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The importance of contracts

publication date: Oct 30, 2013
 | 
author/source: Barry Kwasniewski

The Ontario Superior Court of Justice decision in Bernier v. Nygard International Partnership [2013], OJ No 3091, 2013 ONSC 4578 (“Bernier”)] highlights the importance of properly drafted written employment contracts, and shows why employers, including charities and not-for-profits, should have employment contracts reviewed to ensure that the provisions are legally valid and enforceable.Barry Kwasniewski photo

Background

Diane Bernier, the plaintiff, was 54 years of age and had worked for Nygard International Partnership (“Nygard”) for 13 years as a managerial employee before she was terminated without cause on December 4, 2012.  When Nygard terminated Ms. Bernier, she received base pay and benefits for 21.3 weeks until April 30, 2013. She later received her bonus for the year 2012.  Nygard’s payments were based on its calculation of the minimum pay in lieu of notice and severance pay standards as prescribed in the Ontario Employment Standards Act, 2000 (“ESA”).  Ms. Bernier sued Nygard and filed for summary judgment (see Note 1) in order to receive the compensation she believed was owed under the common law.

The legal issues and decision

Firstly, the court analyzed whether the plaintiff’s common law entitlement to reasonable notice was modified by her contract with Nygard.  The plaintiff had signed a written employment contract in 1999 prior to commencing her employment, which provided a 30-day termination notice period. This notice period was less than the statutory requirement, and therefore was void and unenforceable, which Nygard did not dispute. 

However, Nygard claimed that a subsequent agreement had been made with the plaintiff in February 2007, by which she had agreed to the minimum notice and statutory payments required by the ESA. Nygard submitted a February 2007 letter setting out these revised termination provisions as evidence of a new agreement, but the court noted that the letter was not counter-signed by the plaintiff. The plaintiff asserted that she did not attend such a meeting nor did she ever receive the February 2007 letter. The court concluded that there was no evidence of such an agreement, and ruled that there had been no amendment in 2007.  Therefore, the plaintiff remained entitled to the common law reasonable notice period upon termination, or compensation in lieu of that notice.

Secondly, the court assessed whether a general corporate policy on termination notice could displace the common law notice period. Nygard contended that it had a general policy that limited the notice period to the statutory minimum under the ESA. The plaintiff asserted that she had not been aware that this type of policy applied to her managerial position, nor had she ever signed any document acknowledging and agreeing to this policy. Agreeing with the plaintiff, the court confirmed that the common law notice prevailed over the purported policy.

Thirdly, the court analyzed whether the reasonable notice period compensation must include bonuses.  The plaintiff’s original contract entitled her to an annual bonus on the condition that she was employed on November 30th of each year. The court emphasized that in general, a terminated employee is entitled to the bonus payments as long as the bonus had been “an integral part of the employee’s annual salary”, which it was in the plaintiff’s case. To determine whether an employee is employed on a specified date for bonus purposes, the court clarified that the employment period includes the time included in the period of reasonable notice. Therefore, the court stated that had Ms. Bernier been given the required reasonable notice under the common law, she would have been “employed” on November 30th 2013, and thus eligible to receive the bonus payments for 2013.

Fourthly, the court concluded that a trial was not necessary to examine whether the plaintiff mitigated her losses, since she provided the court with a “large mitigation brief” that showed the extent of her substantial, but unsuccessful, job search.

The court concluded that as there was no genuine issue requiring a trial, summary judgment was appropriate, and the plaintiff was entitled to compensation based on reasonable notice under the common law. The court applied the factors set out in Bardal v Globe & Mail (1960), 24 DLR (2d) 140 (Ont. H.C.) to determine Ms. Bernier’s notice period entitlement, and also noted that courts have awarded a higher notice period for those who hold a highly skilled position with considerable responsibility. As a result of Ms. Bernier’s age, experience, level of responsibility and length of employment, she was awarded compensation based on eighteen months’ pay in lieu of notice. Nygard was also ordered to pay the plaintiff’s legal costs in the amount of $25,000.

Conclusion

Several lessons can be learned from the Bernier decision.  Employers, including charities and not-for-profits, should be aware that a contract that violates the ESA minimum statutory requirement will be void and unenforceable, which may prove costly as the employee will revert to their common law rights.  Also, should an employer wish to amend an employment contract, the amended contract should be signed by both parties to demonstrate consent by both parties to the terms.  To be legally enforceable, the employee must receive something of value in return, such as a pay raise or bonus (known in law as “consideration”).

If an employer wants to rely on a general policy to prove that a limited termination notice period applies to an employee, then the employer should not assume that the employee is aware of the policy, or understands the policy applies to his or her position. If the employer wants a specific notice period to apply to its employees, then it should be made clear in a written agreement so that each employee is aware of its application. Finally, bonus provisions should form part of the written employment contract. If the employer’s intent is to not include bonus entitlements on termination, or provide the employee with a contractual right to a bonus, these matters should be specified in the contract.

Note 1: A summary judgment is provided in Rule 20 of the Rules of Civil Procedure. It applies to cases that do not have a genuine issue for trial and therefore a full trial is not necessary. Summary judgment motions are based on affidavit evidence of the parties.

Barry W. Kwasniewski practices employment and risk management law with Carters’ Ottawa office, and would like to thank Dianne T. Hajdasz, Student-At-Law, for her assistance in the preparation of this article. For more detail, see the original Charity Law Bulletin No. 320.


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