Ill worded severance offer can pay off for employee
This letter confirms our conversation of today’s date wherein we advised you of the termination of your employment effective immediately. We are prepared to provide you a severance package as follows:
- We will provide you with two weeks’ pay in lieu of notice plus two days per year of service severance as required by the Canada Labour Code;
- In addition to the amount provided in 1 above, we will continue to pay you your regular salary of $60,000.00 per year until March 22, 2012 or the date you find new employment, whichever occurs first. If you find new employment, we will cease the salary continuance and pay you a lump sum amount equivalent to 50% of the remaining payments. In total, the above offer provides you with a potential severance amount of $120,000.00 plus other consideration.
Andrew accepted this offer and signed a full and final Release. Once that Release was handed back in, the deal was done. Andrew could not change his mind and neither could the company. Since Andrew worked for the company for 25 years, the amount set out in paragraph 1 is 60 days’ pay ($13,845.46). Andrew did not find work for 24 months.
By the time all the severance was paid out, how much do you think Andrew should have received $120,000.00 or $133,845.46? When this exact scenario unfolded in a case in Ontario a few years ago it ended up in a courtroom. The employer said that the last line of paragraph 2 clearly set out the total severance and that the pay in lieu of notice that the courts might have ordered, as set out in paragraph 2, included the statutory minimums set out in paragraph 1. They were not in addition to it despite the wording.
The employer argued, correctly, that the Court of Appeal has made it clear, repeatedly, that nobody is entitled to more than 24 months reasonable notice. It also pointed out that if a judge awards reasonable notice, the statutory minimums are included within that total notice and not in addition to it. It would be unfair for Andrew to receive more than a court would ever award him.
The last sentence of paragraph 2, it argued, refers to the “above” offer, which includes paragraph 1 and not just paragraph 2.
Andrew, of course, did not agree. What do you think? Read the letter again.
On the one hand, you have those words, “in addition to the amount provided to 1 above” and on the other hand, you have that last line of paragraph 2 which says, “In total, the above offer provides you with a potential severance amount of approximately $120,000.00 plus other consideration.”
There is a rule of contract interpretation that contracts are to be interpreted in favour of the person who did not draft them unless such an interpretation is completely unreasonable and could not reflect the parties’ expectation. Andrew did not have any input into drafting these paragraphs. Andrew’s lawyer pointed out to the judge that just because the Courts would not award more than 24 months pay in lieu of notice does not mean the parties could not agree to something better.( It rarely happens but I have seen it).
He also pointed out that that last line of paragraph 2 is very vague. It talks about a “potential severance” and uses the word “approximately”. It also says, “plus other consideration”. Consideration means, basically, other good things which could include the money in paragraph 1.
The fact is that the employer has the resources and the access to lawyers, whether or not they use them. They have to live by their words. Not surprisingly, Andrew won his case and the employer was ordered to pay the extra money and the court costs. It’s not like the employer had no arguments at all. But at the end of the day, the courts will tend to side with the employee if the issue is grey.
It’s a little bit surprising that this case actually made it to court. I would have thought that the employee would have offered half of the extra money or perhaps a bit more, to avoid the court costs in a case it had a very good chance of losing from the start. Maybe it did and Andrew was determined to get all the money. This was not my case so I am guessing.
The lesson for employers is to read those termination letters very carefully. If you write it, you will pay it. Claiming that there was some sort of mistake will usually get you nowhere. Saving a few hundred dollars by not having your lawyer review the termination letter can have costly consequences.
Think of it as insurance, if you can show the lawyer made the error, it is their tab not yours.
As published in the Hamilton Spectator, March 22, 2010