How does requiring an executive to purchase shares in his employer’s company affect the employee’s reasonable notice period in the event that his employment is terminated without cause? According to the Honourable Mr. Justice G.E. Taylor of the Ontario Superior Court of Justice, the answer is that it tends to length the notice period.
In the case of Rodgers v. CEVA, 2014 ONSC 6583 (CanLII), Mr. Justice Taylor held that, “Based on the required investment in [the employer] I find there was at least an implied representation that the plaintiff was about to embark upon a long-term employment relationship with [his employer.]
Facts
The case has been cited by others as important to the issue of inducement, and certainly it is, but the requirement to purchase shares is an important particular nuance.
In 2009, the plaintiff was the president of another company, at which he was earning an annual salary of $189,000 plus a bonus. In 2009 his bonus was $126,000. The plaintiff had been employed by that company or one of its affiliated companies since 1998.
The plaintiff did not approach the defendant seeking employment but rather was recruited to become the defendant’s Country Manager of its Canadian operations. The plaintiff knew an employee of the defendant, as a result of prior business dealings. Sometime before September, 2009, that employee approached the plaintiff and asked if he would be interested in employment with the defendant. He said the defendant was looking for someone to lead the separation of the defendant’s Canadian operation from that of its operations in the United States. The plaintiff indicated he would be interested in such a position.
The plaintiff attended a total of seven interviews with the defendant. He was flown to Houston, Texas on two occasions and his final interview was with the Chief Executive Officer of the defendant’s global parent company. The defendant presented the plaintiff with an offer of employment which he did not accept. Within a week the defendant presented a second offer of employment to the plaintiff which he accepted. The original offer of employment did not contain the signing bonus of $40,000. No evidence was presented with respect to the salary or any other terms or conditions of the first offer of employment although the plaintiff testified that he thought the salary in the first offer was less than the salary in the offer that he accepted.
The plaintiff accepted an offer of employment with the defendant on September 6, 2009 to become its Country Manager, Canada at an annual salary of $276,000 with a $40,000 signing bonus paid within the first week of employment. The employment agreement also included other benefits.
The offer of employment also contained a term entitled “Equity Plan” which stated:
You will be expected to purchase shares in CEVA Investments, LTD at an investment of 37.5% of salary $64,500 EUR at the time of offer, with options granted at the rate of 0.25 options per share.
On June 28, 2012, the plaintiff’s employment with the defendant was terminated. At the time of termination, the defendant paid the plaintiff two weeks salary in lieu of notice totalling $11,115.44, severance pay in the amount of $5307.72 and outstanding vacation pay of $20,324.92. Benefit coverage was terminated as of July 12, 2012.
The plaintiff sued for wrongful dismissal. The defendant did not disagree that two weeks notice of termination was insufficient, but the parties were unable to agree on what the reasonable notice period should have been. The plaintiff took the position that the reasonable notice period was between 18 and 24 months; the defendant did not suggest a period or range of notice to which he says the plaintiff ought to be entitled.
Decision
In his reasons for decision, Justice Taylor noted the following:
[33] With respect to the issue of inducement, I have come to the conclusion that there was some measure of inducement by the defendant which resulted in the plaintiff leaving his employment with Sameday. The only evidence is that the plaintiff was approached by the defendant to become its Canadian manager. The financial package including, signing bonus and benefits was attractive to the plaintiff and was part of the encouragement on the part of the defendant to have him accept the position which he was offered. When the plaintiff declined the defendant’s initial offer, an improved offer was promptly presented. While I am of the view that there was some degree of inducement by the defendant to encourage the plaintiff to leave his secure employment, the inducement did not achieve the level of that in Wallace where the plaintiff was given a specific assurance of long-term job security.
[39] Based on the required investment in CEVA Investments I find there was at least an implied representation that the plaintiff was about to embark upon a long-term employment relationship with the defendant. The plaintiff would reasonably conclude from the requirement that he invest the equivalent of 4.5 months of salary, which he had yet to receive, that he would not to be summarily dismissed early in his tenure and be provided only minimal notice or severance pay because of the lack of seniority. I find that the required investment in CEVA Investments was intended to create the impression in the mind of the plaintiff that by accepting employment with the defendant he would have a degree of job security beyond what would normally be anticipated.
[45] To summarize, the plaintiff’s age [55], his position as the Canadian manager of the defendant’s operations responsible for over 500 employees and sales in excess of $140 million annually, the limited number of similar positions in Canada and the requirement that the plaintiff make a significant investment with a company associated with the defendant as a condition of employment all point to a lengthy notice period. The recruitment of the plaintiff by the defendant when he was employed in a senior position of significant length of service is also a factor tending to increase the period of notice. Against those factors is the short period of time that the plaintiff was employed by the defendant. However, I have concluded that both parties to the employment contract contemplated, at the commencement of the employment relationship, that it would be a long one. Specifically, I do not believe that either party thought of the plaintiff’s employment could be terminated after approximately three years of service upon payment of two weeks’ salary in lieu of notice plus severance pay in the approximate amount of $5000.
In the result, Justice Taylor awarded the plaintiff 14 months of pay in lieu of notice, less mitigation earnings.
Commentary
The case once again illustrates the importance of a holistic approach to the calculation of reasonable notice, as was directed by Jusice McRuer in Bardal v Globe and Mail in 1960.
14 months does not seem surprising for someone at the plaintiff’s level. For those who still subscribe to the ‘one month per year of service’ approach, however, I am sure it will be shocking. Again, we have to go back to what was said in Bardal.
On the whole I like this decision. Straightforward, balanced and well reasoned; it is an informative and useful decision on the issue of inducement.
Takeaways for Employees with Labour Pains
The takeaway for employees is, again, first and foremost that one should not believe that the minimum amounts of notice and severance prescribed by the Employment Standards Act, 2000 will also be appropriate compensation for their termination from employment. The ESA prescribes minimum standards, which are typically only appropriate in very rare cases. The plaintiff in this case was given two weeks’ notice of termination by his employer, which was sufficient under the ESA; a judge gave him 14 months.
Calculating the amount of reasonable notice to which an employee may be entitled on termination can be difficult. It is certainly more of an art than a science. If you have been let go from your job and are looking for legal assistance with respect to that issue, the professional, experienced and cost-effective employment lawyers for employees at Ottawa's Kelly Santini LLP would be happy to be of service to you.
Takeaways for Employers with Labour Pains
The takeaway for employers is that it would have been beneficial for this employer to have used a written employment agreement with a fixed severance provision. Frankly, I am a little surprised that the employer in this case did not use have a legally binding severance provision – perhaps it was because the employer was based in Houston.
Although the amount to which the employee may have been entitled under an employment agreement may have been more than the employer ended up paying the plaintiff in this case, given his mitigation earnings, the transactional and opportunity costs associated with a lawsuit would have offset any such savings.
If you are looking to have executive employment agreements drafted for your employees, the professional, experienced and cost-effective employment lawyers for employers at Ottawa's Kelly Santini LLP would be happy to be of service to your business or organization.
Contact Me
To reach the author of this blog, Sean Bawden, email sbawden@kellysantini.com or call 613.238.6321 x260. You may also use the contact box at the top of this page.
--As always, everyone’s situation is different. The above is not intended to be legal advice for any particular situation. It is always prudent to seek professional legal advice before making any decisions with respect to your own case.
Sean Bawden, publisher of Labour Pains, can be reached by email at sbawden@kellysantini.com or by phone at 613.238.6321.
Sean P. Bawden is an Ottawa, Ontario employment lawyer and wrongful dismissal lawyer practicing with Kelly Santini LLP. He is also a part-time professor at Algonquin College teaching Trial Advocacy for Paralegals and Small Claims Court Practice.
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