In its recent decision in Rodgers v. CEVA Freight Canada Corp., the Ontario Superior Court of Justice awarded 14 months’ notice to a senior manager with less than 3 years of service. The decision serves as a warning against relying too heavily on length of service in determining notice – especially where an employee has been induced away from a secure job elsewhere.
Bruce Rodgers had been president of an international courier company for 11 years when the logistics company, CEVA Freight Canada Corp., (“CEVA”), approached him with an opportunity to become Country Manager of its Canadian operations. After 7 interviews, CEVA presented Rodgers with an offer of employment, which Rodgers refused. CEVA returned with a second offer within a week that included an increase in salary to $276,000. It also sweetened the pot with a $40,000 signing bonus. The offer exceeded Rodgers’ current compensation, and he accepted the positon.
As a condition of employment, Rodgers also had to purchase shares in CEVA Investments. CEVA required all its senior managers to have an investment in the company because it wanted them to have “skin in the game”. Rodgers borrowed $102,000 in order to make the required investment of $102,330.85, which was equivalent to approximately 4.5 months of his salary at CEVA.
Less than 3 years later, CEVA terminated Rodgers’ employment without cause and provided him with 2 weeks’ pay in lieu of notice. Not surprisingly, Rodgers brought an action for wrongful dismissal. At trial, CEVA agreed that Rodgers was entitled to some additional notice, but it argued that his entitlement should primarily be determined by his short service. It relied on Rodgers’ termination clause, which provided for a common law notice period “based on your length of service and applicable legal requirements”. CEVA argued that the clause explicitly identified length of service as a distinct factor from other legal requirements because length of service was intended to be the most important factor.
The Court disagreed with CEVA. While Rodgers’ short service was a factor in determining his common law notice period, the termination clause did not clearly indicate that length of service should be given more weight than any other factor. The Court found that other relevant factors were the character of his employment, his age of 55 at termination, his experience and training, and that CEVA had induced him to leave secure employment. Rodgers was the most senior person in the CEVA Canadian operation, and he was responsible for more than 500 employees. He did not have post-secondary education, and had been working in the trucking, freight forwarding and logistics industry his entire working life.Only six companies in Canada carried on a similar business, and the industry was in a downturn in the summer and fall of 2012. The Court found that when they entered into the employment agreement, both parties would understand the difficulty that Rodgers would encounter in securing a similar position if his employment were to be terminated.
The Court noted that not all inducements carry equal weight, and this case did not rise to the level of giving explicit assurance of long-term job security. Accordingly, the Court only found “some measure of inducement”, and discussed this finding at some length. In finding inducement, the Court noted that CEVA approached Rodgers with the position. After Rodgers rejected the first offer, it quickly improved its salary offer, and added a significant signing bonus for further enticement. The requirement to purchase shares was an implied representation to Rodgers that he was entering into a long-term employment relationship with CEVA, and that “he would have a degree of job security beyond what would normally be anticipated”. The inducement away from secure employment and the termination after only several years therefore carried an overall sense of unfairness to Rodgers. Adding to this unfairness was the fact that the company shares ultimately had no value.
The Court awarded Rodgers 14 months of notice, which amounted to $345,985 after deductions for mitigation income.
This decision reinforces several key practices for employers:
1. Promises can be unspoken
The Supreme Court of Canada has found that inducement occurs when an employee is enticed to “quit a secure, well-paying job … on the strength of promises of career advancement and greater responsibility, security and compensation with the new organization”. Such promises can be express, such as through verbal or written commitments to a long-term employment relationship, as well as implied. Employers should especially be aware of implied representations they make regarding job security, as these promises can be less obvious. For example, requiring an individual to make a significant investment in the company, aggressively courting a reluctant candidate with more generous compensation and/ or a signing bonus, or discussing the individual’s major part in long- term company plans could all be found to be implied suggestions of job security.
- When determining notice, one size does not fit all
The main factors guiding courts in determining reasonable notice, known as the “Bardal factors”, include: the character of employment, the length of service, age, and the availability of similar employment, having regard to experience, training and qualifications. Inducement is an additional factor that may justify an award on the higher end of the scale, and can counter the effect of a short period of employment. Many employers focus on comparing their case to other cases with similar character of employment, age and length of service, since these factors can be more easily compared. Indeed, some employers simply apply a formula based on length of service. However, determining notice of termination is much more of an art than a mathematical formula, and the nuance often lies with evaluating more indeterminate factors, like inducement and the availability of similar employment.
- An employment contract is only as good as its enforceability
Despite the risks associated with inducement, employers still want to attract and hire the best talent, which may mean recruiting individuals away from secure positions. In these cases, employers should limit the risk of lengthy notice periods (especially for senior employees leaving long-term secure employment) by using well-drafted termination clauses that limit exposure to a lesser common law notice period. Additional protection for the employer could include language in the contract outlining that the employee understands the risks of leaving his or her current employment, and does so voluntarily.
This case also serves as a reminder to review existing employment contracts for current and new employees. Employment law is constantly changing, and courts appear more willing to look for new and creative ways to render such clauses null and void, especially if the clauses do not clearly meet statutory minimum entitlements. For example, courts have recently found termination clauses to be unenforceable for reasons such as failing to explicitly provide for benefit continuation for the statutory notice period. Accordingly, termination clauses that were enforceable at the time they were drafted are not necessarily enforceable today.