Invalid Termination Clause Prompts Damages Payment

By Daniel Standing LL.B., Editor, First Reference Inc.

The Ontario Superior Court of Justice issued a ruling in Sager v. TFI International Inc., 2020 ONSC 6608 which considered an interesting contract interpretation issue that arose in the underlying wrongful dismissal claim. The termination clause appeared to be generous to the employee but was ultimately found invalid for violating the Canada Labour Code. As a result, the employee was entitled to more notice than he received under the contract.

Background

Jean-Marc Sager worked for 16 years as the vice-president of a logistics company in France. In 2016, he wanted to move his family to Canada. He actively looked for work and contacted a recruiter for Loomis Express, an international transportation and logistics company, and a subsidiary of TFI International. During their discussions, Loomis gave Mr. Sager assurances of long-term, secure employment with significant advancement opportunities in the short-term. Mr. Sager accepted the position of Vice-President of Sales and Customer Care at Loomis Express in November 2016. He supervised close to 100 employees and reported to the company president. His employment lasted until July 31, 2019, when he was dismissed without cause. Loomis is a federally regulated employer, so the Canada Labour Code (“CLC”) applied.

Mr. Sager’s employment contract was ostensibly generous. On termination without cause, it promised him the greater of three months’ base salary or one month of base salary per year of service, to a maximum of 12 months. Importantly, the contract said that the “payment shall be inclusive of any and all requirements” that would be owing to him under the CLC. When he was dismissed, Mr. Sager got what he was owed under the contract, but he argued that the termination clause was invalid and unenforceable because it failed to maintain his terms and conditions of employment during the statutory notice period, which violates the CLC. He argued that at common law, he was entitled to 12 months’ notice. The employer argued that the termination clause was enforceable because Mr. Sager received more than he would have under the CLC. In the alternative, it argued for a notice period of four-and-a-half or five months.

The court’s analysis

First, the court examined whether the termination clause was unenforceable for violating the CLC. It started by explaining that there is a common law presumption that employees will be given reasonable notice upon termination without cause. A contract can deviate from that presumption, but any attempt to contract out of the minimum employment standards in the legislation will be found “null and void.” If that happens, the employee is entitled to reasonable notice of termination.

Section 231(a) of the CLC prohibits the employer from reducing the wages or altering any other term or condition of employment during the notice period. Although the employee was entitled to more under the contract than under the CLC, that was not the issue. Rather, the issue was whether the termination clause was inconsistent with the CLC because it failed to maintain the terms and conditions of Mr. Sager’s employment during the notice period. In other words, does the contract provision allowing for three months’ salary “inclusive of any and all requirements owed to you under the [CLC]” amount to a change in Mr. Sager’s terms and conditions of employment during the notice period?

The court considered various precedents before answering the above question in the affirmative. It distinguished several of the employer’s cases since the termination clauses at issue were silent on the issue of benefits and did not attempt to limit the employer’s obligations to payment of a lump sum. Rather, the court relied on a different case where a termination clause was held to be invalid because it tried to restrict the termination payment to a lump sum without considering any other entitlements.

Next, the court considered what period of notice was reasonable in this case by relying on the time honoured factors of the nature of the employee’s position, the length of service, the age of the employee and the availability of similar employment. While the parties disagreed on the question of whether Mr. Sager had been induced to leave his prior job to work with Loomis, the court determined that Loomis’ promises of long-term, secure employment with advancement opportunities entitled Mr. Sager to a longer notice period than if the promises had not been made. This was not a pure case of inducement since Mr. Sager had already decided to leave France before he started negotiations with Loomis. Weighing out the various factors, the court settled on nine months as a reasonable notice period, less any earnings from other sources during that period.

Finally, the court inquired into Mr. Sager’s claim for damages for other aspects of compensation he would have received had he worked during the notice period, including car allowance, RRSP contribution and benefits, as well as a bonus he earned from January to July 2019. This issue required the court to state the purpose of damages in a wrongful dismissal case: They are to put the employee in the position they would have been in had they worked until the end of the notice period. This includes compensation for any benefits they would have earned during the notice period. The matter of the bonus required a bit more analysis, though. Two points were relevant to this determination: First, the contract entitled him to receive a bonus in 2019, and second, the employer chose not to cancel or modify the bonus program that year. If he hadn’t been terminated, he would have received a bonus. Nothing in the contract changed or removed his common law right to a bonus. Therefore, the court’s assessment of damages included nine months’ base salary, plus the benefits, car allowance and RRSP contributions he would have earned during the notice period. A further payment of $27,499.35 was awarded representing the bonus that Mr. Sager would have earned from January to July 2019.

Takeaways for employers

This decision provides a reminder to employers to check the language of their employment contracts and ensure that they do not contravene employment standards legislation. Even provisions that appear to be more generous than employment standards legislation may be found invalid if they contract out of the provisions guaranteeing the employee certain minimum rights. In this case, even though the severance payment was more than could have been expected under the CLC, the lump sum did not take account of other entitlements that were owed under the legislation. With matters of this nature, seeking legal advice and expertise in drafting sound contracts is always advisable.

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