Inducement of High-Level Employee May Contribute to a Long Notice Period Award

In Rodgers v. CEVA, although the employee worked with the employer for less than three years, the Ontario Superior Court of Justice found that the terminated employee should be awarded damages for wrongful dismissal totalling $345,985 representing 14 months’ reasonable notice.

Facts of the case

On September 6, 2009, while employed with Sameday Worldwide, Bruce Rodgers was recruited by CEVA Freight Canada Corp. as Country Manager for Canada, with an annual salary of $276,000 and a $40,000 signing bonus. He was responsible for over 500 employees and revenues in excess of $140 million annually.

The employment agreement included other benefits such as a car allowance, RRSP contributions, bonuses, vacation, health benefits, insurance, cellphone and membership at a golf club which included a food and beverage allowance.

The agreement also required Rodgers, as a senior manager, to purchase shares in CEVA Investments. Rodgers purchased $102,330.85 worth of shares.

With respect to termination, the employment agreement stated:

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.

On June 28, 2012, Rodgers was terminated. He was given two weeks’ salary in lieu of notice totaling $11,115.44, severance pay in the amount of $5,307.72 and outstanding vacation pay of $20,324.92. His benefit coverage was terminated two weeks later.

Rodgers immediately started a job search but didn’t find alternate employment for close to a year. On May 6, 2013, he began working as Country Manager with Vandegrift Canada, a smaller transportation and shipping company.

Rodgers also commenced an action for wrongful dismissal against CEVA and sought damages. He submitted that he was induced by CEVA to leave secure and long-term employment with his previous employer, Sameday Worldwide. He was earning an annual salary of $189,000 plus a bonus. In 2009, when he was hired by CEVA, his bonus was $126,000. Rodgers had been employed by Sameday or one of its affiliated companies since 1998.

Rodgers claimed CEVA terminated him without cause and virtually without notice or pay in lieu of notice in an economically depressed time in the freight forwarding and logistics business. He submitted that there was and is a limited market for jobs similar to his position with CEVA.

Rodgers submitted that the period of reasonable notice for termination of his employment with CEVA was between 18 and 24 months and his damages for wrongful dismissal should be calculated on this basis less what he had earned as a result of his mitigation efforts.

CEVA argued that the most important factor in determining the appropriate period of notice was Rodgers’s length of service, which was very short. Further, the employment agreement stated that Rodgers would be entitled to a period of notice that was based on his length of service and applicable legal requirements. Also, CEVA denied that Rodgers was induced to take the position.

After the termination, Rodgers contacted CEVA about his investment. The company responded that everything was fine but that there was no process in place that would enable him to exit the plan by selling stocks. No one said anything about CEVA Investments being in a precarious financial situation, but Rodgers subsequently learned that his shares were worthless.

Decision

Reasonable notice

The well-known Bardal factors guide courts in determining reasonable notice:

There can be no catalogue laid down as to what is reasonable notice in particular classes of cases. The reasonableness of the notice must be decided with reference to each particular case, having regard to the character of the employment, the length of service of the servant, the age of the servant and the availability of similar employment, having regard to the experience, training and qualifications of the servant. (Bardal v. Globe & Mail Ltd. ([1960] O.W.N. 253, (1960), 24 D.L.R. (2d) 140 (Ont. H.C.)

Thus, length of service is only one factor to consider, and it is not given priority to determine the notice period.

In the Court’s view, the agreement advised Rodgers that his employment could be terminated based on notice determined in accordance with all applicable legal principles. If CEVA intended that length of service be accorded more weight than any other factor, this should have been made clear to Rodgers. There is no evidence that CEVA did so.

Inducement

The Supreme Court of Canada has held that the Bardal factors are not exhaustive. In Wallace v United Grain Growers Ltd., 1997 CanLII 332, the Court stated that one additional factor is whether the dismissed employee had been induced to leave previous secure employment. The Court held that this is a factor which justifies an award of damages at the high end of the scale.

Rodgers stated that CEVA induced him into leaving his long-term employment with Sameday, and indeed the evidence indicates that Rodgers was approached by CEVA to become its Canadian manager. The financial package and signing bonus were attractive, but when Rodgers declined the initial offer, an improved offer was promptly presented. Rodgers also showed no reluctance to leave Sameday. While this showed that there was some degree of inducement to encourage Rogers to leave his secure employment, the inducement did not achieve the level of that in Wallace where specific assurance of long-term job security was given.

Determining reasonable notice

The critical factors in this case included:

• Rogers was the most senior person in CEVA’s Canadian operation and was responsible for more than 500 employees and annual sales in excess of $140 million
• Rogers was employed for less than three years (this was the one aggravating factor)
• Rogers was about 52 years of age when he began working for CEVA and he was 55 at the time of termination
• It would have been reasonable for the parties to contemplate at the time of entering into the employment agreement that Rodgers would encounter some difficulty in securing an equivalent position if his employment was terminated given his background, position and the economy
• CEVA provided no assistance whatsoever to help Rodgers find another job (not even a reference letter)
• Rogers made a significant initial investment (it amounted to about five months of salary which he had not yet received) in CEVA Investments, and the shares ended up being worthless. He was told that senior managers had to have some “skin in the game”; this led to a justifiable belief that there was some job security. In fact, there was at least an implied representation that Rogers was about to embark upon a long-term employment relationship with CEVA. The required investment in CEVA Investments was intended to create the impression in the mind of Rodgers that, by accepting employment, he would have a degree of job security beyond what would normally be anticipated

Given the evidence and the above factors, the court concluded that the parties did not intend that the employment relationship would only last for three years, or the termination would lead to Rodgers receiving only two weeks of notice. To that end, an appropriate period of notice was established to be 14 months.

When calculating the damages (monthly remuneration over 14 months, benefits, bonuses, retirement contributions, and other perk, and deducting pay in lieu of notice and severance pay already received among other amounts), the total came to $345,985.

What can we learn from this case?

Although each case must be individually examined when determining reasonable notice period, this case shows us that even short-term employees can be awarded a significant amount of money in reasonable notice for wrongful dismissal due to Bardal factors, including the employee’s age, his high level of responsibility, and the difficulty in finding a replacement position.

Employers sometimes induce employees from other organizations to join their workplace with promises of greater compensation, promotions and job security. In a competitive job market, employers will often go to great lengths to convince a person to leave his/her existing employment and join their team. Thus, the extent to which an employee has been induced to leave a secure position is a factor which may be considered when the court is awarding a reasonable notice period. The kind of enticing conduct which gets the employer into hot water isn’t necessarily all that extreme. A typical situation might involve the use of a head-hunter who identifies an attractive candidate and then pursues that candidate. That effort might involve repeated overtures, the presentation of increasingly sweet offers such as signing bonuses, holding out the prospect of future promotions and salary increases and long-term job security, etc.

This case serves as a reminder that inducement from a secure position of employment can be a Bardal factor that will contribute to a long notice period award. An employer’s efforts to convince someone to leave secure employment to join its organization may commit that employer to more than it had ever intended on termination.

Be cautious when recruiting and hiring employees, even where job security is not explicitly promised, or even discussed, what you say and do with a possible hire can be viewed by the court as an implicit promise of job security. In this case, the Court viewed the “improved attractive financial package” v. the original proposition refused by Rodgers as evidence of some inducement. Another element demonstrating that Rodgers was “induced” to join CEVA, and deserved a longer notice period, is that Rodgers was forced to make an investment in the company, giving him the impression that he could expect above-average job security.

According to Robert Smithson, Smithson Employment Law Corporation,

The simple way for employers to avoid this top-up of damages is to be assiduous about the use of employment contracts. A lawful, and binding, employment agreement containing a not-for-cause severance formula effectively serves as a “get out of jail free” card for the employer in these instances.

By superseding the common law entitlement to damages in lieu of reasonable working notice, the contractual severance clause protects the employer from liability in these enticement or inducement situations. It is a simple step which should be utilized in relation to all new hires and particularly those when the employer has gone beyond the normal measures to convince the individual to accept an employment offer.

Even better, the employment contract should state that the individual was securely employed at the time of the offer, knew the impact and associated risks of accepting the employer’s offer (and leaving his/her existing employment), and did so knowingly and willingly.

This is just another instance in which giving some forethought to the proper documentation of the employment relationship can save the employer from substantial damages. If your business is not already using employment agreements, now is the time to start.

Written with the assistance of Christina Catenacci