Tuesday, 23 December 2014

Inducement, Not Length of Service, Drives Long Notice Period

In a recent decision that ought to stand as a cautionary tale for employers when they hire senior employees, the Ontario Superior Court of Justice made clear that efforts to lure an employee away from secure employment elsewhere can prove costly. The case also highlights (once again) the importance of ensuring that termination provisions in employment contracts are carefully drafted.

In Rodgers v. CEVA, the plaintiff was hired by the defendant in 2009 to be its Country Manager, Canada.  At the time, Rodgers was the President of another company in the logistics business, and had been with his employer for over 10 years.  He was approached by a former colleague, who was then working for CEVA, about the possibility of a position with the company, and he expressed an interest in the role.  After 7 interviews, including two in Houston, Texas (the last of which was conducted by the CEO of CEVA), the company made the plaintiff an offer.  He declined it.  In turn, the company presented a more lucrative offer, including a $40,000 signing bonus, higher salary and a number of perks. As a condition of the offer, however, Rodgers was required to acquire a quantity of the company's equity (to ensure that he had "skin in the game"), which cost him approximately $100,000.  Less than three years later, following some difficult economic times for the company, the plaintiff was terminated and offered 2 weeks' termination pay and approximately $5,000 in severance pay.  At the time, he was 55 years old, and was earning an annual salary of $276,000.  He sued for wrongful dismissal.  The employer's only dispute with the plaintiff was on the actual amount of notice to which he should have been entitled.

The employer relied on the termination provision in the contract which 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 primary consideration in assessing appropriate notice was the plaintiff's length of service (less than 3 years).  However, the Court did not agree.  If the parties intended length of service to have primacy, they could have done so in clear language.  Instead, they had made the calculation dependent on both tenure and "applicable legal requirements".  After considering the fact that the plaintiff was induced (at least mildly) to join CEVA, and then led to believe that he would have long-term, secure employment (based on the requirement to purchase shares in CEVA at a cost equivalent to approximately 4 1/2 months' salary), the Court was of the opinion that the plaintiff should receive notice at the high end of the scale.  The plaintiff did not find another comparable role for almost 10 months, and even then he took a significant reduction in salary.  In the result, the Court awarded the plaintiff damages equivalent to fourteen (14) months' notice.  After a reduction for amounts already paid and the plaintiff's mitigation income, the defendant was ordered to pay the plaintiff $345,000.

The Court's decision illustrates that employers must be cautious when they recruit senior employees who are already gainfully employed.  Efforts must be made to ensure that an offer of employment is not designed to induce the individual to leave other employment, and this should also be acknowledged in the employment agreement. Ensure that recruiters do not make promises or representations about the likelihood of long-term employment, particularly during challenging economic times.  And if the intention is to minimize the organization's exposure in the event of a subsequent termination, care must be taken in crafting termination language that is clear and meets the requirements of the Employment Standards Act (see for example, this post on the topic).  The downside?  Significant liability.

Do you have questions about inducement?  Need help with your termination language?  Contact Lance Ceaser for expert advice.

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