A frequent occurrence in
what some once called “Silicon Valley North” is the overtaking of one company
whose fortunes have changed (let’s say Nortel) by another. For some employees the change is minor as
they are fortunate enough to be hired on by these successor companies. That is, however, until they are fired by
these new companies. As some employees
of these new ‘grey knights’ are discovering not everything is necessarily the
same as it was.
Some of these successor
companies have attempted to insert “severance policies” into their employment
agreements. A frequently asked question
I receive is whether or not these severance policies are enforceable.
Whether or not the
severance policy is enforceable, which is to say whether or not the policy is
actually determinative of the amount of severance to which a dismissed employee
is entitled is a function of a number of factors well beyond the scope of a
simple blog post.
In short, the
answer is usually “no.”
The reason these
policies are usually not enforceable is because the employee usually does not
get anything for them beyond continued employment; and Ontario judges have
pretty much consistently decided that continued employment is not simply good enough.
Analysis
For those who wish to know more, here is my legal analysis:
The successor company (“Successor
Co.”) is the party seeking to rely on the severance policy. It therefore has the burden of demonstrating
that the policy is a valid and enforceable contract. As I tell my clients, not all agreements that
people make are legally-enforceable contracts.
For example, if two parties agree that A will pay B to kill somebody and
B has a change of heart, the court will not force B to do so.
In order for a contract
to be valid three things must exist:
there must be an offer, the offer must be accepted, and both sides must
get something (what lawyers call “consideration”) for that offer.
In the case of these successor
companies, the company offered to hire the employee subject to the terms of its
Severance Policy. The employee
ostensibly accepted that offer. So far
two of the three elements of a binding legal contract are in place. However, query what the employee received for
Successor Co.’s offer. The only answer
is employment.
The legal question for
determination is therefore whether employment with a successor employer is sufficient
consideration for a new restriction (the severance policy) to be placed upon the
employee by Successor Co.
Ontario courts have generally
observed that, “a modification of a pre-existing contract will not be enforced
unless there is a further benefit to both parties”[1]
and, more to the point, continued employment alone is no consideration.[2] Better said yet still, the Ontario Court of
Appeal observed in 2004 that:
The law does not permit employers
to present employees with changed terms of employment, threaten to fire them if
they do not agree to them, and then rely on the continued employment
relationship as the consideration for the new terms.[3]
Nonetheless there are
cases in which courts have determined that continued employment is sufficient consideration for a new
restriction being placed on employees.[4]
The question thus turns
on its facts, which is why the caveat about seeking legal advice specific to
your situation is critical.
By and large, however,
it has been my experience that it is very much worthwhile taking a critical
look at the “severance policy” before simply agreeing to accept any offer made
in accordance with it.
--
As always, everyone’s situation is different. The above is not intended to be legal advice for any particular situation and it is always prudent to seek professional legal advice before taking any decisions on one’s own case.
As always, everyone’s situation is different. The above is not intended to be legal advice for any particular situation and it is always prudent to seek professional legal advice before taking any decisions on one’s own case.
Sean Bawden is an Ottawa, Ontario employment
lawyer and wrongful dismissal lawyer. He tweets from @SeanBawden.
[4]
See e.g. Maguire v. Northland Drug
Company Limited, [1935] S.C.R. 412, cited with approval in Techform
Products Ltd. v. Wolda, 2001 CanLII 8604 (Ont.
C.A.)
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