Williams HR Law LLP

Short Service Employee Awarded Nine Months’ Reasonable Notice After Employer Withheld Termination Entitlements Unless Release Signed

January 22, 2025

In Timmins v Artisan Cells [Timmins], the Ontario Superior Court (the “ONSC”) found that the employer repudiated the employment agreement (i.e., demonstrated an intention not to be bound by it) when it required the employee to sign a full and final release as a condition for receiving his termination entitlements under the agreement, despite this condition not being included in the agreement. As a result, the court ruled that the employer could not rely on the agreement, and the employee was entitled to nine months’ notice of termination under common law, with damages totaling $456,908.82. This decision serves as an important reminder to employers of the legal implications of imposing new terms at the time of dismissal that are not otherwise included in the employment agreement.

Background

At the time of dismissal, the employee had been employed with the organization for three and a half years and held the title of Chief Development Officer. The employment agreement provided that in the event of a “without cause” dismissal, the employee was entitled to the greater of three months’ pay or their minimum entitlements under the Employment Standards Act, 2000 [ESA].

The employee was dismissed without cause in March 2023. However, the termination letter provided only one week of termination pay, which was not only less than the employee’s contractual entitlements but also less than their minimum entitlements under the ESA. Additionally, the letter stated that the balance of the employee’s termination entitlements was conditional upon signing a full and final release, despite this condition not being included in the employment agreement.

The ONSC considered two key issues:

  • Whether the employer repudiated the employment agreement by withholding the employee’s statutory and contractual entitlements unless the employee signed a full and final release; and
  • If so, what reasonable notice period the employee was entitled to.

The Decision

Did the employer repudiate the employment agreement?

The ONSC found the employer repudiated the employment agreement by withholding the employee’s termination entitlements in exchange for a signed release.

The court concluded that the employer did not intend to comply with the termination provision in the employment agreement. Previous correspondence from the employer’s counsel confirmed that the employee was entitled to the three months’ pay under the agreement but failed to explain why it had not been paid. The court found that the employer’s failure to provide the payment and the introduction of a new condition in the termination letter constituted evidence that the employer was using the termination pay as leverage to obtain a signed release.

The court determined that withholding the employee’s statutory and contractual termination entitlements in exchange for a release repudiated the employment agreement. As a result, the termination provision was unenforceable, and the employee was entitled to reasonable notice.

What reasonable notice period was the employee entitled to?

The ONSC found that the employee was entitled to nine months of reasonable notice based on the employee’s age, length of service, and other relevant factors. While the employee had only been employed for approximately three years at the time of dismissal, the court emphasized that he worked in a niche industry with only five companies operating in Canada and no expectation of future growth. The court also noted that the employee had previously been employed at two of these companies, which significantly limited his employment opportunities. Further, the employee’s considerable renumeration, approximately $475,000 annually plus benefits, further hindered his ability to secure comparable employment.

The employee sought punitive damages; however, the court found them unwarranted. The employer’s repudiation of the employment agreement was adequately addressed through the award of nine months’ reasonable notice. The court also considered that this notice period, which far exceeded the employee’s minimum statutory entitlement of three weeks,served as a sufficient deterrent.

Ultimately, the court awarded damages in lieu of nine months’ notice, totalling $456,908.82.

Takeaways

Timmins highlights best practices for employers to reduce the risk of litigation following employee dismissals, including:

  • Do Not Withhold Employee Entitlements:  Employers must provide all entitlements under the ESA unconditionally upon dismissal. An employment agreement may specify that termination entitlements exceeding the ESA minimums are conditional on the employee signing a release. However, if the agreement does not already include such a condition, the employer cannot impose it unilaterally at the time of dismissal.
  • Consider Appropriate Notice Periods: When preparing a termination package or negotiating a settlement, employers should consider all relevant factors to determine the reasonable notice period. In this case, the court’s award of nine months’ notice was longer than many employers would expect for an employee with only three and a half years of service. By considering reasonable notice periods at the outset, employers can better manage costs and whether litigation is worth pursuing.
  • Limiting Entitlements: Employers should also note that employees are generally entitled to their total compensation package, including benefits and bonuses, throughout the notice period. In this case, the court factored the employee’s bonus entitlement into the damages award. Employers can effectively limit such entitlements using clear language in the employment agreement.

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

This information is not intended as legal advice.