Labour and Employment Law Winter 2006-07 Fasken Martineau DuMoulin LLP Dismissal and the Calculation of Notice of Termination: Beware of Company Policies! By Dominique Launay It is well established case-law that employers who avail themselves of article 2091 of the Civil Code of Québec 1 and terminate an employment contract can choose not to give notice of termination but instead terminate the contract immediately by paying the employee compensation that is equivalent to a reasonable notice of termination. It is also well established that, should the employer and employee disagree as to the amount of compensation to which the employee is entitled, the dismissed employee has an obligation to minimize or mitigate his damages by making a reasonable effort to find and accept another job that corresponds to his qualifications. In theory, the court will deduct earnings generated in this manner during the notice of termination period from the amount of compensation to be paid.2 Until now, employers assumed that their established company policy regarding the calculation of compensation in lieu of notice ceased to apply to disputes respecting the length of notice of termination, and that the rules provided for in the Civil Code of Québec took precedence when settling such issues. The employee therefore ran the risk of receiving less compensation than that provided for in the policy, in addition to being subjected to the obligation of minimizing his damages. But the Court of Appeal of Québec’s Aksich v. Canadian Pacific Railway 3 (hereinafter, “CPR”) makes considerable changes to these principles if the employer has a company policy regarding the calculation of notice of termination. In fact, from now on, when an employment contract is unilaterally terminated, the compensation calculated must take into account any existing employer notice calculation policy, which has a significant impact on the dismissed employee’s obligation to mitigate damages. In Aksich, the appellant had worked for CPR for 27 years, 20 of which were consecutive. On July 12, 2001, CPR announced that his employment contract would be terminated effective August 31, 2001. At the time of his dismissal, the appellant was just over 52 years old and held an upper management position in the company. According to CPR’s notice of termination policy, the dismissed employee was offered monetary compensation calculated using the following formula: three weeks per year of service multiplied by the number of years of service, plus 11 weeks to account for benefits. Thus, in accordance with its policy, CPR offered the appellant a buyout equal to $169,400, in other words a notice of termination of 71 weeks or 16.4 months. This offer was conditional on the signing of a release discharging the employer of all claims and damages arising from the termination of the employment contract. The appellant refused the arrangement and claimed payment of a 27-month notice of termination and the right to avail himself of the company’s pre-retirement policy. In addition, he alleged that his obligation to mitigate damages did not apply for the period equal to the portion of compensation calculated pursuant to Fasken Martineau DuMoulin LLP LABOUR AND EMPLOYMENT LAW 2 CPR’s policy, namely 16.4 months. In other words, according to him, there should be no mitigation up to $169,400, and only the residual portion of the compensation to be granted pursuant to the Civil Code of Québec could be subject to mitigation. However, though the Superior Court had accorded Mr. Aksich notice equal to 15 months, it deducted his earnings for that period, thus applying the mitigation of damages principle. In appeal, the Court of Appeal of Québec upheld the employee’s grievance and ruled that the employer’s policy for calculating compensation in lieu of notice was an integral part of the terms of the individual employment contract, even if the contract made no reference to it, and set a sort of minimum standard. The court concluded that, for the period and amount corresponding to the notice of termination to which the appellant was entitled under this policy, no mitigation needed to be made by subtracting the income that the appellant managed to earn during the equivalent of this notice of termination. It was, in a manner of speaking, a “non-mitigation benefit” that the company should have taken into account when developing its policy. In fact, the policy was such that the employer accepted that the employee would receive a specific buyout the moment of his departure, even if he was able to find another job quickly. The appellant was therefore only required to mitigate his damages in respect of the surplus of the amount corresponding to the notice of termination granted by virtue of the company policy. Consequences of this Ruling: Change the Company Policy Instituting a company employment termination policy was often considered an efficient way to ensure that employees were treated fairly when their employment ended, as it provides for the calculation of notice of termination in advance. However, the Court of Appeal ruling clearly indicates that, should an employer decide to unilaterally terminate an individual employment contract (pursuant to article 2091 of the Civil Code of Québec), that employer will be bound by its company employment termination policy and will not be able to claim mitigation of damages during the notice of termination period calculated pursuant to the policy. Consequently, the employee will not be required to mitigate his damages and make a reasonable effort to find another job during the period equal to the notice of termination calculated according to the policy. In addition, any money that he earns during this period will not be deductible from the compensation established by the court in the event of a dispute. One way to mitigate the consequences of this Court of Appeal ruling would obviously be to eliminate company policies for calculating compensation in lieu of notice within the framework of a dismissal. In the absence of a company policy on the subject, the dismissed employee would maintain the obligation to mitigate his damages during the entire period equal to the notice of termination. Another solution could also be considered if abolishing a company policy is not desirable. Any policy that provides for the calculation of notice of termination or equivalent compensation should specifically provide that compensation is conditional upon the signing of an agreement (and, therefore, to the granting of a release in favour of the employer). Where no such agreement exists, this policy should also provide that the policy will become null and void and that the rules set out in the Civil Code of Québec will then apply to the termination of the contract. This will, among other things, leave the obligation to mitigate damages intact. Fasken Martineau DuMoulin LLP LABOUR AND EMPLOYMENT LAW 3 Dominique Launay has developed a particular expertise in federal labour law and in administrative law. She represents companies in employment and labour relations cases that fall under provincial jurisdiction, and represents clients' interests before various decision-making bodies. Dominique Launay can be reached at 514 397 5240 or at email@example.com. ___________________ 1) Article 2091 of the C.C.Q. stipulates that: “2091. Either party to a contract with an indeterminate term may terminate it by giving notice of termination to the other party. The notice of termination shall be given in reasonable time, taking into account, in particular, the nature of the employment, the special circumstances in which it is carried on and the duration of the period of work.” 2) This is the consequence of the employee’s obligation to reduce his damages, by virtue of article 1479 of the C.C.Q. 3) 2006 QCCA 931 (CanLII); August 25, 2006; Mailhot, Nuss, Bich J.C.A. See: http://www.canlii.org/qc/jug/qcca/2006/2006qcca931.html.
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