Employers who fail to incorporate a binding termination clause into their written employment agreements may face significant, and unexpected, liability for severance. This lesson was learned the hard way by Qualified Metal Fabricators ("QML") in a recent unpublished case out of Toronto.
QML employed Mr. Roy Singh as an assembler from May 2011 until his dismissal, due to an alleged shortage of work, in May 2015. Upon termination, QML paid Mr. Singh 4 weeks' termination pay in compliance with the Employment Standards Act, 2000, and allegedly the terms of his written employment agreement.
The termination clause in Mr. Singh's employment agreement read as follows:
Start date to three months: this length of service is a probationary period and the employee is not entitled to any notice or salary in lieu of notice, if the company decides, in its discretion, that your performance or suitability are unsatisfactory, or that you are unwilling or unable to properly carry out your duties.
Three months to one year - one-week notice.
One year to three years - two weeks' notice.
Three years and over - one week notice for each year of employment to a maximum of eight weeks.
This policy shall be maintained in accordance with the Employment Standards Act.
Mr. Singh brought a claim against his former employer for wrongful dismissal, and discrimination on the basis of disability. With regard to his claim for discrimination, Mr. Singh alleged that he had been dismissed due to the company's unwillingness to provide accommodation, in the form of future absences from work, for diabetes and severe headaches.
QML argued before Justice Stinson that the employment agreement signed by Mr. Singh was enforceable, and that as such he was not entitled to receive any further payment from the company. Mr. Singh asserted that the termination clause contained in the employment agreement failed to eliminate his right to common law reasonable notice, as it was silent on this point.
Justice Stinson accepted Mr. Singh's position, and determined that he was entitled to receive common law reasonable notice. Specifically, Justice Stinson stated:
In our case, it was open to the employer to draft a contract that excluded common law notice. It instead proffered an Employment Agreement that was silent on the subject...I am not prepared to find that the Employment Agreement operated to nullify or detract from the implied common law requirement of reasonable notice of termination.
As a result, Mr. Singh was found to be properly owed four months' pay in lieu of reasonable notice - a significant increase from the 4 weeks' he had received. QML submitted that the amount owed to Mr. Singh should be reduced to reflect his failure to mitigate, by looking for comparable re-employment.
Justice Stinson found that Mr. Singh's evidence as to his mitigation efforts "was not entirely consistent, and it is therefore of questionable reliability." Despite this, however, Justice Stinson refused to find that Mr. Singh had failed to mitigate. This was an interesting finding, and indicative of the often lenient approach the courts take toward the evidence of individuals to find comparable re-employment.
Mr. Singh was unsuccessful in his claim for human rights damages, on the basis that his dismissal was tainted by discrimination. Justice Stinson was unable to draw any connection between the company's decision to terminate Mr. Singh's employment and his request for time off due to illness.
This is an important decision for employers and employees alike:
- It is a reminder that employers should ensure that their employment agreements reflect the terms they intend to apply;
- It serves to remind employees to be informed about their severance entitlement, and to ensure they are treated fairly in the event of a dismissal; and
- It is a harsh reminder of the cost of litigation. QML spent at least $40,000.00 - a combination of the damages awarded by the court, their own legal fees, and a $12,000.00 contribution to Mr. Singh's legal fees, as the successful party.
This article was first published on June 17 on First Reference Talks.
Vey Willetts LLP is an Ottawa-based employment and labour law firm that provides timely and cost-effective legal advice to employees and employers to help resolve workplace disputes in the Capital Region and across Ontario.