Update: On March 18, 2021, the Supreme Court of Canada dismissed the application for leave to appeal from the judgment of the Court of Appeal of New Brunswick discussed below. 

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In Abrams v. RTO Asset Management, 2020 NBCA 57 (Abrams), the New Brunswick Court of Appeal considered an employee’s appeal of a decision dismissing his action for damages in lieu of reasonable notice upon his job termination without cause.  After considering the employee’s age, length of service, the availability of alternative employment, and a restrictive non-competition clause, the court awarded him 24 months’  damages. 

A key issue in the decision was whether, after terminating the plaintiff’s employment without cause, the employer could then claim the dismissal was for cause and therefore the employer had no obligation to provide common law reasonable notice.  The court decided the employer could not do so. 

Background

At the time of dismissal, the employee, a high school graduate in the deemed or actual employment of the employer for 29.5 years, was 55 years old earning an annual compensation exceeding $150,000.  In 2002, the employee took a two-month leave of absence due to job-related stress and anxiety.  The employee signed a 2002 contract of employment when he accepted the employer’s invitation to return to work in an “accommodated position.”  Upon his promotion in 2008, the employee executed a second contract of employment.  In 2012, the employee took a three-month medical leave because he found his position too stressful.  When he returned to work with significantly reduced duties, the employee signed a third contract, which superseded all previous contracts.  The 2012 contract was in effect at the time of the 2017 job termination and it included a restrictive non-competition clause. It also included a termination clause that limited notice or pay in lieu of notice on dismissal to the minimum statutory entitlement under employment standards legislation (i.e., four weeks) as follows:

10.      Termination of Employment

10.1     Either you or the Company may terminate your employment at any time and for any reason, with or without cause, in accordance with the following:

(a)   The Company may terminate your employment for cause without notice, pay in lieu of notice or severance pay.

(b)   The Company may terminate your employment at any time without cause by providing you with written notice or pay in lieu of notice equivalent to your statutory entitlement under the province of New Brunswick employment standards legislation. If the Company terminates your employment pursuant to this paragraph, the Company shall not be obliged to make any further payments to you and you will not be entitled to any additional payments under the common law as a result of the termination. In addition, the payments and notice provided for in this paragraph are inclusive of your entitlements to notice, pay in lieu of notice or other severance pay pursuant to the province of New Brunswick employment standards legislation.

The employee’s job termination occurred after an investigation confirmed that the employee had engaged in an inappropriate relationship with a subordinate he hired. The employee denied the affair when questioned, but later admitted it when confronted with his subordinate’s disclosure.  The employer dismissed the employee without cause and gave him four weeks’ pay in lieu of notice.  The employer told him it was dismissing him without cause even though the employer believed there was cause for the dismissal.  A termination letter handed to the employee stated, “…without prejudice to our ability to take the position that your employment has been terminated for just cause, the Company has decided to terminate your employment, effective immediately, on a without cause basis.”  The employer offered a transition package that would have provided the employee pay in lieu of three months’ notice, which he rejected.  He was then paid $10, 876 in lieu of four weeks’ notice.  The employer issued a Record of Employment to the federal government that stated the employee was employed since 2002 and was terminated without cause in 2017. 

The employee sued for wrongful dismissal damages claiming he was dismissed without cause and without reasonable notice and was entitled to 28 months’ notice.  In its Statement of Defence, the employer pleaded that the claim should be dismissed because his employment was properly terminated with cause; alternatively, he received the pay in lieu of notice prescribed by the termination clause in his contract. In a Reply, the employee pleaded that because his dismissal was effected without cause, the employer was estopped from raising just cause as a defence; the employee also raised a claim for aggravated and punitive damages for the first time. 

Lower Court Decision

The lower court dismissed the employee’s motion for summary judgment on the basis that there was cause for termination; however, it did not make an explicit finding that the termination was made with cause. 

Decision of the Court of Appeal

Basis of termination:  with or without cause?

The Court of Appeal concluded that the employee’s dismissal was without cause and the employee’s motion for summary judgment should have been granted.  For the following reasons, the court held the motion judge committed a palpable and overriding error in finding a termination with cause:

• The uncontradicted evidence was that the employee was told at his termination meeting that he was being dismissed without cause;

• The employer would not have provided pay in lieu of four weeks’ notice if the dismissal was with cause.  The employer’s claim that it was made gratuitously was not accepted;

• The employer issued the Record of Employment confirming the termination without cause; and

• Although the termination letter stated the employer considered there was just cause for termination, it unambiguously and unequivocally effectuated a dismissal without cause.

Validity of termination clause 10.1(b) in 2012 employment contract

Clause 10.1(b) in the 2012 contract limited the notice or pay in lieu to the minimum statutory entitlement under employment standards legislation (i.e., four weeks).  It provided further that once this payment was made, the employer “shall not be obligated to make any further payments.”  The court concluded: the entire clause was void because it offended employment standards legislation by purporting to contract out of the employee’s entitlement under the statute to vacation pay and accrued wages on cessation of employment;  as the entire clause was void, it could not be saved by the severability provision; and the contract included, as an implied term, a requirement of reasonable notice on termination (four weeks’ notice did not come even remotely come close to that obligation).      

Employee’s entitlement to reasonable notice

In calculating reasonable notice, the court considered the following factors:

• Age: The employee was 55 years old and this favoured a notice period in the high end of the range;

• Length of service: The first 15 years of employment with the employer were relevant; the length of service was 29.5 years because:
  
  • The three Records of Employment issued since the employee was first hired establish the employer was the employee’s actual or deemed employer for 29.5 years;
  • The employer submitted the employee resigned in 2002 and was hired under the 2002 contract as a new employee, rendering his prior service irrelevant.  However, a legally effective resignation does not exist unless the employer establishes the employee’s subjective intention to quit and the employee’s conduct is objectively inconsistent with further employment.  The employer did not establish that here.  When the employee took a medical leave due to job-related stress and anxiety, his goal was to secure a change in employment with the employer that would accommodate his medical condition.  There was no employment elsewhere and he returned to employment at the employer’s urging on terms that accommodated his condition.  Furthermore, even if the employee’s absence from work was a legally recognizable “resignation,” the previous 15 years of service could still be considered at common law where, in circumstances exactly like those here, separate periods of employment may be considered; and
  • Although the 2002 contract provided notice would be set in accordance with employment standards legislation, rendering the previous 15 years of service irrelevant, the 2002 contact was not operative at the time of job termination.  The 2012 contract superseded all previous agreements, and it did not preclude consideration of the employee’s first 15 years of service. 

• Availability of suitable alternative employment:  The court was unsurprised by the employee’s evidence that the “pool of comparable jobs with a comparable salary” was extremely shallow in New Brunswick.  Furthermore, given the employee’s education and the fact that his work experience was for the employer “for basically all of his life,” it was also not a surprise that, despite his best efforts, the employee could not secure a comparable job with a comparable salary 13 months after termination. Finally, the employer’s allegation that the employee failed to mitigate was unsubstantiated. 

• Non-competition clause:  The highly restrictive non-competition clause would place the employee in very costly legal jeopardy if he obtained comparable employment with a competitor. 

The court concluded the range of reasonable notice for long-term employees in their fifties was 17 to 28 months, with movement higher in the range for employees of advanced age and longer service.  Taking this range into account, the influencing factors listed above, and the non-competition clause, the court concluded the employee was entitled to 24 months’ notice.

Damages in lieu of notice

The court assessed the damages over the 24-month notice period at $315,200, less $10,876 pay in lieu of four weeks’ notice.  The court declined to award aggravated and punitive damages, which he claimed in his Reply but not in his Statement of Claim stating it doubted that that approach put the claim in play, and further that the evidence did not support such an award. 

Bottom Line for Employers

The key takeaway is that after dismissing an employee without cause, an employer may not defend a claim for common law reasonable notice by arguing that the job termination was with cause.  Accordingly, an employer that has a for-cause basis to fire an employee should consider terminating on that basis if they wish to avoid liability for reasonable notice.  This is a particularly important consideration when an employee’s entitlement to reasonable notice is significant because they are a long-service employee of advanced age who earns salary and benefits high in value.  An employer that terminates with cause should ensure that the termination letter and any other documentation establishing the reasons for dismissal (e.g., the Record of Employment) unambiguously and unequivocally indicate dismissal with cause basis. 

Secondary takeaways from Abrams relate to: how employers should draft termination clauses in employment contracts to ensure enforceability; the impact of a medical leave of absence on the determination of length of service for purposes of calculating entitlement to common law reasonable notice; and factors a court will consider in determining entitlement to common law reasonable notice upon termination without cause.  More specifically, Abrams puts employers on notice that:

• They must ensure that, among other things, a termination clause in an employment agreement does not offend employment standards legislation because if it does and it is challenged, it will be found void in its entirety.  To ensure termination clauses do not leave them vulnerable to liability for common law reasonable notice, employers should seek the advice of experienced employment counsel to draft new employment contracts, and to review existing contracts to ensure enforceability.  Such contracts should be updated on a regular basis because the law of termination clause compliance is constantly evolving.

• An employee’s period of employment prior to a medical leave will be considered relevant in determining their length of service for purposes of establishing their entitlement to reasonable notice at common law upon termination without cause, when following that period the employee:
  
  • Has as their objective to secure a change in employment with the employer that would accommodate their medical condition;
  • Is not employed elsewhere while on medical leave; and
  • Returns to employment with the employer in a position that accommodates their medical condition. 

• An employee’s advanced age, long service, and evidence of the unavailability of comparable jobs with comparable salary are factors that will influence a court in its determination of reasonable notice.   

• A highly restrictive non-competition clause that would create costly liability for an employee if they obtain comparable employment with a competitor will be a factor taken into consideration in a determination of reasonable notice.  Employers are encouraged to consider this and upon moving forward with such a requirement, to seek the advice of experienced employment counsel to draft the non-competition clause.