In Kim v BT Express Freight Systems (2020), 317 ACWS (3d) 255 [Kim], the Ontario Superior Court of Justice (the “Court”) confirmed that an employer may be found liable for wrongful dismissal damages if it rescinds an accepted offer of employment without cause or notice, even if the employee has not yet commenced work.
Kim involved an employee, the plaintiff in the action, Young Kim, who was recruited by a manager at the defendant company, BT Express Freight Systems (“BTE”). At the time, Mr. Kim worked as an import supervisor with another company, earning $50,000 per year. While Mr. Kim was still employed with the other company, BTE offered Mr. Kim a job with a much higher annual salary of $80,000 and the possibility of advancement upon the completion of a three-month probation period. Mr. Kim signed a written offer and gave notice to his employer that he would be moving to a new job.
Days before his scheduled start date, BTE advised Mr. Kim that they were “terminating/withdrawing” the job offer. BTE did not provide Mr. Kim with further notice, explanation, or compensation. Mr. Kim made an attempt to re-employ with his former employer; however, the former employer had already hired a replacement. As a result, Mr. Kim was left unemployed for approximately ten weeks, until he was hired for a position that paid $52,000 per year.
Mr. Kim brought an action for wrongful dismissal against BTE. He sought common law reasonable notice for his termination, as well as punitive and aggravated damages for BTE’s failure to exercise good faith in the manner of his termination (for more on the employer’s duty of good faith, see our previous blog). After bringing the action, Mr. Kim brought a motion for default judgment against BTE.
At the motion hearing, BTE was noted in default for its failure to respond to Mr. Kim’s claim or attend court. As a consequence, the judge accepted all of the facts contained in Mr. Kim’s statement of claim as true. However, the court provided a full legal analysis of Mr. Kim’s claim for wrongful dismissal and the damages claimed, providing useful takeaways for employers.
The Court found that Mr. Kim had entered into an employment relationship with BTE, noting that a valid employment agreement will create an employment relationship before any work begins. The Court further found that BTE had breached the agreement by unilaterally terminating Mr. Kim without cause or notice.
The Court considered the impact of the probationary clause set out in Mr. Kim’s offer letter. The clause allowed BTE to terminate Mr. Kim without notice or pay in lieu at any time during his first three months of work. This is consistent with the provisions of the Employment Standards Act, 2000 that allow employers to terminate employment without notice or pay in lieu of notice within the first three months of employment. Despite the existence of the probationary clause, the Court found that the clause did not preclude Mr. Kim from claiming damages for wrongful dismissal because Mr. Kim was never given the opportunity to start the new job. In other words, the clock on an employee’s probationary period only starts ticking when he or she commences work.
The Court held that Mr. Kim was entitled to common law reasonable notice and that Mr. Kim was entitled to a reasonable notice period equal to three months’ salary at the $80,000 wage rate promised in his employment agreement with BTE, less the earnings made from new employment during that time. In determining that Mr. Kim was entitled to a three-month notice period, the Court specifically noted that Mr. Kim was not looking for a job when he was first contacted by BTE. Rather, it was BTE that had first contacted Mr. Kim and induced him to change jobs based on a promise of a higher salary and the possibility of advancement.
The Court declined to award Mr. Kim the additional damages he claimed for BTE’s alleged failure to act in good faith. The Court held that while Mr. Kim “was not treated properly by BTE”, BTE’s conduct did not constitute dishonesty that caused him harm not already addressed by the reasonable notice damage award.
Takeaways for Employers
Kim puts employers on notice that an employment relationship, with its attendant obligations and liabilities, is created upon entering a valid employment agreement and before the employee’s official start date. A breach of the agreement, such as termination of employment without cause or sufficient notice, could put employers on the hook for an employee’s termination entitlements. An employer should, to the extent possible, make sure that circumstances are such that they will not be required to rescind a job offer; however, when rescission becomes truly necessary, a robust employment agreement and legally enforceable termination clause will be the employer’s most effective bulwark against liability. The Court in Kim made clear that, where the employee has yet to begin work, employers cannot rely on a probationary clause to limit their liability.
Kim is also a reminder to employers that when actively involved in recruiting new prospective employees from active employment, the employer runs the risk of a finding that it induced the employee to leave previous employment. Even where job security is not expressly guaranteed to a prospective employee, where a promise of stable employment can be implied from the recruiting process, employers run the risk of a finding of inducement if the employment relationship terminates earlier than expected. Where a court finds that an employee was induced, it can have the effect of lengthening an employee’s common law reasonable notice period.
To limit the impact of a finding of inducement, employers should insist on including probationary periods in employment agreements. Because probation is a period of tentative employment during which the employee’s fit in the position is being evaluated, and their long-term job security remains in question, it is essentially inconsistent with inducement or a promise of stable employment. The existence of a probationary period can thus be a relevant consideration for courts in limiting the effect of a finding of inducement in lengthening the reasonable notice period, as was the case in Kim. However, ultimately an employer’s strongest defense to a claim of inducement is a legally enforceable termination clause that limits the employee’s entitlements upon dismissal.
Employers should always seek to include a legally enforceable termination clause that clearly sets out the obligations of each party upon termination and removes the employee’s common law entitlements. As we wrote in a previous blog post, a recent decision from the Ontario Court of Appeal has rendered many “standard” termination clauses invalid. Employers would thus be well advised to seek legal advice regarding the enforceability of their termination clauses before including them in offers to prospective employees.
This blog is provided as an information service and summary of workplace legal issues.
This information is not intended as legal advice.