We are told that in almost every organization human resources is
under pressure to find cost savings. A growing, but in our
experience still under-utilized, method of accomplishing real
savings for the organization is through the use of employment
agreement or offer letter provisions that define the severance
owing on termination. A recent BC Court decision reinforces the
efficacy of that strategy.
Employment agreements can provide employees with only the
Employment Standards Act minimum severance on termination.
These agreements modify what would otherwise be an obligation to
provide an employee with reasonable notice of termination and can
greatly reduce severance costs for employers. Reasonable notice is
often 50% to 90% greater than ESA notice.
Employers need to consider the effect of severance agreements on
recruitment and retention. ESA termination provisions are not
suitable in all circumstances for all employees but in some
organizations or for some employees the use of these provisions can
achieve real savings.
Fixing the severance obligation in an agreement or letter also
creates greater certainty for employers. Employers can then more
precisely predict severance costs.
The savings and certainty could be particularly advantageous
with the elimination of mandatory retirement. Our Courts have
limited experience in determining reasonable notice periods for
terminated employees over 65 so there is more uncertainty. Fixing a
contractual severance entitlement, whether it is the ESA
requirement or something greater, will very likely reduce an
employer's risk and costs of termination.
The trick for employers is ensuring that the severance provision
is properly implemented and maintained. The BC Supreme Court
recently upheld an employment agreement that provided for only the
ESA minimum severance. The employee's claim for 12 months'
severance was rejected and he only received 7 weeks of
The employee challenged the enforceability of the agreement. The
agreement did not say that the employee was entitled to
"only" the ESA requirement. The employee argued
that as a result the provision did not limit his severance to ESA
and that he should also be entitled to reasonable notice. The Court
held that the language was not ambiguous and that it meant that the
employee only received the ESA minimum severance.
The employee argued that the clause was unconscionable or
unfair. The Court considered the circumstances around the signing
of the agreement and rejected this argument too. The employee
received the contract 24 hours in advance and had time to consider
it before signing. The employer had not explained the clause to him
before he signed the agreement but the Court held that the employer
was not obligated to explain each provision.
The employee also argued that because he had changed jobs, the
agreement no longer applied to him. He had changed jobs over the
years and the agreement had been renewed on each occasion except
the final job change. However, the final job change only involved
the employee going from being a Client Services Manager to a
Senior Client Services Manager. The Court held
that this was not a sufficient change in his employment to
undermine the enforceability of the agreement.
Therefore, despite some warts in the manner in which the
employer had managed the employment agreement, the employer was
still able to rely on the employment agreement to greatly reduce
its severance obligation.
Employment agreements can result in meaningful savings for
employers in severance costs. In using such agreements employers
make sure the clause is clear – it does not need to be
lengthy or complicated and in fact simple is often best,
give the employee the contract in advance of being required to
sign it and give the employee reasonable time to consider the
clause (what is reasonable depends on the circumstances),
ensure that the employee signs the contract before starting
if there are significant changes in the terms and conditions of
employment, take steps to ensure that the agreement or a new
agreement is in place. Fresh consideration may be necessary to
include a new termination clause.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Unfortunately, reasonable accommodation for employees in the workplace continues to be the source of significant litigation and even today we continue to see outrageous examples of employers behaving badly.
We are now beginning to see reported cases involving charges and subsequent fines laid against employers for failing to provide information, instruction and supervision to protect a worker from workplace violence.
On October 13, 2016, the Supreme Court of Canada denied leave to appeal an Ontario Court of Appeal decision which ordered an employer to pay a former employee 37 months of salary and benefits following termination.
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