When the employer is the victim

If an employee’s actions cause damage to the employer, there are occasions – albeit rare – where it’s worthwhile to sue
By Tim Mitchell
|Canadian HR Reporter|Last Updated: 01/14/2011

While many employees file legal actions against their employers, circumstances where employers sue former employees have been mostly restricted to high-loss, high-return litigation.

These actions typically involve key employees who departed in groups and are bound by express restrictive covenants or fiduciary duties. The amounts at stake in such cases are often huge and the litigation correspondingly worthwhile.

The value of suing rank-and-file employees is not often readily apparent. Due to the power imbalance, the optics of such an action are not good and collecting an award is likely to be an exercise in futility. The courts are not always willing to assist an employer in such pursuits, so money invested in these actions is rarely well-spent. As a result, many employers feel it is enough to cut their losses and rid themselves of a troublesome employee without maintaining an ongoing connection in court.

However, there are instances where a lawsuit against a former employee may be worthwhile.

Wrongful resignation

In prosperous years, it is not unusual for employees to quit abruptly with no notice. Many employees are under the impression their obligation is a standard two weeks, a notice period of obscure origin. However, in the absence of contractual or statutory limits on notice, workers employed under indefinite term contracts are bound by the same implied obligation of reasonable notice.

Notice of termination is intended to give the employee an opportunity to search for replacement employment. When the employer is on the receiving end of the notice, the purpose is to give the employer time to replace the departing employee. In Sure-Grip Fasteners Ltd. v. Allgrade Bolt & Chain Inc., it was noted appropriate notice is generally determined by the responsibilities, length of service, salary and time it would reasonably take the employer to replace the employee or otherwise take steps to adapt to the loss.

What is reasonable notice of resignation will depend upon the circumstances, but courts have not typically imposed substantial notice periods on resigning employees.

In Torcana Valve Services Inc. v. Anderson, the Alberta Court of Queen’s Bench found employees were not automatically required to give their employer the same length of notice as the employer would be required to give to an employee terminated without cause. In the absence of special circumstances, two weeks’ notice for an ordinary employee and four weeks’ notice for a more senior one would be generally appropriate, found the court.

Of course, special circumstances may exist. An employee with specialized knowledge or skills may be difficult to replace or the timing of a departure may put a particular stress on an employer’s operation. However, even in such circumstances, reasonable notice of resignation tends to be on the low side, with some exceptions.

In Torcana, one month’s notice was found to be sufficient for a senior employee. The court placed an onus on the employer to suggest a more appropriate period. In the Ontario case of Bradley v. Carleton Electric Ltd., the employee was a senior employee — a manager — who should have given three months’ notice of his intended resignation after working for 18 months.

In Physique Health Club Ltd. v. Carlsen, the employee had worked for five years as manager and sole employee of a sporting goods store before leaving with no notice after a wage dispute. The court found six weeks’ notice would have been reasonable.

In Tree Savers International Ltd. v. Savoy, the Alberta Court of Appeal found key senior employees ought to have given 18 months’ notice of their resignations, rather than the two weeks given.

The sticking point in an employer’s ability to sue for wrongful resignation is the need to prove damages arising from the short notice. Inconvenience or annoyance will not suffice.

While an employer need not simply accept losses from short notice, any decision to take action should be made only after addressing the following questions:

• Has the resigning employee been requested to stay on longer to assist the employer in working through the transition?

• Has the employer suffered definite, provable losses or incurred specific expenses as a result of the early departure?

• Has the employer acted promptly and reasonably in attempting to replace the resigning employee?

• Has the employer maintained records or documents showing the negative effect of the early departure, such as lost profits, lost recruitment time and the cost of moving employees to cover for the absence?

Recovering on investment

One area in which employers have successfully pursued former employees in court is where significant funds have been invested in an employee’s development and the employer has lost the benefit of that investment due to the employee’s premature departure.

In North Cariboo Flying Service Ltd. v. Goddard, the employer hired the employee as a chief pilot on the understanding he would undergo the necessary specialized training and obtain a Transport Canada flight check to fulfill the job duties. The employer agreed to pay for the necessary training — between $25,000 and $40,000 — but required the employee to sign a training bond.

About six months into his employment, the employee tendered his resignation on one month’s notice. When he refused to repay the amount under the training bond, the employer successfully sued in small claims court for the prorated portion of its training costs.

The successful result in North Cariboo may be contrasted with Kelowna Flightcraft Ltd. v. Giesbrecht, where the employer deducted training costs from an employee’s final pay. The employer was not entitled to enforce the training bond it had extracted from the employee, found the adjudicator.

The distinguishing factors centred around the making of the original commitment. In Kelowna, the bond had essentially been sprung upon the employee on short notice and he had been effectively induced to sign it on the implication it would not be legally binding. There was also some doubt the training provided much of a benefit to the employee.

The question of who benefits from training was also a factor in 889946 Alberta Ltd. v. Carter, where the employer sought to recover $5,587 for training an employee as store manager. She had agreed to remain for two years but resigned four months later. The court denied the employer’s claim, finding the training was solely for the benefit of the employer and there was no provision to reduce its burden the longer the employee worked. The employee had received no marketable skills she could take away from the job. The contract itself was evidence of an inequitable bargain.

The keys to success in an action for recovery of investment in employee training are:

• The employer’s intentions must be made clear to the employee before she accepts the investment.

• The obligations incurred by the employee should be expressed unambiguously and in writing.

• The employee must be given adequate time to consider the consequences of making the commitment.

• The employee should be given the opportunity to negotiate the terms.

• The employee must be made aware the funds are being expended for the benefit of both parties.

• The employee must not in any way be coerced into the arrangement or be given the impression the commitment is not likely to be enforced.

• The provisions for recovery must be even-handed and fair to both parties.

• The training must be such as to enhance the employee’s own marketability in the industry in which she works.

Employee theft and fraud

Losses from employee fraud and theft are often simply written off as unrecoverable costs of doing business. However, one employer refused to take the matter lying down. In Canada Safeway Limited v. Brown, the British Columbia Supreme Court found an employee liable for at least a portion of the funds she had stolen. More significantly, the judge also awarded the employer almost $25,000 as compensation for its costs of investigation. Although the employer was not entitled to claim damages that were incurred in the civil proceedings, its recovery was substantial in the circumstances.

The deterrent value of an outstanding judgment for these types of expenses, whether or not they are actually recovered, may stay the hands of some potential thieves and, for that reason alone, be worth consideration as a course of action.

For more information see:

Sure-Grip Fasteners Ltd. v. Allgrade Bolt & Chain Inc., 1993 CarswellOnt 931 (Ont. Gen. Div.).

Torcana Valve Services Inc. v. Anderson, 2007 CarswellAlta 693 (Alta. Q.B.).

Bradley v. Carleton Electric Ltd., 1998 CarswellOnt 3002 (Ont. C.A).

Physique Health Club Ltd. v. Carlsen, 1995 CarswellAlta 253 (Alta. Q.B.).

Tree Savers International Ltd. v. Savoy, 1992 CarswellAlta 220 (Alta. C.A.).

North Cariboo Flying Services Ltd. v. Goddard, 2009 CarswellAlta 1178 (Alta. Prov. Ct.).

Kelowna Flightcraft Ltd. v. Giesbrecht, [2002] C.L.A.D. No. 93 (Can. Lab. Bd.).

889946 Alberta Ltd. v. Carter, 2002 CarswellAlta 215 (Alta. Prov. Ct.).

Canada Safeway Ltd. v. Brown, 2007 CarswellBC 2658 (B.C. S.C.).

Tim Mitchell is a partner at Armstrong Management Lawyers in Calgary who practises employment and labour law. He can be reached at T.Mitchell@amllawyers.com.

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