If you have been an employee for a company in a senior role, you may be entitled to much more substantial compensation on a without-cause termination than what your employer is currently offering you.  It is important to note that while employers include deadlines in their severance and termination offers as a means to pressure terminated employees to sign release documents, these deadlines are not enforceable.  Employers are required to provide a reasonable amount of time for employees to consider their options. Prior to signing any agreement, make sure you speak to an employment lawyer to ensure your rights are protected.

Determining Notice Period for Executives and Entitlement to Bonus and Benefits

While there is a general rule of thumb under the common law that reasonable notice for terminated employees is one month of notice for every year of employment, reasonable notice becomes a more fact intensive analysis when dealing with terminated executives, especially if they had short service within a company.  The Ontario Court of Appeal decision of Love v. Acuity Investment Management Inc. reveals some important considerations.

The Plaintiff was a senior VP and shareholder with the Defendant.  The shareholder agreement indicated that if the Plaintiff was to be “dismissed without cause”, the Defendant would repurchase the Plaintiff’s shares at the value and date in which the Plaintiff “ceased to be an employee”.  The Plaintiff was dismissed without cause after only 2.53 years of service and the Defendant offered a three-month termination package in line with the “rule of thumb”.  Litigation proceeded.

The trial judge determined that the Plaintiff was entitled to five months’ notice and that he was able to hold his shares until the end of the notice period.

The Court of Appeal determined that nine months’ notice was more appropriate.  The court stated the trial judge placed too much importance on the Plaintiff’s short employment and not enough emphasis on the Plaintiffs high income, equity ownership, high-level role within the company and the difficulties in finding a position of a substantially comparable nature.  The court also determined that the Plaintiff “ceased to be an employee” on the termination date.

While employees are entitled to damages equal to the total benefits they would have been given had they worked the notice period, this principal does not apply in the context of a clear contract stating that the employee is not entitled to the benefit over the notice period. Ultimately, this case illustrates that the contractual language was clear enough so as to oust the Plaintiffs entitlement to bonus during the notice period.  Other case law in Ontario have provided for the same result of denying benefits over the notice period, however with even more clear and unequivocal language. An good example of limiting language can be seen in the 2004 decision of Kieran v. Ingram Micro Inc., where the employee’s right to stock options ended when the employee “ceases to perform services…without regard to whether [he] continues thereafter to receive any compensatory payments or is paid salary thereby in lieu of notice of termination.” Having such language in both hiring contracts and benefit agreements helps to clarify entitlement to benefits and when they end.

Bonus Entitlements in Severance Pay

Case law in the province has been inconsistent on whether or not employees are entitled to bonuses during the notice period. Generally, employees are entitled to the accrued bonus pay which would have been earned if they remained employed during the notice period.  There is an exception however where as part of the employers bonus policy, terminated employees must be “actively employed” during the time that bonus is paid. Case law in Ontario discusses the wording of the “active employment” clauses in bonus policies.

If you are an employee in an executive position, call the office of Stacey Ball to discuss your severance offer.