Employers Beware – Employee with 2 Years of Service Entitled to 9 Months of Notice

Chung v Quay Pacific Property Management Ltd, 2020 BCSC 174

A recent decision from the BC Supreme Court, Chung v Quay Pacific Property Management Ltd, 2020 BCSC 174, shows that a short service employee (2 years of service) can receive a significant notice period (9 months) on termination without cause.   

FACTS

The claimant was the Chief Financial Officer (CFO) of Premium Strata Services Inc. (“Premium”) from September 22, 2016 to December 3, 2018. At the time he was hired, Veronica Wynn (“VW”) was the sole shareholder of Premium.  The defendant, Quay Pacific Property Management Ltd. (“Quay”) eventually acquired all of VW’s shares and, on December 3, 2018, terminated the claimant’s employment with only one month’s working notice. Specifically, the termination letter stated that the claimant’s employment was to end on January 3, 2019, but that if he stayed in his position until then, he would receive a bonus of one month’s pay. The claimant accepted the deal, though he experienced several issues.  First, he felt that Quay did not trust him: they took his keys and forbade him from working overtime or from home. Second, Quay’s director of accounting, LK, refused the claimant’s vacation pay request.  Last, although the termination letter stated the claimant’s last day would be January 3, 2019, LK asserted in an email that his last day was December 31, 2018.

When the claimant arrived at work on December 31, he was told he was no longer needed. Despite his protests, he was escorted out of the office. The claimant testified at trial that his first month off work was stressful: he worried about finding another job, lost sleep, was unable to focus, and could not discuss his concerns with his wife as she had depression.  The claimant eventually found full-time employment on May 20, 2019, at a salary commensurate with his previous role.

ISSUES

The main issue was how much notice would have been reasonable in the circumstances.  The court also considered whether the claimant was entitled to vacation pay, bonus pay, and aggravated damages.

A separate, but related, issue was whether Quay was entitled to indemnity from VW in connection with the sale of VW’s shares to Quay. 

LEGAL TEST

Notice

There was no dispute that the claimant was wrongfully dismissed, since he met his burden of proving he was dismissed without cause or reasonable notice. The only issue left for the court to consider was how much notice would have been reasonable in the circumstances.  

The reasonableness of notice depends on the facts of each case.  It is well established that the court will consider several factors, including (a) the character of the employment; (b) the length of time the employee worked in their role; (c) the employee’s age; and (d) the availability of similar employment, taking into account the employee’s experience, training and qualifications.

The claimant argued that reasonable notice would have been nine months, while the defendant argued for three to five months.  The court agreed that nine months’ notice would have been appropriate, taking into account the fact that the claimant was 53-years-old at the time his employment was terminated, that he functioned in an executive position with professional qualifications, and that he was Premium’s CFO for two years and three months.  Since the claimant found new employment on May 20, 2019, his earnings from that position were deducted from the award.  The effective notice period was four and two-thirds months.    

Vacation pay

The claimant testified that he was owed vacation pay in the amount of $11,607 as of November 30, 2018, with a further $350 owing during the notice period up until December 3, 2018. Quay argued it was not responsible for paying any amount owing prior to December 3, 2018; rather, it asserted VW was responsible for all costs prior to the amalgamation.  The court rejected Quay’s argument.  The court agreed that the claimant was entitled to the amount owing until November 30, 2018.  However, he was not entitled to additional compensation for vacation pay during the notice period.

Bonus pay

The claimant argued that the termination letter clearly stated Premier would give him a bonus of one months’ pay, less statutory deductions.  Quay said the promise to pay the bonus was made by VW personally; in other words, she had already resigned as Premier’s director and therefore had no authority to bind Premier or Quay.  In response, the claimant argued, and the court agreed, that the “indoor management rule” codified in section 146 of the Business Corporations Act applied. Essentially, that section states that when a person guarantees an obligation of the company, the company cannot shield itself from liability by later claiming that person had no authority to bind the company. Because the defendant portrayed to the claimant that VW was its agent, the claimant was entitled to rely on any agreements made. Further, the SPA imbued VW with the responsibility of delivering the termination letter on behalf of Premier, which by extension authorized her to award a bonus.

Aggravated damages

The court decided the claimant was not entitled to aggravated damages.  In this case, the court found the manner of the claimant’s dismissal did not cause him mental distress going beyond normal upset and hurt feelings.

Quay’s indemnity claim against VW

Quay’s claim for indemnity against VW stemmed from a clause in the Share Purchase Agreement that stated the Vendor – being VW – would indemnify Quay for any damages it may have to pay when terminating employees. However, the issue boiled down to whether VW or Premier was responsible for the indemnity.  Quay’s claim for indemnity against VW was unsuccessful.

TAKEAWAY

Short service employees can receive lengthy notice periods at common law.  In this case, a management employee with 2 years of service was assessed a reasonable notice period of 9 months.  This case reinforces the importance of having written employment agreements in place for all employees, especially management employees, to specify the parties’ agreement about the amount of notice on termination without cause. 

This update was co-authored by Scott Marcinkow and articling student, Klara Danielson. Looking for more information regarding similar issues? Contact Scott at smarcinkow@harpergrey.com or anyone else listed on the authors page.