Under article 2091 of the Civil Code of Quebec (the “C.C.Q.”), employers can terminate employment contracts of indeterminate length so long as the employee is given reasonable notice or an indemnity in lieu of reasonable notice. Under 2091 of the C.C.Q, what constitutes reasonable notice, or the amount of the indemnity owed, depends on the circumstances of each case, including the position held by the employee, the length of time they have been employed there, and the employee’s age.
However, what happens when an employment contract includes a clause that states that an employee is entitled to a specific amount as an indemnity in the event that their employment is terminated without cause? Which law applies – Quebec civil law or the law of the parties (i.e., the contract)?
To the detriment of the employer, the answer is that both can apply.
Structures Lamerain inc. c. Meloche, 2013 QCCS 1108 (“Structures Lamerain inc.”)
In Structures Lamerain inc., the plaintiffs were Alain and Yvan Meloche, two brothers who began working from a young age in their father’s steel structures company. Over 25 years of employment, the brother’s worked their way up to high level positions within the company. As explained by the Superior Court, in 2009, the company became insolvent. It filed a notice of intention under federal bankruptcy and insolvency law and, soon after, it negotiated a deal where most of its shares would be sold to another company. As part of the deal, the brothers agreed to stay on with the company.
Their employment contracts contained the following liquidated damages clause:
“7. Termination of Employment
If, for whatever reason, the employment contract is terminated by Lamerain, the Employee will continue to receive every week during the twelve months (12) following the dismissal an amount equal to the salary he was receiving immediately before his employment was terminated; the sums paid represent liquidated damages for the termination”.
(Translation. Citations omitted.
The brothers were fired soon after the deal was finalized and Structures Lamerain inc. began paying the amount agreed to under the clause. The brothers later sued, claiming, among other things, that the indemnity provided by the clause was insufficient.
The Superior Court agreed with the brothers insofar as it found that, under article 2091 of the C.C.Q., they were entitled to more than 12 months indemnity. Taking the circumstances into account, including, the number of years the brothers worked for the company, their positions, their ability to find comparable employment, and the parties’ expectations in making the deal, the Superior Court found that the brothers were entitled to 18 months’ notice under the C.C.Q..
However, rather than nullifying the clause and simply applying civil law, the Superior Court decided that the brothers were entitled to a combination of the two: the brothers would receive the 12 months’ salary agreed to under the clause plus six months’ notice under civil law, for a total of 18 months.
Quebec Court of Appeal affirms mitigation exception
The Quebec Court of Appeal confirmed the Superior Court’s decision, which it held was justified under article 2092 of the C.C.Q., which states that, an “employee may not renounce his right to obtain an indemnity for any injury he suffers where insufficient notice of termination is given or where the manner of resiliation is abusive.” The Court of Appeal held that this article is a public order provision, meaning that employees cannot contract out of it by agreeing to a lesser amount.
However, where the clause really backfired on the employer was with regards to the principle of mitigation of damages. The Superior Court ruled, and the Court of Appeal affirmed, that the Meloche brothers would only have to mitigate their damages during the additional six months awarded under civil law.
The Court of Appeal confirmed an exception to the rule that the indemnity owed by the employer under articles 2091 and 2092 of the C.C.Q. may be reduced to the extent that the employee mitigated (or could have mitigated) their damages.1 Under this exception, where a “minimum standard” is established by an employment contract for the amount of notice or indemnity that an employee is entitled to upon termination, and the employer does not require that this amount be reduced if the employee mitigates his damages, then the employer cannot claim a failure to mitigate damages to reduce this “minimum standard” in the event that a greater period or amount is awarded under civil law. The employer can only claim a failure to mitigate damages for any additional amount awarded under civil law.
Consequently, had Structures Lamerain inc. not included a damages clause in their employment contract, they would have also been able to demand that the brothers mitigate their damages during the first 12 month period.
Notice clauses should be drafted with caution
This decision serves as a warning to employers seeking to limit their liability through termination notice clauses in Quebec employment contracts. If they are used, such clauses must be drafted with caution. Clauses which are found to violate articles 2091 and 2092 of the CCQ may not be nullified by the court and may be considered in conjunction with an employees’ civil law entitlement.