Canada: Avoiding The Word "Severance" Doesn't Mean You Didn't Receive it

Last Updated: February 24 2016
Article by Andrew Cogswell

A recent decision from the Court of Appeal for BC has exhibited some rarely seen leniency towards employers when drafting termination agreements. The case, Hall v. Quicksilver Resources Canada Inc., involved the sale of a decommissioned pulp mill, a successor employer, and the intention of a termination agreement.

In the fall of 2012 Mr. Hall was informed by his employer of nearly 25 years, Catalyst Paper Corp. ("Catalyst"), that the Elk Falls pulp mill was being sold. Mr. Hall had worked as the Facilities Manager and was the only employee since a 2011 decommissioning. The mill was being sold to Quicksilver Resources Canada Inc. ("Quicksilver") to be used as a Liquefied Natural Gas Plant. Along with the purchase of the site, Quicksilver expressed an interest in retaining the services of Mr. Hall. The potential sale of the site spurred conversations between Mr. Hall and Catalyst related to his continued employment or payment for his extensive tenure. Mr. Hall and Catalyst discussed the terms of this payment through email and various draft agreements. Eventually the two parties agreed on a 14-month lump sum payment so long as Mr. Hall signed a release barring any future claims related to his employment with Catalyst.

Following the close of the agreement and the sale of the site, Mr. Hall accepted employment with Quicksilver in May of 2013. Mr. Hall was then dismissed without cause in February 2014. Following his dismissal, Mr. Hall brought an action against Quicksilver for wrongful dismissal. At trial, the judge determined that the payment pursuant to the agreement between Catalyst and Mr. Hall was not termination pay but, rather, a retention bonus. Therefore, the trial judge determined that Quicksilver inherited the length of service from Catalyst and damages for wrongful dismissal should be based on 24-25 years of service rather than the 8.5 months spent with Quicksilver. The trial judge awarded Mr. Hall 18 months of salary minus mitigation efforts during that period. In the alternative, the trial judge stated that if the length of service was 8.5 months Mr. Hall should be awarded 7 months common law reasonable notice on account of his very specialized managerial responsibility.

Quicksilver appealed the ruling on various grounds including the finding that Mr. Hall's employment was continuous from his time with Catalyst and that his circumstances attracted a longer than typical reasonable notice period.

The appeal focused on the agreement between Mr. Hall and Catalyst, and whether the payment compensated him for his dismissal. On this issue the BC Court of Appeal disagreed with the trial judge. A unanimous BC Court of Appeal found that the parties' negotiations prior to finalizing the agreement and communications subsequent to signing the agreement helped characterize the nature of the agreement. On numerous occasions Mr. Hall referred to the agreement as a "termination agreement" or severance and the terms of the agreement made it very clear that the primary purpose of the document was one of termination. In particular, if the payment was strictly a retention bonus there would be no need for a mitigation clause. The agreement did not require that Mr. Hall continued to work for Quicksilver once the sale was complete. Lastly, the Court found that Catalyst acquiescing to the deletion of the word "severance" in favour of the word "payment" (a request by Mr. Hall for tax purposes) did not change the intention of the agreement.

The BC Court of Appeal allowed the appeal in favour of Quicksilver and reduced the award to three months of reasonable notice based on Mr. Hall's 8.5 months of service, age of 42 years, and holding a managerial type position.

Typically when wrongful dismissal cases turn on the interpretation of a contract, employers find themselves under a microscope; the slightest misstep or ambiguity will be read in favour of an employee. This decision is a breath of fresh air for employers; the BC Court of Appeal took a common sense look at the agreement and the factual underpinnings to its creation.

If your organization is faced with terminating an employee without an employment contract, the lawyers at CCPartners have the experience to assess your liability and draft an agreement to avoid costly litigation.   CCPartners also assists vendors and purchasers in sale negotiations to draft contract terms to protect parties against costly employee severance obligations that can be triggered in the sale of a business.

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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Andrew Cogswell
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