In a recent British Columbia Supreme Court decision, Gerry Miller v. Convergys CMG Canada Limited Partnership, the court confirms a number of useful principles for employers who use an employment agreement containing minimum severance provisions.
The facts of the case are relatively straightforward. Miller had been employed for 7½ years. He was hired initially as a client services manager. He was a senior client services manager when terminated without cause.
Miller argued that the severance clause in his employment agreement no longer applied. He said that his job at the time of termination was substantially changed from the job when hired. The court accepted the argument that a “substantial change” in a job could result in the severance clause no longer being applicable; the “substratum” of the employment contract had changed.
In this case, however, the court rejected the application of this principle for two reasons: (1) the evidence showed that the job was “essentially” the same as the position Miller was hired for; and (2) there was specific language in the employment agreement that said: “your position with the company may change; however, the terms of this employment contract and all related schedules will continue to apply. …” Another clause said, “changes in position, responsibilities, salaries or benefits will not invalidate any provision in this contract. …”
Lesson No. 1 for employers: Put specific wording in the agreement to negate a “substantial change” argument.
The next argument by Miller was that the severance clause was unenforceable because (a) it was ambiguous; (b) it breached the Employment Standards Act; and (c) it was unconscionable.
The key part of the severance clause stated: “Convergys may terminate your employment for cause, or by providing you with notice, or pay in lieu of notice in accordance with the Employment Standards Act of British Columbia.”
Relying on previous case authority, the court said that this clause is unambiguous, even though it does not use the word “only.”
Lesson No. 2 for employers: Keep the severance clause simple and use the word “only” when limiting severance pay to the statutory minimum under employment standards laws.
Miller next argued that when the employment agreement was entered into he had already been employed for three years. A probationary section of the severance clause, which provided for no severance entitlement during the probationary period, negated the entire severance clause. Miller was relying on the principle that if any part of the severance clause is below statutory minimums, the whole clause is void. The court rejected this argument saying that the probation portion of the clause would never have applied to Miller.
Lesson No. 3 for employers: Avoid using a standard form severance clause that, on its face, does not apply to the specific employee. This employer got into trouble because it used an agreement intended for a new hire.
Miller next argued the severance clause was unconscionable and therefore unenforceable because (1) he had only 24 hours to consider the contract before signing; (2) he did not receive legal advice before signing; (3) Convergys did not draw to his attention the severance, non-competition, and non-solicitation clauses; and (4) Convergys did not provide him with a signed copy.
The court stated it is not the duty of an employer to point out the strengths and weaknesses of an employment contract. The court also stated that it is sufficient that a prospective employee be given time to review a contract and seek advice in the absence of any influence by the prospective employer.
Lesson No. 4 for employers: Always give an employee time to review and seek advice with regard to an employment contract. Put a specific clause in the agreement confirming the employee has been given enough time to do so. Keep the language simple and easy to understand.
One final point of interest to employers is that during the termination process, Convergys offered Miller extra severance pay if he would sign a release. Convergys withdrew that offer when Miller claimed a higher amount. The court stated that a voluntary offer to sweeten a severance package in return for a full release is “akin to a settlement offer and is neither evidence that the employer does not intend to rely on the contract nor evidence that the employer is contractually bound to pay the increased sum.”
Lesson No. 5 for employers: Do not be afraid to make an increased offer in exchange for a release. This will not automatically prejudice your strict legal position.
While discharged employees continue to try to invalidate termination clauses, courts are showing a greater inclination to uphold plain language agreements with employees that are introduced to them fairly.