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Termination, Inducement and Bonuses

30 Mar 2016

Canadian employment law is more than just an exercise in statute and case-law precedent – there is an art to draw on the specifics of each case in order to elicit the right decision. Cases involving termination of employment can be particularly unpredictable as varying circumstances have a great impact on what the Court considers a just result.

In Canada employees are entitled to a reasonable notice period prior to termination that allows that individual reasonable time to seek other employment and get back on their feet again. Where the appropriate notice period is not provided the employee would be entitled to compensation. Of course, the central question becomes what is reasonable?

The courts will consider a variety of factors and specific circumstances, contrasting them against previous case law and statutory law, in order to find, or sometimes create, the just solution.

Fraser v. Canerector Inc. 

Stuart Fraser ("Fraser"), the plaintiff, worked in the automotive sector in a senior position for the majority of his career. After seven (7) years with his previous employer and a growing disenchantment with regards to his prospects with the company Fraser decided to take an offer of employment at Canerector Inc. ("Canerector").

Fraser worked at Canerector for about thirty-four (34) months prior to his termination. Having received the statutory standard payment, Fraser proceeded to seek a determination that the length of the notice period was to be greater and as such he deserved a larger payout as a result of his termination.

The Court stressed that in accordance with the principles espoused by McRuer C.J.H.C. in Bardal v. The Globe and Mail Ltd. [1960] O.W.N. 253 (H.C.J.), at para 21:

"the reasonableness of the notice must be decided with reference to each particular case, having regard to the character of the employment, the length of service of the servant, the age of the servant and the availability of similar employment having regard to the experience, training and qualifications of the servant."

The very fact that the test is open-ended and dependent upon the specifics of each case suggests that the analysis and its conclusions are "more art than science" (para 32).

The Court highlighted two issues that were at the heart of the dispute and instrumental in determining the fair length of the reasonable notice period and the amount owed therein: inducement and the inclusion of the bonus plan in calculations of salary owed.

Inducement

If it was proven that Canerector induced him to leave secure employment while firing him a short time thereafter, Fraser would be entitled to be credited with his service for the former employer for the purposes of determining the length of the notice period.

The court examined the facts of the case at hand and found that Mr. Tuzi, a friend of Fraser’s, approached Fraser with regards to a job opening at Canerector. The Court was not satisfied with claims that Mr. Tuzi was selected to approach Fraser, or that Canerector somehow specifically sought out Fraser. In fact, the Court found that Mr. Tuzi acted simply in the capacity of a friend to Fraser and not as a recruiter. The court found it crucial that Fraser essentially applied for the Canerector position of his own accord because it would severely complicate any claim for inducement; how can one be induced to do something that they themselves sought out?

Fraser applied for the position, and after passing two interviews he received an offer around June 1, 2011. Fraser negotiated the offer prior to acceptance, as such the Court was satisfied that Fraser knew that the offer treated him as a new employee rather than continuing the obligations/benefits of his previous employer. Two key numbers that emanated from the new employment contract were $160,000.00 and 11. Fraser’s new job at Canerector paid him a salary on $160,000.00, $25,000.00 less than his previous salary of $185,000.00. The court highlighted this as a crucial factor in its determination that there could not have been inducement as Fraser was taking a sizeable pay-cut just to work for Canerector. Furthermore the court found that Canerector’s explicit rejection of the recognition of Fraser’s eleven (11) months severance entitlement from his previous employer and their insistence on a three (3) month probationary period further highlighted the lack of potential inducement as the position offered was far less secure than Fraser’s previous position.

Accordingly, the Court determined that there was no inducement in this case and Fraser "wanted the job" – be it for reasons of feeling more at home with Canerector’s business model or simply the potential for more profits down the line, Fraser wanted the job in spite of the lower pay and lower job security. 

With that determination in hand the Court found that the appropriate reasonable notice period would be four and a half (4.5) months, giving account to Fraser’s age, position, short term of employment, availability of other employment opportunities, and the availability of decision makers who perform hiring (the court was lenient since Fraser was terminated in the summer and they found that it was their duty to account for a smaller job market as a result of vacation-time taken by senior decision makers).

Bonus Plan

The inclusion of any bonuses may drastically affect the total amount owed over the duration of the reasonable notice period. Fraser, sought an increase of the amount owed based on the fact that the bonuses he received whilst employed at Canerector represented a sizeable portion of his earnings and as such an integral part of his expected earnings along with his salary.

The Court’s decision turned on the fact that there was no plan or formula in place when allocating bonuses. Although Fraser’s bonuses increased each year the Court found the process to be completely arbitrary. Communications presented by Fraser indicating the amount of the bonus presented a clear picture of the discretionary basis of the bonus: management clearly indicated that bonuses may fluctuate by as much as 50% and some years there may be no bonus at all.

The Court highlighted Rawlley vs. Coretec Inc. [2009] O.J. 321 (S.C.J) as an analogous case, referencing the determination that a clause promising bonuses "when and where applicable" did not create an "entitlement to a fixed benefit" (para 67).

Fraser urged the court to provide an objective assessment as to the bonus owed to him for the remainder of the time served at his position. The Court noted that although Canerector self-servingly asserted that Fraser’s bonus would have been nil, the Court did not have any evidence that Fraser had somehow exceptionally improved Canerector’s business or landed crucial deals. This lack of facts supporting his claim for a bonus coupled with the Court’s weariness to exercise the employer’s discretion on their behalf cemented the Court’s determination the amount owed in lieu of reasonable notice in this case would be calculated without considerations of a bonus.

Our Thoughts

This case serves as another cautionary tale. For both employees and employers termination is a virtual minefield. The courts continuously highlight that although analogous cases exist each case is to be decided with regards to its unique characteristics. There is no cookie-cutter approach. There is no easy-fix solution. There is no one formula. 

Employers seeking to hire employees already employed risk having to pay for the employee’s past service if inducement to leave secure employment is actually found. Even if an employer is ultimately successful, a lawsuit could prove a costly endeavour which can be minimized (or altogether avoided) with the drafting of an appropriate agreement that would set out the parties’ expectations in writing from the very beginning. 

Zeilikman Law has the experience and legal acuity necessary for effective legal strategies to achieve a just result for you. Zeilikman Law serves clients from all over the GTA. Whether you’re from Vaughan, Richmond Hill, Mississauga, Toronto, Woodbridge, Markham, Stouffville, Oak Ridges, Aurora, or Newmarket, please do not hesitate to give us a call.

The above article is for general information purposes only and does not constitute legal advice. If you have concerns with regard to the foregoing issues, please make an appointment with one of our lawyers or a qualified legal practitioner elsewhere.