Williams HR Law LLP

Is the Employment Relationship Broken when an Employee Resigns but is Re-Hired?

July 18, 2019

[vc_row][vc_column width=”1/4″][vc_single_image image=”3445″ img_size=”large”][/vc_column][vc_column width=”3/4″][vc_column_text]When an employee resigns, the existing employment relationship comes to an end.

At that point, the employer is generally absolved of legal obligations except the duty to pay the employee during the resignation notice period, provided that the employee was not constructively dismissed. However, two recent Ontario Court of Appeal (“ONCA”) decisions demonstrate that what happens to the employment relationship upon resignation is not so clear cut. In Theberge-Lindsay v 3395022 Canada Inc (Kutcher Dentistry Professional Corporation) [Kutcher Dentistry], the ONCA found that a resignation during the course of employment did break the employment relationship, which re-set the clock on length of service for the purposes of determining common law reasonable notice of termination. Alternatively, in Ariss v NORR Limited Architects & Engineers [NORR Limited], the ONCA found that a resignation did not break the employment relationship and re-set the clock on length of service. These decisions demonstrate that employers need to be cautious when dealing with employees who resign at some point during the employment relationship but subsequently remain with or re-join the organization.

The Decisions

Kutcher Dentistry and NORR Limited involve generally similar fact situations that led to opposite findings. Kutcher Dentistry involved a dental hygienist, Ms. Theberge-Lindsay, who worked in Dr. Kutcher’s dental practice from 1993 to 2012. During that period, the dental practice was restructured several times in various ways to minimize income taxes and split income, and Ms. Theberge-Lindsay was required to sign a series of employment agreements to remain employed by the practice. In 2005, Ms. Theberge-Lindsay resigned from her employment to move to a new city to live with her fiancée, providing Dr. Kutcher with roughly three (3) months of notice. Before the end of the three (3) month resignation notice period, Ms. Theberge-Lindsay ended her engagement and cancelled her move. Ms. Theberge-Lindsay informed Dr. Kutcher that she wanted to continue working at Kutcher Dentistry Professional Corporation (“Kutcher Dentistry”), and rescinded her resignation. Dr. Kutcher asked Ms. Theberge-Lindsay to sign a new employment agreement in order to be re-hired, which she did. Ms. Theberge-Lindsay continued to work at Kutcher Dentistry from 2005 to 2012, when she was dismissed without cause. Ms. Theberge-Lindsay thereafter brought an action for wrongful dismissal against Kutcher Dentistry.

Given the 19-year employment relationship, the Trial Judge awarded Ms. Theberge-Lindsay 15 months’ reasonable notice on termination. The Trial Judge found that, because the employment relationship was never broken, none of the employment agreements that Ms. Theberge-Lindsay signed throughout her tenure were enforceable because she never received anything beyond continued employment in exchange for signing the agreements. On appeal, the ONCA determined that the 2005 agreement was enforceable because Ms. Theberge-Lindsay’s resignation had broken the chain of employment. Because Ms. Theberge-Lindsay had resigned, Kutcher Dentistry offered new employment in exchange for the 2005 employment agreement, which was enough to satisfy consideration requirements and to make the agreement enforceable. As such, Ms. Theberge-Lindsay was bound by the termination clause in the 2005 employment agreement, which limited her termination entitlements to the minimum entitlements prescribed by the Employment Standards Act [ESA]. Further, the ONCA measured Ms. Theberge-Lindsay’s entitlements from the 2005 re-hire date rather than the initial 1993 start date because of the break in employment caused by her 2005 resignation, which significantly reduced the amount that the employer had to pay.

Alternatively, in NORR Limited, the ONCA did not find a break in the employment relationship as a result of an employee resignation. In NORR Limited, an engineer, Mr. Ariss, was employed with NORR Limited Architects and Engineers (“NORR Limited”) from 2002 to 2016. Before 2002, Mr. Ariss was employed from 1986 to 2002 with a predecessor company that was purchased by NORR Limited, making the total length of the employment relationship approximately 30 years. In 2006, Mr. Ariss and NORR Limited reached an agreement to increase Mr. Ariss’s hours of work and pay, which contained a termination clause waiving Mr. Ariss’s common law reasonable notice entitlements. Subsequently, in 2013, Mr. Ariss wanted to reduce his hours of work. In exchange for part-time work, NORR Limited required that Mr. Ariss resign from his full-time position and sign a new employment agreement that stipulated that he agreed to waive his previous accrued length of service up to 2013. The 2013 agreement simply stated that Mr. Ariss would receive his notice entitlements under the ESA upon termination and did not mention Mr. Ariss’s entitlement to benefits or severance upon termination under the ESA. Mr. Ariss was later dismissed in 2016, and subsequently brought an action for wrongful dismissal against NORR Limited.

The Motions Judge refused to give legal effect to the 2013 resignation and employment agreement which purported to waive Mr. Ariss’s accrued length of service. The Motions Judge stated that the resignation was an “artificial attempt to create an interruption in employment where in fact there was none”. The Motions Judge found that the 2013 agreement was merely an amendment to the employment agreement the parties had agreed to in 2006, and the provisions in the 2006 agreement speaking to Mr. Ariss’s termination entitlements continued to govern his employment. As such, the Motions Judge concluded that Mr. Ariss’s length of service was 30 years and awarded ESA entitlements based on this length. Mr. Ariss was not entitled to common law reasonable notice because the Motions Judge found that the termination provisions contained in the 2006 employment agreement constituted a valid waiver of Mr. Ariss’s common law reasonable notice entitlements.

On appeal, the ONCA affirmed the Motions Judge’s ruling. The ONCA confirmed that the resignation in this case did not cause a break in the employment relationship so as to restart the clock on the Mr. Ariss’s length of service in 2013.

Key Takeaway

Does an employee’s resignation restart the clock on the employment relationship for the purposes of calculating length of service and termination entitlements? Upon review of the decisions in Kutcher Dentistry and NORR Limited, the answer to this question remains unclear. NORR Limited suggests that where an employer purposefully makes an employee resign and re-sign a new employment agreement in order to restart the clock on the employment relationship and limit the employee’s legal entitlements upon termination, the courts will not enforce these agreements. In order to cause a break in the employment relationship, it seems that a resignation must be organic and employee driven, like in Kutcher Dentistry. Employers must, therefore, be cautious when using resignation as a method to limit their obligations to employees upon termination by attempting to force employers to sign away their accrued length of service. When an employer does attempt to have an employee resign and sign a new agreement that waives their length of service, there is a risk that a court will not enforce the waiver and award termination entitlements based on the employee’s full length of service. For this reason, employers should also ensure they are using valid termination provisions to limit an employee’s termination entitlements even in the event that the employee’s length of service is in dispute.

Williams HR Law will continue to monitor the ONCA’s comments on how resignation affects the employment relationship and keep you updated on any new decisions that might clarify the ambiguity caused by Kutcher Dentistry and NORR Limited.

This blog is provided as an information service and summary of workplace legal issues.

This information is not intended as legal advice.