Court decision reveals illegal contract clause, impact of COVID-19 on severance

Lamontagne v. J.L. Richards & Associates Limited

In the recent Ontario Superior Court decision Lamontagne v. J.L. Richards & Associates Limited, the application before the court involved a thorough evaluation of the rights afforded to the applicant, Ms. Lamontagne, through the employment contract she signed at the start of her employment.

The court’s decision is notable as Ms. Lamontagne, a 36 year old chartered accountant with just over 6 years of service, was awarded 10 months’ pay as reasonable notice (severance pay). In doing so, the court provided useful commentary with respect to COVID-19 and its effect on determining the applicable length of reasonable notice and the reasonableness of an employee’s mitigation efforts. Finally, the court evaluated the law relating to both “for cause” and “without cause” termination language.

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Overview of the Case

Ms. Lamontagne was employed by J.L. Richards & Associates Limited, for over six years. She began as an assistant controller. At the time of her termination without cause, she held the position of controller and was responsible for the oversight and management of approximately eight staff members.

In terminating her employment, the company provided Ms. Lamontagne with only her statutory minimum payments as prescribed by the Employment Standards Act (ESA). It relied upon the following termination clause to limit Lamontagne’s severance to only the minimum ESA entitlements:

PROBATION AND TERMINATION

Employment may be terminated for cause at any time, without notice.

In the event that employment is terminated for any other reason, it is understood that you will have no entitlement to common law notice of termination. However, you will be provided with notice of termination or pay in lieu thereof and, if applicable, severance pay, both in accordance with the Employment Standards Act of Ontario or any successor legislation. With respect to notice of termination or pay in lieu thereof, it is understood that the minimum period of notice or pay in lieu thereof specified in the Act will be provided and will constitute your complete entitlement to notice or pay in lieu thereof.

The Court’s Findings

The court followed the Ontario Court of Appeal decision in Waksdale v. Swegon North America Inc. in determining that the termination provision was unenforceable. The court found that:

“Considering the ordinary meaning of “for cause” in the context of the entire agreement and the circumstances, the appropriate interpretation of “for cause” is that it applies to common law and statutory cause.”

Following this logic, the clause was illegal because it meant Lamontagne would not be entitled to her statutory minimum entitlements for actions which fail to meet the high threshold required by Regulation 288/01 of the ESA. Specifically, the clause, as written, stated that the company would withhold her statutory minimums for reasons which do not constitute “wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer”. The court decided that the “for cause” language was in violation of the ESA and therefore the entire termination clause was rendered void and unenforceable.

The court also found that the “without cause” language of the clause breached the ESA and was therefore also unenforceable. The clause tried to circumvent Ms. Lamontagne’s entitlement to all elements of compensation owing to her as per her employment contract, which provided for various additional benefits including extended health benefits, vacation, pension plan contributions, and bonuses. In following with precedent case law, the court held that the absence of language addressing benefits and bonuses was not necessarily fatal, however, it held that the following sentence established a breach of the ESA:

“the minimum period of notice or pay in lieu thereof specified in the Act will be provided and will constitute your complete entitlement to notice or pay in lieu thereof”

Amount of severance owed

Lamontagne sought 15 months of severance pay, based on precedent decisions dealing with employees who had held roles of similar responsibility. The court noted that the decisions relied upon by Lamontagne involved employees in slightly more senior positions.

The employer argued that Lamontagne’s age of 36 and 6.25 years of service, as well as the fact she was “released into a booming local economy and had access to comparable jobs” meant that the appropriate amount of severance was 6-7 months. The court found that the cases relied upon by the employer involved employees in less senior positions, positions that were not comparable, were outdated and came from other jurisdictions.

With respect to the effects of COVID-19, the company argued that Lamontagne had been terminated prior to the outset of the pandemic in Canada and that the availability of new comparable employment should be assessed only with consideration of the circumstances at the time of termination. While this assertion is supported by precedent case law, the court held that as of February 19, 2020 there was already a “threat of a global pandemic” looming. Following the decision in Yee v. Hudson’s Bay Co. the court felt that it was necessary and appropriate to consider the degree of uncertainty with respect to COVID-19 and its effects when determining the appropriate amount of severance in this case.

Ms. Lamontagne was awarded 10 months’ pay. The company had to provide her with all elements of her compensation and all benefits pay, as well as her associate allowance, pension, bonus, overtime, benefits, 50% of her professional dues and 50% of the cost of the laptop she was required to purchase when the company’s property was returned upon termination.

Takeaway for employees

Get a review of your employment agreement

Any employment agreement you signed when starting with or while working for an employer may contain a termination clause. This clause will seek to eliminate your common law right to severance pay. An employment lawyer with our firm can identify if a clause is enforceable, and help negotiate any language that could reduce your termination package if you are let go down the road.

If you are let go, have your termination package and employment contract reviewed by our team BEFORE you sign off on the dotted line. Once you accept a package, you lose your right to negotiate a much better outcome than what you have been offered.

Severance can be more in bad economic times

The amount of severance you stand to receive after losing your job could be substantially more if economic times are tough. It may be more difficult to find a job that fits your skills or experience when the job market is in a rough patch. An employment lawyer can help assess the current economic realities to determine the compensation you should receive.