Employee's post-termination entitlements not always easy to determine
Exclusive to Canadian HR Reporter from Rudner Law.
An employee’s post-termination entitlements are not always easy to determine, as can be seen in the recent Ontario Superior Court of Justice decision of Ramcharan v. Wesdome Gold Mines Ltd.
In that case, the court awarded a dismissed employee significantly more than what the employer had offered, and far more than what the employment contract had specified. The Court even found that the vacation pay provided to the employee did not meet the employer’s statutory obligations.
Vincent Ramcharan was employed by Wesdome Gold Mines as its director of sustainability from April 2, 2018 until his employment was terminated without cause on Nov. 1, 2019. Ramcharan was 49 years old at the time of termination.
After commencing a lawsuit against his former employer, Ramcharan brought a motion for summary judgment. The court’s decision on the summary judgment motion is discussed below.
Enforceability of employment contract
Wesdome’s primary position was that Ramcharan’s employment contract limited his entitlement to only the minimum statutory notice pursuant to the Employment Standards Act, 2000 (ESA), which was already paid.
As I have written about previously, employment contracts can limit an employee’s entitlements upon dismissal, but only if they are found to be legally enforceable. In this case, the termination clause contained the following language:
“Termination
This Agreement and your employment with the Company may be terminated at any time for just cause, without prior notice or any payment in lieu of notice or payment of any kind whatsoever, either by way of anticipated earnings or damages of any kind, by advising you in writing.
The Company may at any time terminate this Agreement and your employment, in accordance with the Employment Standards Act, (Ontario) (the "ESA"). The provisions of this paragraph will not apply in circumstances where you resign from employment or are terminated for cause.”
The Court found that the termination clause was unenforceable, and did not limit Ramcharan’s entitlements upon termination.
At the time that Ramcharan had commenced his lawsuit on March 11, 2020, there may have been more ambiguity on whether or not this termination clause would be enforceable. However, a few months later, the Ontario Court of Appeal released its decision in Waksdale v. Swegon North America Inc., which made it clear that a “with cause” termination provision that denies the employee payment of their ESA statutory minimums, renders all termination provisions in the employment contract unenforceable.
Accordingly, at the time, the summary judgment motion was heard in February 2023, it should have been clear that the termination clause would not be upheld by the Court. It is therefore surprising that Wesdome maintained this position for almost three years, until the hearing of the summary judgment motion.
Notice period of six months
As the employment contract was found to be unenforceable, Ramcharan was entitled to reasonable notice of termination pursuant to common law. The Court considered the applicable case law, and determined that the reasonable notice period in this case was six months.
Many employers might be surprised that the court awarded a six-month notice period in this case. Ramcharan had been employed for only one year and seven months, and was 49 years old when he was dismissed.
This case serves as a good example that the length of service is not the only important factor, and that the courts will not calculate a notice period based on one month per year of service, or any other similar formula. The court will consider any factors that are relevant to the reasonable length of time the employee would be expected to need to obtain similar employment. In this case, the court cited Ramcharan’s senior management position in support of the somewhat longer notice period.
Compensation for loss of benefits
Wesdome had continued Ramcharan’s health and dental benefits for six and half months following his dismissal, which was longer than the common law notice period awarded by the court. However, Wesdome discontinued his coverage for short term disability, long term disability and life insurance benefits at the end of the two-week statutory notice period.
As a result, the court determined that Ramcharan was entitled to compensation for the loss of benefits, calculated as 10% of his base salary.
This is relevant to many wrongful dismissal claims, as it is very common for employers to cut off short term disability, long term disability and life insurance benefits after the end of the statutory notice period. Often, there are benefit plan limitations that require the employee to do so. Nonetheless, the employer could face liability under common law for ending such benefits early.
For example, an employer could face substantial liability if the employee becomes disabled during the notice period, and the employer had discontinued the employee’s long term disability benefits.
Calculating vacation pay
Ramcharan was paid all accrued vacation pay for his regular wages up until the termination date of Nov. 1, 2019. However, he claimed vacation pay on his 2019 discretionary bonus of $32,000.
Entitlement to vacation pay under the ESA is determined as a percentage of the employee’s wages (in this case, 4% of Ramcharan’s wages). The question for the court to determine was whether the 2019 discretionary bonus constituted “wages” and was therefore subject to 4% vacation pay. The court answered this in the affirmative, and found that Ramcharan was entitled to 4% vacation pay on the 2019 bonus amount.
This ruling may be surprising to many employers. The ESA provides that “bonuses that are dependent on the discretion of the employer and that are not related to hours, production or efficiency” are excluded from the definition of wages, and are therefore not subject to vacation pay. However, in this case the court found that despite the bonus being referred to as “discretionary”, it was based on corporate and personal performance, and therefore did not fall into the exception.
Therefore, employers should keep in mind that in addition to regular salary, there may be other payments made to the employer that are subject to vacation pay pursuant to the ESA.
Read more: How is wage calculated?
Takeaways for HR
As can be seen in this decision, an employee’s entitlements are not always clear and obvious. A contract that limits their notice period might not always be enforceable.
The applicable common law notice period may be significantly longer than what the employer assumes it will be. And vacation pay may be payable on certain bonus payments, even if these bonuses are said to be discretionary.
It is therefore recommended to speak with an employment lawyer to ensure that your company is not violating the ESA or exposing itself to liability in a potential lawsuit.
Alex Minkin is an associate at Rudner Law in Toronto. He can be reached at (416) 864-8500 or [email protected].
