Poorly Drafted Employment Contract Proves Very Costly
December 29, 2014
The Ontario Superior Court recently issued a decision in an action for damages for wrongful termination awarding fourteen months’ pay in lieu of notice to an employee with less than three years’ service.
The plaintiff employee accepted an offer of employment with the defendant employer, a trucking company, in 2009 to become its “country manager” responsible for 500 employees at a starting annual salary of $276K. The employee left secure employment as the president of a courier company to take on this new position after being recruited by another employee of the employer. The employment agreement included a $40K signing bonus and a requirement that the employee purchase approximately $102K worth of shares in the employer through a “Long-Term Incentive Plan”. With respect to termination, the employment agreement provided:
Your employment may also be terminated by our providing you notice, pay in lieu of notice, or a combination of both, at our option, based on your length of service and applicable legal requirements.
The employer argued that the employment contract limited the employee’s entitlement upon termination to a determination of notice based solely upon his length of service with the employer, which was less than three years. The employer also denied any inducement.
The court found that the termination provision set out in the employment contract entitled the employee to reasonable notice determined in accordance with all applicable legal principles – those being the classic Bardal factors and the law of inducement. The court stated that if the employer intended for the employee’s length of service to be accorded more weight than any other factor, it was incumbent on the employer to make that point clear to the employee. Based on the evidence, the court determined the employer failed in this regard. Further, the court viewed the share purchase agreement to be an implied representation that the employee was about to embark upon long-term employment. According to the court, the share purchase agreement evidenced that both the employee and the employer contemplated the employment to be a long one and neither party thought the employee’s employment could be terminated upon the payment of two weeks’ salary.
Although the evidence confirmed the employee never raised any concern about job security when he accepted the employment offer, the court was still satisfied there was some measure of inducement by the employer which led to the employee leaving his previous employment. For this reason, the court viewed it as a factor “tending to increase the period of notice”.
After weighing all relevant factors, the court set the appropriate period of notice at 14 months. This translated into an award of over $428K (when all other forms of regularly monthly remuneration were factored in), less mitigation.
This decision underscores the importance of drafting employment agreements with straight forward and unambiguous contractual language that clearly set out entitlements upon termination. Failing to do so, especially with top executives, can prove very costly.
Rodgers v. CEVA Freight Canada Corp. [2014] ONSC 6583 (CanLII)
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