Recently, Zubas Flett Lawyer, Tim Heneghan, spoke with Jeffrey Smith of Canadian HR Reporter. The resulting article, which discusses a recent court decision on reasonable notice after short service, can be read below or on the magazine’s website.
5.5 months’ reasonable notice for Ontario worker with less than five months’ service: court
‘Being terminated after short service… may make it harder to find a new job’: lawyer
An Ontario court has awarded a fired worker five-and-a-half months’ pay in lieu of notice after less than five months of service.
“There’s this acknowledgment that being terminated after short service is going to lead to uncomfortable conversations that may make it harder to find a new job,” says Tim Heneghan, an employment lawyer at Zubas Flett Law in Toronto. “And I think that was among the biggest factors in bumping up the notice period – it’s related to that availability of similar employment factor, that you’re going to have to justify yourself and explain yourself a bit more, and there should be a lengthening of the notice period as a result of that.”
CF+D Custom Fireplace Design (CF) is a custom fireplace designer and manufacturer in Burlington, Ont. In early 2016, CF’s president met the worker on flights to and from Florida. The worker was employed as a senior project manager with another company, but the meeting led to discussions about the worker possibly joining CF.
The two men continued to communicate via email and meetings throughout 2016 and, in November, the worker toured CF’s facilities. CF’s president proposed some parameters for the worker’s employment. The worker referred to their relationship as a “joint venture” and the president suggested making the worker a junior partner once he owned shares.
The worker didn’t do much investigating into CF, but he decided that the company must be successful as the president had an expensive car, a home in Florida, and told him that sales were high.
Offer of employment
On Dec. 17, the president offered the worker permanent employment with CF. The worker signed a document setting out the terms and that he understood the agreement. He didn’t request any changes, although it made no reference to a joint venture or partnership.
The contract provided for the worker’s salary, benefits, a company vehicle, and a share program that gave the worker “annually and cumulatively one per cent of company shares for five consecutive years of services for a total of five per cent.” These shares would be held in trust and would officially transfer ownership to the worker once he completed five years with CF. Each completed year end would pay out the value of the accumulated share ownership.
The worker’s compensation was similar to his previous job, but the prospect of owning five percent of CF after five years had the potential for greater compensation.
The worker began working for CF on Jan. 30, 2017, as the senior project manager reporting directly to the president and overseeing five to seven employees. He was the highest paid employee at CF and was responsible for the production side of the business.
On June 22, the president met with the worker and asked him to resign, but the worker refused. CF then terminated the worker’s employment and paid him two weeks’ salary in lieu of notice. The worker was 50 years old.
Wrongful dismissal action
The worker sued for wrongful dismissal, claiming damages for notice of dismissal and a payment for shares earned, plus extra damages for bad faith by CF – he said he was caught off-guard by his termination and there were no warnings that his job was in danger.
The court found that the employment contract was clear as to the worker’s compensation and entitlement. In addition, there wasn’t an imbalance of bargaining power as both sides negotiated with equal footing and the worker got an employment package that he wanted.
The court also found that there was no doubt that the worker was dismissed without cause and was entitled to pay in lieu of notice.
The court noted that the character of the worker’s employment as a senior project manager supervising employees was a significant factor, particularly since he was the highest paid employee and it was expected that he would own a five-per-cent interest in CF after five years. In addition, the fact that he worked less than five months with CF even though he had extensive experience and was 50 years old was likely a stumbling block in his search for new employment, as he would have to explain to prospective employers why he was terminated so soon, said the court.
Equal courtship, no inducement
The court found that CF did not induce the worker, as both he and CF “sought each other out” and negotiated the working relationship equally over several months. The worker also had a history of changing employers every few years, the court said.
“They both pursued their possible working relationship and each was intrigued by what the other offered,” says Heneghan. “One did not pursue the other with more vigor, so while it was perhaps not a typical courtship, it was a mutual one – if it had been less mutual, if the employer is the one who’s pursuing, inducement is more likely to be found.”
The court disagreed with the worker that CF demonstrated bad faith. The evidence showed that the company dismissed the worker in private and he was allowed to say goodbye to other employees. The termination letter thanked the worker for his effort and set out reasons for termination, although the worker didn’t agree with them. There was no indication that CF was unfair, untruthful, or unduly sensitive, the court said, adding that CF did not allege cause for dismissal, so any lack of warnings or reasons wasn’t the issue.
The court determined that the worker was entitled to five months and two weeks’ notice. Although CF alleged that the worker failed to mitigate his damages, the worker was able to show that he started applying for jobs three weeks after his termination and CF was not able to show there were comparable jobs that he didn’t take.
As for the earned-shares payment, the court found that the worker’s notice period would not have taken him to one year of service. As a result, the worker wasn’t entitled to the annual payment, the court said. The value of the payment could also not be determined, as there was no evidence of what it would have been after the worker’s first year of employment.
In addition, the court found that the worker did not earn any shares in CF because his contract stipulated they would be earned at the end of the first year of employment and he could not acquire them until five years of employment were completed.
CF was ordered to pay the worker five months’ and two weeks’ salary, benefits, and car allowance in lieu of notice.
Significant notice periods for short-term employees
This decision follows a trend where dismissed short-term employees are awarded significant notice periods in relation to their length of employment, according to Heneghan.
“We’ve seen notice periods getting more generous for short-service people that were terminated over the course of the pandemic, but this is an employee who was terminated back in in 2017,” he says. “There are no pandemic factors, so this is something that [employers] should be mindful of, that this is not something that can be dismissed as a pandemic-era relic.”
Heneghan suggests that it may be in the employer’s best interest to be more generous to short-service employees when providing a severance package.
“We don’t know what was offered here, but it wouldn’t be uncommon to offer a four-month employee something like one month, we see that pretty frequently,” he says. “If they had just been a bit more generous upfront and thought about the challenges that this employee would encounter trying to find new employment, they may have avoided litigation altogether.”
“Litigation is so much more expensive than putting too much notice on the table,” adds Heneghan. “The contention of an entitlement to shares would have complicated this case enough that perhaps litigation was somewhat unavoidable, but it’s a good takeaway for employers that short-service employees may be owed a little bit more proportionately than you would expect, given the inherent discomfort and trying to explain why they were terminated after a relatively short stint.”
See Grimaldi v. CF+D Custom Fireplace Design Inc., 2023 ONSC 6708.
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If you have any questions or inquiries regarding reasonable notice periods, contact Zubas Flett Law at 416-593-5844 or questions@employment-lawyers.ca.