did not explicitly agree to it after being promoted.
The Facts
In 2006, Mr. McKercher commenced employment as a staff architect. The termination clause in his employment contract stated:
Termination other than for cause will be with notice or pay in lieu of notice, based on your length of service. If the Employer terminates your employment for other than just cause you will receive the greater of:
- a) Two weeks notice or pay in lieu of notice during the first two years of employment increasing by one week for each additional completed year of employment to a maximum of three months notice or pay in lieu of notice.
or
- b) The minimum notice of termination (or pay in lieu of notice) required by applicable statutes.
Eleven years later, when Mr. McKercher was employed as a Business Centre Sector Leader, his employment was terminated. The employer paid him the three months termination pay he was owed under his employment contract.
Another way to attack a termination clause: What is the changed substratum doctrine?
An Ontario judge in a 2012 case, MacGregor v National Home Services, 2012 ONSC 2042 (CanLII), described this legal doctrine as follows: "The changed substratum doctrine … provides that if an employee enters into an employment contract that specifies the notice period for a dismissal, the contractual notice period is not enforceable if over the course of employment, the important terms of the agreement concerning the employee’s responsibilities and status has significantly changed."
The rationale for this doctrine has been described by one judge, Schmidt v AMEC Earth & Environmental Ltd., 2004 BSCS 2012 (CanLII), as follows: "In my view, it was incumbent on the defendants to advise Mr. Schmidt that they intended to continue to rely upon the termination provision set out in the Agreement when substantial changes in his employment occurred. This would have allowed him to consider the matter and to negotiate for other terms. If the defendants wished to continue to rely on the termination provisions there ought to have been a ratification of the provisions as the nature of Mr. Schmidt’s employment changed."
Decision
The judge hearing this case relied on the following factors when deciding not to enforce the termination clause in the employment contract: ”...there is no evidence that (the employer) made it clear to the (employee) that the notice of termination provisions were intended to apply to the positions to which he was promoted. The employment agreement contains no express wording to this effect, nor does it contain any wording to support the inference of such an intent. Further, and in keeping with the analysis in Schmidt, the Court received no evidence that, as it promoted the plaintiff, SAL reasserted its understanding and expectation that the notice of termination limit would remain in effect.”
Lesson to be learned:
An employer should make it clear that the termination clause in an employment contract applies when an employee is promoted. This expression of this intent should be in writing and should be clear and unambiguous. I recommend that an organization’s employment be reviewed by an employment lawyer every year or two. If your employment contract does not address this issue then think about doing so the next time it is reviewed.
For 30 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]
The material and information in this blog and this website are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this blog or its links. No person should act or refrain from acting in reliance on any information found on this website or blog. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.
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