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Alberta Court finds Company’s Severance Policy Not a Term of Employment Contract, Awards 24 Months’ Notice Period

Posted by Carscallen LLP on Oct 15, 2021 10:04:52 AM

Written by: Hema Ahuja and Aicha Kouyaté

Justice J.T Eamon of the Court of Queen’s Bench in Calgary recently released his Reasons for Decision in Schaufert v Calgary Co-Operative Association Limited[1] (“Schaufert”), a notable local employment law case for its application of the Supreme Court of Canada’s (“SCC”) decision of Matthews v Ocean Nutrition[2] (“Matthews”), which we previously discussed on the blog here.

In Schaufert, the plaintiffs were two senior and long-term employees (with 35.5 and 31 years of service) of the defendant, the Calgary Co-Op grocery and alcohol stores, who were terminated without cause and without notice by the defendant in October 2017. The main issues to be decided in this case were whether the plaintiffs were entitled to: (1) a longer notice period than the maximum notice period of 18 months as set out in the defendant’s Severance Policy; and (2) damages for the salaries and other benefits the plaintiffs claimed they would have received throughout the common law notice period of 24 months they claimed to be entitled to.

The defendant had a Severance Policy that purported to limit common law entitlements for termination of their employees, and although the defendant offered a severance package to each plaintiff containing the maximum notice periods allowed by that policy (18 months), the plaintiffs refused the offers. The defendant continued to pay them a monthly amount for 18 months, the maximum notice period under its policy. The plaintiffs then commenced an action for wrongful dismissal.

24-month reasonable notice period awarded & Severance Policy not a term of plaintiffs' employment contracts

Justice Eamon found that that the plaintiffs were entitled to a reasonable notice period of 24 months, which is relatively rare. In making this determination, and finding that the defendant’s Severance Policy was not a term of the plaintiffs’ employment contracts (and therefore not determinative of the plaintiffs’ notice period), some of the Court’s important findings include:

  • The plaintiffs started their employment with the defendant on February 15, 1982 and October 1986;
  • The Severance Policy replaced the Dehiring Policy effective May 1, 1999;
  • The plaintiffs and defendant made various employment contracts or amended their contracts over the years. However, none of the employment letters in evidence incorporated any of the defendant’s corporate policies;
  • Although the plaintiffs acknowledged on cross-examination that they were aware of the Severance Policy and one of the plaintiffs had even been involved in applying it to the terminations of other employees, there was no evidence that the plaintiffs were aware of or agreed to any dehiring or severance policy when they joined the co-operative system or when they first became employed by the defendant. As they advanced in their careers and took new positions, they generally signed another employment letter. However, none of the employment letters in evidence referenced any policies, or the matters of severance, reasonable notice, or pay in lieu of notice. There was also no evidence to suggest they signed other employment letters that incorporated the policies as contract terms;
  • None of the employment letters signed by the plaintiffs purported to incorporate any of the defendant’s corporate policies that existed or may exist in future, or authorized the defendant to unilaterally amend the terms of their employment by issuing new or revised policies;
  • There was no evidence of any system by which the defendant sought to ensure non-union employees were aware of or agreed to the Dehiring or Severance Policies;
  • Each of the plaintiffs worked for the defendant for many years before the Severance Policy was put into place. This policy purported to make very substantial changes to their employment contracts, including their right to have their reasonable notice determined under common law principles;
  • Although the defendant was entitled to terminate the plaintiffs without cause, it had to give reasonable notice. Failure to give the required notice gave rise to a claim for damages;
  • The Severance Policy allowed the defendant, in its discretion, to provide pay in lieu of notice. However, citing the SCC in Matthews, Justice Eamon found there was “no such implied term of the [employment] contract to provide payment in lieu”; and
  • The plaintiffs were therefore entitled to “damages as compensation for the income, benefits, and bonuses they would have received had the employer not breached the implied term to provide reasonable notice”.
Damages plaintiffs entitled to

The Court assessed damages based on the amounts the employees would have earned had they worked during the notice period. For bonus and benefit plans, the Court applied the test set out in Matthews: “Would the employee have been entitled to the bonus or benefit as part of their compensation during the reasonable notice period? If so, do the terms of the employment contract or bonus plan unambiguously take away or limit that common law right?[3]

With respect to the defendant’s Short Term Incentive Plan (“STIP”) and Long Term Incentive Plan (“LTIP”), the Court found that on the balance of probabilities: (1) the plaintiffs would have received the 2017-2019 LTIP awards if they had remained employed at the end of the performance periods of this plan and awards were otherwise payable, (2) if the plaintiffs had been given reasonable notice of termination, they would have been approved to participate in the 2018 and 2019 STIPS[4], and (3) the plaintiffs were therefore eligible to participate in any plan that commenced and ended during the notice period.

Applying the SCC’s stringent interpretation of exclusionary clauses from Matthews, Justice Eamon also found that neither the LTIP nor the STIP unambiguously limited the plaintiffs’ common law right to damages for all losses arising from their employer’s breach of contract in failing to give proper notice. The plaintiffs’ rights to damages depended on the Court’s jurisdiction to assess damages, and not on the express or implied terms of the plans. The Court also rejected the defendant’s argument that damages should be reduced by the plaintiffs’ failure to mitigate.

The Schaufert case is notable both for its award of a 24 months’ common law notice period to the plaintiffs, and because it demonstrates how strictly a Court will interpret employment clauses that purport to limit employees’ common law entitlements. Employers should consult experienced employment counsel to determine how the Mathews case, which is now being applied in employment cases across Canada, may affect their current employment and termination policie.  Employees who have been terminated should do the same to ensure that severance offers made to them include all applicable components of their compensation.

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*This update is intended for general information only on the subject matter and is not to be taken as legal advice.

[1] Schaufert v Calgary Co-Operative Association Limited, 2021 ABQB 579.

[2] Matthews v Ocean Nutrition Canada Ltd., 2020 SCC 26.

[3] Matthews at para 55.

[4] Note that the Court invited the parties to make submissions specifically with respect to the plaintiffs’ eligibility under the 2019 STIP, as it was unclear whether the performance period ended on or before November 1, 2019.

Topics: Employment, Labour and Human Rights Law, Case Comments

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