Monday, October 22, 2012

Case Synthesis: Bowes and Wright

This entry concerns two cases I discussed in June:  Wright v. The Young and Rubicam Group of Companies (Wunderman), and Bowes v. Goss Power Products.

The proposition I dealt with from Wright deals with a growing area of employment contract interpretation, where the core principles are becoming pretty well-established in the law:  Namely, that termination language in an employment contract which could violate the Employment Standards Act is void from the start, regardless of whether or not it actually gives the employee his or her statutory minimums at the time of termination.

Bowes was an important case finding that, where a contractual term sets out that an employee can be dismissed on provision of a certain amount of notice or pay in lieu, that term does not automatically include an obligation to mitigate.  (Therefore, though Mr. Bowes found a new job shortly after being dismissed, he was nonetheless entitled to his full contractual pay in lieu of notice.)  If an employer wants to include an obligation to mitigate, that must be expressly included in the contract.

I've now started to see contracts drafted by other lawyers, taking Bowes into account and creating an obligation to mitigate, but which - as I predicted might happen - fail to properly account for the ESA implications, thereby potentially rendering the whole termination clause unenforceable.

So a post-Bowes contract goes something like this [note, this is not actual contractual language, nor is it intended to be; I'm just setting out the basic structure]:  If you are terminated without just cause and without notice, you will continue to receive your remuneration for x weeks [or set out a formula], provided that you make reasonable efforts to secure replacement employment, and that in the event that you obtain replacement employment your further entitlements will be reduced/eliminated/etc.  I've seen percentage-based clawbacks used to incentivize employees to actually find new work, and also to motivate reporting (because it allows the inclusion of a reporting structure, failing which all future income is cut off).  These clauses have been drafted by clever and thoughtful lawyers who are very experienced in the field.

But there's still a problem.  Actually, two problems.

There are a couple of interesting features of ESA pay in lieu of notice and severance:  Firstly, it is not subject to an obligation to mitigate.  Secondly, it cannot be paid in instalments (subject to a proviso that an instalment agreement can be reached in respect of severance payments).  So a contractual provision entitling the employer to provide periodic payments in lieu of notice, on its face, breaches the ESA.  But more importantly, a contractual term which, on its face, purports to entitle the employer to reduce or eliminate its payments, including ESA minimums, due to mitigation earnings or failure to mitigate...will almost certainly be void.

(Caveat:  In the right fact pattern, with a sufficiently generous notice period and percentage clawback, it may be plausible to argue that the language still gives a 'greater right or benefit', and therefore isn't void.  However, that would be the exception, not the rule.)

Remember:  We're not just talking about voiding the mitigation language, but most likely the entire termination clause.  In the vast majority of cases, the termination clause will give lesser value to the employee than the common law (which is applied in the absence of a valid clause).  Mitigation will only be an issue in a relatively small minority of cases, but because of the law as set out in Wright, there is the risk that the language dealing with mitigation may outright void the entire termination clause, leaving in place the common law presumption of "reasonable notice".

The construction of ESA saving language may be an issue, too.  I've seen at least one clause framed using the saving language which I prefer, entitling an employee to "the greater of" the ESA minimums or the results of the contractual formula (which is usually excellent language, in my view), but which goes on to set out the mitigation obligations following an analysis contingent on the contractual formula being applied.  Meaning that the "greater of" language will probably end up looking at the gross figures without accounting for mitigation:  Let's say the stat minimum is $100, and the formula, sans mitigation, is $150.  The formula yields the greater result, so the language says "That's what you get...subject to your obligation to mitigate, which could bring you down to $75."  See the problem?


This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.

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