For Canadian employers, navigating the distinction between resignation and termination can be tricky. If an employee resigns, there is no entitlement to severance. If an employee is terminated without cause, the employer is on the hook for termination pay (and possibly severance pay in Ontario and the federal jurisdiction). The recent Alberta ruling in Carroll v. Purcee, 2017 ABQB 211, highlights that mistakes in distinguishing between termination and resignation can be costly.
The plaintiff (MC) worked for the defendants, Purcee Industrial Controls Ltd. and Purcee Industrial Ltd. (Purcee), for four years and eight months in Calgary, Alberta, and Madagascar. MC’s title was operations manager, with responsibilities including sales and business development. There was no written employment contract between the parties.
Business began to decline in 2012, and so did MC’s relationship with Purcee. In August 2012, MC tendered his resignation and requested a fair severance package. Purcee refused to accept the resignation, and MC continued to work for Purcee.
Several months later, in May 2013, MC advised Purcee that he wished to terminate his employment on “professional terms” and proposed a severance package. He followed up on this offer in June 2013 when Purcee advised that they would be ready to discuss the matter in “a couple of days.” In response, MC stated that he planned to move back to Canada with his family in July.
MC’s employment ended on June 7, 2013, when Purcee purported to accept his resignation. There was no reference to the proposed severance package. MC later sued Purcee, claiming that his employment was terminated without cause and, as a result, he was entitled to damages in lieu of notice.
In Canada, resignation must be clear and unequivocal
The court found that MC had not resigned but was terminated by Purcee without notice and was owed pay in lieu of notice.
The court emphasized that in order for a resignation to be effective, it must be clear and unequivocal. To determine whether an employee has resigned, the court will apply both a subjective test and an objective test. The subjective test considers whether the employee intended to resign. The objective test asks whether, given all of the circumstances, a reasonable employer would have understood that the employee had resigned.
In this case, the court determined that MC did not intend to resign from his position. Each time he offered to resign, this offer was conditional on the negotiation of a severance package. This was important for two reasons:
First, it is difficult in such a circumstance to argue that the resignation is clear and unequivocal when it is tied to a proposal for terms of severance. But secondly, it calls into question an employer’s ability to accept that resignation, if in fact it is valid, if the employer does not also accept the terms proposed by the employee.
Accordingly, MC’s resignation was not clear and unequivocal, but rather was an invitation to discuss the terms of his termination. He was dismissed without cause and entitled to damages as a result.
Takeaway for employers in Canada
In Canada, if an employee resigns, the employer should be cautious about taking the resignation at face value. The takeaway from this decision is that an intent to resign must be clear, unequivocal, and unconditional. Where a resignation may not be clear, unequivocal, and unconditional, it is good practice for an employer to follow up with the employee to clarify that the employee truly intends to resign. Even better, the employer should obtain written confirmation of the resignation and give the employee an opportunity to discuss the reasons for the resignation prior to accepting it.
As in this case, matters can be complicated when the employee attempts to negotiate a severance package before resigning. If an employer receives an offer to negotiate termination pay, the employer can either refuse the offer at the outset or negotiate the terms of the employee’s departure. Purporting to accept a resignation with an outstanding offer from the employee could later prove to be problematic.