Lawton v Syndicated Services Inc., 2022 ABPC 3 is a new Alberta Provincial Court decision where the Honorable Judge M.B. Golden upheld an employment contract which provided 4 weeks of severance upon termination of employment of an employee.
The decision is interesting because the court appeared to place significant weight on the fact that the employer at issue was a small employer and not a “multinational”.
Facts
The pertinent facts in this case are as follows:
- the employee was employed in the position of Chief Operating Officer with the employer
- the employee negotiated an employment contract term that he would be provided with 4 weeks’ notice of termination, and there was evidence that other managers only had 2 weeks written in their contracts
- he worked with the employer for about 1 year and 8 months
- his employment began prior to the COVID-19 pandemic. It ended in April 2020, after oil prices had fallen by almost 50%, and into the pandemic
- the business had been struggling prior to the pandemic setting in, and it was accepted that the pandemic was considered by the owners to be the “nail in the coffin” requiring them to terminate his employment
- the employee was terminated on 4 weeks’ notice
- the employee sued, alleging that he had earned a bonus and that he should have been entitled to reasonable notice severance at common law instead of the 4 weeks indicated in the contract
Analysis / Conclusion
On the issue of bonus, the trial judge found that no other employees had received bonuses in 2020, and the business was operating at a loss. Accordingly, no bonus was awarded.
On the issue of contractual interpretation, the plaintiff employee argued that the clause providing for 4 weeks of termination pay was void under the Employment Standards Code. The exact argument used by the plaintiff on this is not specified in the decision, but generally there is a valid and strong argument that any termination clause which could ever result in less than the amounts provided by the ESC is void. For example, if this employee had been terminated after 10 years, the ESC would have provided 8 weeks, so termination notice of 4 weeks is void, regardless of how long he in fact worked there. I presume this is the argument the plaintiff used.
The argument that the clause was void was not successful. The trial judge reasoned as follows:
[27] In this situation over several meetings a contract, was negotiated. Mr. Lawton was not induced in any way to leave his former employment. He was simply unhappy there. He negotiated an increased salary with the CanDyne, now Syndicated. He negotiated 4 weeks severance which was higher than that of other managers.
[28] Syndicated is a small business described as a “mom and pop” operation, not some multinational as in several of the authorities. It is currently being kept afloat by Mr. McKinnon’s personal finances to weather the current economic storm, and it is operating as a loss.
[…]
[42] The employment contract had the term “Termination of this contract requires 4 weeks notice”. This term is clear and unambiguous. Parties are entitled to negotiate terms of employment contacts and where the terms do not interfere with statutory requirements they ought to be enforced. Mr. Lawton was bringing expertise to expand Syndicated with a Turnkey Operation. Due to the market conditions and the pandemic the venture failed. The company has been operating at a significant loss just to stay afloat for the past two years. This is a small business, not a multi-national business.
My Take
There are many authorities which have found that any termination clause which would violate the Employment Standards Code under any circumstances (not necessarily just the circumstances which actually transpired), is void. The courts routinely void such clauses and then simply consider what reasonable notice severance the employee would be entitled to at common law. There are a few authorities contrary to the general trend, but not many.
What’s interesting and unusual about this case, to me, is that the trial judge repeatedly mentioned that this was a “small business” and “not a multi-national”. This suggests to me, that somehow the size of the business had significant weight in the interpretation of the contract in this case. Large, sophisticated companies often seem to be held to a higher standard in court than would smaller companies, but I am not aware of any prior caselaw which would be explicitly along the same lines as this case.
I am interested to see if this one gets appealed.
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