Severance package offered was 'clearly not in keeping with - and, frankly, well below - the common law'
“When you're starting out an employment relationship, you should carefully consider and use employment agreements - if you are have an existing employee that doesn't have an employment agreement, it's worth considering putting an employment agreement in place and what consideration you would need, and review that document every year to make sure it's still legally sound.”
So says Krista Siedlak, an employment lawyer and mediator at Turnpenny Milne in Toronto, after an Ontario court awarded a worker nearly $300,000 in damages for 24 months' pay in lieu of notice plus bonuses following her termination without cause.
The worker immigrated to Canada in 2002 and the same year started working in the Toronto office of Zim Integrated Shipping Services (Canada), an ocean freight services company based in Israel. She held various positions with Zim and eventually took on a senior management position in 2006, taking on administrative responsibility for the entire Toronto office and its 20 employees. She didn’t have a written employment contract.
The worker received quarterly non-discretionary bonuses and annual discretionary bonuses. The latter were determined by the head office and were based on how the company had performed the previous year. They were paid out in the spring following the year in which they were earned.
On March 15, 2023, Zim terminated the worker’s employment without cause, offering her eight months’ salary – which the company noted was “significantly superior to labour standards” – along with her 2022 bonus and outstanding vacation pay. The termination letter indicated that she would receive her payments after she signed a “full and final release” of all claims pertaining to the end of her employment. She had five days to respond.
The worker didn’t sign the release and Zim only paid her the minimum entitlements under the Ontario Employment Standards Act, 2000. It didn’t pay her the 2022 bonus based on the company’s 2021 performance, which was worth $13,000. Zim’s policy was that employees must be working for the company on April 1 to receive the annual bonus.
After her dismissal, the worker applied to more than 70 jobs but was unsuccessful in finding anything. Zim sent her several job links, but the worker found that some were no longer available and some required qualifications and experience that she didn’t have. In November 2023, the worker’s mother fell ill and the worker’s job search decreased while she cared for her for about four months.
Wrongful dismissal
The worker sued for wrongful dismissal, seeking 24 months' pay in lieu of notice, while Zim argued the notice period should be limited to 18 to 20 months and the worker had not sufficiently mitigated her damages by seeking new employment.
Zim made two significant missteps, according to Siedlak.
“They originally only gave [the worker] an eight-month package for somebody who had been there almost 21 years, so her package was clearly not in keeping with - and, frankly, well below - the common law,” she says. “And the second gigantic problem was the fact that they tied any severance payments, including her statutory entitlements, to her signing a release, which you can't do.”
The court found that the appropriate notice period was 24 months, citing the worker’s nearly 21 years of service, her age of nearly 59 years at the time of dismissal, and the nature of her position as high-ranking and key to the operation of the Toronto office. The court noted that older employees with long-term service can have a more difficult time finding new employment, and the ocean freight industry was a “nuanced, if not niche industry” with limited opportunities.
“What really tipped the scale towards the longer notice period was the fact that [the worker] had almost dedicated her entire Canadian work experience to this one employer,” says Siedlak. “And while it wasn’t really a specialized industry, the fact of her age coupled with the niche area of the market and, as of the date of the hearing, she still hadn't secured alternate employment, tipped it towards the longer end of the scale to 24 months.”
Employer didn’t prove failure to mitigate
The court also found that Zim hadn’t proven its claim that the worker failed to mitigate her damages, noting she had applied for more than 70 jobs since her dismissal. The onus was on Zim to demonstrate that the worker failed to take reasonable steps to mitigate her damages or could have found employment had she taken reasonable steps, said the court, noting that many of the job links the company sent to the worker weren’t available or applicable to the worker.
“I find that [the worker’s] mitigation efforts may not reach the standard of perfection, but they have been reasonable,” said the court.
It’s a good strategy to provide a dismissed employee with information on potential job opportunities, but in this case it could have been done better if Zim wanted to claim a failure to mitigate, says Siedlak.
“If you're going to use this strategy, spend some time to make sure that you're really sending jobs that are comparable in terms of salary, location, responsibility and, of course, do it in a timely way so that they're still active when they land in the hands of the worker or their counsel,” she says.
As for the worker’s bonus, the only reason she wasn’t working on April 1, 2023, was because she had been dismissed without cause or notice, the court said, adding that she should be considered an employee during the reasonable notice period and therefore entitled to both the 2022 and 2023 bonuses. In addition, Zim acknowledged that it never provided the worker with its internal policy on bonuses or advised of the criteria for calculating them, so the company couldn’t rely on the policy to exclude the worker from entitlement during the notice period, the court said.
Bonus policy
“One of the glaring holes in the employer’s argument was the fact that [the worker] didn't even know of the policy and there was no evidence that the policy had ever been provided to her,” says Siedlak. “If an employer is trying to rely on language to limit somebody's entitlement on termination with respect to a bonus, one of the key factors is that it be brought to the employee's attention, and then step two is determining whether or not the policy’s language is sufficient to preclude the employee from being entitled to it.”
“An employer should have language that speaks to bonus entitlement in their offer letters to the employees and provide them with a copy of the bonus plan,” she adds. “They should have employees sign off or initial that they've reviewed the plan documents, so there's a certain due diligence that an employer can do to ensure that it's brought to the employee's attention and they're well aware of the terms.”
The court awarded the worker damages based on her 2023 salary, calculated at $112,763.28, which included an eight-per-cent increase from her 2022 salary in line with previous increases. In addition, the court found the worker was entitled to $21,210.02 per year in bonuses - based on a three-year average minus a 23.5 per cent reduction after Zim provided evidence that no bonuses were paid in 2024 for work done in 2023 - and $9,000 per year for her annual car allowance. The court also awarded the worker $17,400 per year for pension benefits, based on her past contributions.
The total amount of damages was determined to be more than $320,000. After deducting the money Zim had already paid, the final amount the company was ordered to pay was $287,969, with most due upfront and the remaining to be paid in instalments over the remaining five months of the notice period. Zim was also ordered to continue covering the worker’s health benefits until March 2025 and to pay her unpaid 2022 bonus of $13,000.
“If you don't have an employment agreement or a valid termination clause, then if you are terminating somebody with long service, you should consider providing a fair and reasonable package out of the gate,” says Siedlak. “Because if you don’t, then they’re going to run to a lawyer and you might be in a situation where you're paying more down the road than you would have otherwise had you just provided a fair package originally.”
