Sometimes short-service employees receive very substantial wrongful dismissal awards

Most employers, HR professionals and even lawyers presume that short-service employees are entitled to very little compensation upon dismissal. Many adhere to the theory of two weeks, or even one month, per year of service. But there is no legal basis whatsoever for such a presumption or formula. Sometimes short-service employees, or even employees who had accepted positions and then had their offers revoked before even starting, receive very substantial wrongful dismissal awards. Many also mistakenly believe that, if you are young, the courts will also not be very generous in compensating you when you are terminated.

Most would assume that a three-month severance award for a 32-year-old employee with only three-years of service would be reasonable, perhaps even generous. However, the Ontario courts in the recent case of Humphrey vs. Mene Inc. recently granted 12 months to such a short-notice employee.

Just over six months after being promoted into the role of Chief Operating Officer, Jacqueline Humphrey asked for a salary review, providing reasons for her request. The company responded, questioning her passion for her job. Alarmed, she responded that she remained “100 per cent committed.”  Unfortunately, her response fell on deaf ears and she was terminated “for cause” one month later.

As mentioned in previous columns, how many months’ severance one obtains is usually determined by factors such as the employee’s age, length of service, compensation, character of employment and the ability of the employee to find a comparable position. Each factor is given different weight depending on their respective importance in a particular case.

Humphrey was only 32 and had been employed for approximately three years, earning $90,000 a year plus bonus and stock options (totalling about $220,000 per year).

The court explained that being terminated for cause six months after being promoted to COO would be difficult to explain to potential employers when seeking comparable employment. The court also accepted Humphrey’s argument that it was difficult for women, especially of such a young age, to find senior executive positions. These acknowledgements dispel the myth that younger employees receive lower awards as, in this case, her youth actually increased her entitlement.

Mene argued that, although Humphrey held the title of COO, she was not entrusted with COO responsibilities. That argument was rejected. The court found that Humphrey was indeed performing such duties. It also noted that Mene “represented to the world, its shareholders and Ms. Humphrey that she was the COO.” It found Humphrey entitled to 12-months’ pay which it reduced by one month because of her failure to search for comparable work.

Unsurprisingly, Mene appealed and argued that the notice period should be much less, arguing that the court relied too heavily on the COO title, that Humphrey’s was of a short service, she young, and that she failed to search for other positions.

The Ontario Court of Appeal accepted that Humphrey was indeed entitled to 12-months’ pay, but noted that she unreasonably delayed starting her search for new employment by several months and then turned down an offer of a job which, although not the same as her job at Mene, offered comparable remuneration. It reduced her award to six months’ pay accordingly.

What is notable was the fact that the Ontario Court of Appeal accepted the principle of 12-months wrongful dismissal damages for such a young, short-service employee.

This decision serves as a useful reminder that “one-size-fits-all” severance formulas must be approached with caution, as they place too much emphasis on few factors, including age and length of service. It is also a reminder as to why, particularly when senior, highly compensated employees are involved, employers must be mindful of all the relevant factors in determining severance and not let one or two take on disproportionate weight.

Given the ever-growing law on termination clauses and increasing severance awards, the best method for employers to limit severance liability is to keep their employment agreements up to date. Ensure a lawyer reviews and/or updates your contracts to ensure that they contain valid, binding, enforceable termination clauses. Finally, employers should be cautious when alleging cause as that will impact the trial judge’s view. Have a lawyer review the case prior to alleging cause and ensure you are not providing the trial judge reason to be offended by the employee’s treatment.

This decision is not anomalous. In the case of Paul Love and Acuity Investment Management, the Ontario Court of Appeal increased the judgement from five to nine months because it viewed the trial judge as overemphasizing Love’s short two-and-a-half-years’ service at an investment house. In Shtabsky and Dubeta Interiors, Shtabsky was awarded 12-months’ pay after only two weeks of work.

In my text the Law of Dismissal in Canada, I cite well over 100 factors courts can review in determining proper severance. Employers cannot over-rely on any single one (or even two).