In the recent decision in Saalfeld v Absolute Software Corporation, the B.C. Court of Appeal narrowed the application of a recent trend in B.C., which was spreading to other provinces, of severance awards as high as 5 or 6 months for employees with 2 years of service or less in a variety of non-senior management positions. The employee tried to convince the court that recent jurisprudence supports a notice period of five to six months in short service cases. The court stated: "I see little support for the proposition that five to six months is the norm in short service cases for employees in their thirties or early forties whose function is significant for their employer, but not one of senior management." The court stated that, in most cases, precedents suggest a range of 2 to 3 months. However, in this case, the court refused to interfere with the trial judge's award of 5 months to a 35 year old "senior" software salesperson with 9 months of service, largely because it had taken her 9 months to find a new job and a 5 month notice period was not "clearly outside" the "very high end" of the range established by prior decisions.
In the same decision, the court upheld the trial judge's award of $38,700 as damages for cancelled options that would have vested over the 5 month notice period. The employer argued that the stock option plan excluded such liability by providing as follows:
"...no option may be exercised after…the last day on which the ..Employee worked for the Company...
last day on which...Employee worked..[shall mean]..if such… Employee is given pay in lieu of advance notice of ...termination…the day on which such notice…is given in writing..."
This wording appears to be more clear than wording in other cases where the stock option plans had simply referred to the "date of termination" or "date on which active employment ceased". However, the court held that the termination of the plaintiff's employment without reasonable notice was "unlawful" and that the clause above only applied to a lawful termination, i.e., in this case, with the employee being given 5 months working notice. The employee was therefore entitled to damages representing the value of the options had they been exercised at the end of a 5 month notice period.
The decision is a reminder to employers to:
- limit severance liabilities by implementing employment agreements with termination clauses; and
- review and tighten their plan wording if they want to bar claims for stock options and other bonuses and incentives after notice of termination is given.