When an employee is terminated without cause, employers must ensure that the employee is provided reasonable notice of their termination or pay in lieu of notice. If an employee is not asked to continue after they have been informed of the termination, then the employer will need to arrange severance pay to cover the minimum standards in the Employment Standards Act. An employee may also be entitled to a longer notice period under case law and, therefore a larger amount of severance pay in lieu of this notice period. Additionally, the employee may be entitled to certain benefits, bonuses, or commissions beyond their salary during the notice period. The benefits, bonuses, or commissions available will depend highly on the employment contract terms.
In this blog, we will discuss when a book of business may be included as part of the employee benefits to be retained during the notice period. We will examine the case of Ratz-Cheung v. BMO Nesbitt Burns Inc., in which the court discusses when a book of business may be part of the compensation to an employee upon termination.
When can a book of business be included in a severance package?
Generally, employees are entitled to compensation for all losses that arise from an employer’s failure to provide proper notice, which is considered a breach of contract in a wrongful dismissal claim. The damages awarded should put the employee in the same financial position as if they had been provided notice and worked until the end of the reasonable notice period. Therefore, damages would include any benefits the employee would have received during the notice period. Damages could also include the lost opportunity to earn a bonus or benefit, including where this bonus or benefit forms a significant part of the employee’s compensation or even when the bonus or benefit is discretionary.
Determining whether damages include benefits and other payments
There is a two-step process for determining whether damages would include bonus payments and other benefits that would have been received during the notice period:
- Would the employee have been entitled to the benefit, bonus, or commission as part of their compensation during the reasonable notice period?
- If so, are there any terms in the employment contract or bonus plan that clearly take away or limit that entitlement?
In the second step, the terms of the agreement must be absolutely clear and unambiguous. For example, if the term requires that an employee be a “full-time” or “active” employee to receive the benefits, this is not sufficient to limit the employee’s entitlement to damages. This is because if the employee was provided reasonable notice and worked during that period, then they would have been considered a “full-time” or “active” employee during the notice period.
It is not sufficient for the contract to state that the employee’s rights to damages are not available for a termination “with or without cause”, as a termination without cause does not mean that there was a termination without notice. The employment contract will also not end until after the reasonable notice period expires. This language will not satisfy the second step of the test. Therefore, a term in the employment contract that states that a bonus or benefit is only available if the payout is prior to the termination will not limit the employee’s rights to a bonus or benefit that they would have earned during the reasonable notice period.
Loss of opportunity to sell a book of business
The loss of opportunity to sell a book of business can be included as part of the damages if it can be shown that the employee was entitled to the value during the notice period if the employment contract does not clearly and unambiguously limit that entitlement and if the employee can demonstrate that they were prepared to go forward with selling the book of business. There may be terms set out in the employment agreement to specify when this may be available.
Terminated employee fails to prove damages for loss of opportunity to sell book of business
The employee in the Ratz-Cheung case was an investment advisor who was dismissed without cause at the age of 54. She had worked for the employer for 24 years at the time of termination. As part of her claim for wrongful dismissal, she sought approximately $375,000 in commission and over $1.1 million as a loss of opportunity to sell her book of business. The court found that while she was entitled to a 24-month notice period and $240,000 for commission, she failed to prove that she was also entitled to the loss of opportunity to sell her book of business.
The employer had a policy setting out their investment advisors’ retirement agreements, the “BSA Program.” The court found that the employee would have been entitled to take advantage of the program during the notice period. In particular, she met the eligibility requirements, including the years worked for the employer and the value of assets managed. There were also no meaningful performance issues that would have limited her eligibility. Overall, there were no reasonable grounds for the employer not to approve her participation in the program.
No evidence to show that employee intended to retire
The BSA program also did not contain terms that would unambiguously remove her entitlement. The program stated that an “[employee] who has been terminated, with or without cause, whether or not working notice or payment in lieu of notice termination and/or severance has been offered to the [employee]”, but this was not sufficient to find that her entitlement was clearly removed, as the employment contract is not terminated until the end of the notice period.
However, the employee failed to prove that she would have retired by entering into a retirement agreement under the BSA program to sell her book of business during the notice period, as there was no evidence that she intended to retire. This was distinguished from another Court of Appeal decision, in which there was clear evidence that before the employee’s termination, he was seeking to retire and already reached an agreement with another investment advisor to sell his book of business.
Contact Haynes Law Firm in Toronto for Advice on Employee Benefits in Wrongful Dismissal Cases
Our experienced employment law team at Haynes Law Firm can assist you with wrongful dismissal claims, including where employee benefits are involved. For employees, our goal is to ensure that they understand their rights and receive maximum compensation in wrongful dismissal cases. Haynes Law Firm also assists employers in avoiding liabilities that may arise from wrongful dismissal claims. We are dedicated to finding the best resolution for you.
To book a consultation, please contact us online or by phone at 416-593-2731.
