Employer receive more than his statutory entitlement for without-cause dismissal, but it wouldn’t have been enough if his employment has lasted longer
An Ontario executive received more than the statutory minimum entitlement when he was terminated, but his former employer must pay his full common law notice entitlement because his termination clause would have violated his statutory rights had his employment lasted longer.
Bhoumick Sanghvi, 46 was a senior vice-president at Norvic Shipping North America, an operator of ocean transportation services for dry bulk cargoes headquartered in Toronto. Hired in May 2014, Sangvhi reported to the president, CEO and directors of the company. He didn’t have the authority to enter into any contracts or transactions unless “specifically authorized to do so by the company, acting through any of its president/CEO/directors.” In May 2017, he was named senior vice-president, head of global operations, which oversaw the entire operations function and was “the main point of contact for management related to operational matters.”
Sangvhi’s employment contract stated that his employment “will be guided as per the Employment Standards Act, 2000 of Canada” and that the contract was “governed and interpreted by, and construed in accordance with, the substantive laws of Canada.” In addition, the contract allowed for any contract disputes to be “governed by the Canada Labour Code.” The contract had a termination clause that provided for one month’s notice of termination by either party and gave Norvic the right to relieve Sangvhi from duty prior to the expiry of the notice period.
The contract also stated that the company could pay a yearly bonus “completely at the company’s discretion, based on your performance and the company’s overall profitability,” although it didn’t explain how the bonus would be calculated or paid. Sangvhi received a significant bonus in 2014, 2015 and 2016.
Sangvhi stayed in the role of senior vice-president until Feb. 8, 2018, when Norvic gave him written notice that that his position was being eliminated because of a corporate restructure. The company gave him one month’s salary in lieu of notice (20 working days) and terminated his employment immediately.
Sangvhi filed a claim for wrongful dismissal, arguing that he was entitled to common law reasonable notice because his contract purported to contract out of the minimum employment standards set out in the Canada Labour Code and was, therefore, invalid. He also claimed damages for a bonus he earned in 2017 and a prorated bonus for the period he was employed in 2018.
Federal legislation applied
The Ontario Superior Court of Justice noted that the contract was ambiguous on which law applied, as it referenced “the Employment Standards Act, 2000 of Canada” — which doesn’t exist. It was likely Norvic intended this to refer to Ontario’s Employment Standards Act, 2000 (ESA), but the contract continued to reference federal legislation by mentioning “the substantive laws of Canada” and stating that any dispute would be governed by the Canada Labour Code. As a result, the court found that the parties intended to incorporate the federal code into the contract rather than the Ontario legislation.
The Canada Labour Code requires employers to provide employees who are terminated without cause two weeks’ notice or pay in lieu of notice, plus severance pay equal to the greater of two days’ wages for each completed year of employment or five days’ wages. Under the code, Sangvhi — with slightly less than four years of service with Norvic — would be entitled to two weeks’ (10 working days) termination pay plus six days’ severance pay, for a total of 16 days’ pay. As a result, the one months’ pay provided for in the contract was greater than Sangvhi’s entitlement under the code at the time of his termination, said the court.
However, the court pointed out that it has been established that “if the termination clause purports to contract out of a minimum employment standards without substituting a greater benefit, it will be void even if the employee actually received his or her statutory entitlement upon termination.” Sangvhi’s employment contract stipulated that Sangvhi would receive one month’s pay for a without-cause termination, regardless of when it happened — the one month’s pay was the maximum entitlement. Because of this, the contract had the potential to violate the code’s minimum standard if Sangvhi’s employment lasted to the point where he would be entitled to more than one month’s pay. For example, after seven years of employment, Sangvhi’s entitlement under the code would be 24 days’ pay including 14 days’ severance pay, said the court in determining that the termination clause was unenforceable and, therefore, didn’t remove Sangvhi’s right to common law notice.
The court added that the termination clause would also be unenforceable if the Ontario ESA applied instead of the code. Under the provincial legislation, Sangvhi would have been entitled to at least three weeks’ notice at the time of his termination, but if he had been terminated after five or more years, he would have been entitled to more than one month’s notice.
In addition to determining that Sangvhi was entitled to common law reasonable notice, the court found that his role was “a senior supervisory role with significant managerial responsibilities” that should increase the amount of notice he should receive. His age — early forties at the time of termination — shouldn’t be a significant barrier to finding comparable employment, said the court.
The court also found that the yearly bonus was an integral part of Sangvhi’s compensation, despite its discretionary nature. Sangvhi received it in each of the first three years of his employment, so he was entitled to receive it for the fourth year up to the point of his termination and notice period, the court said, noting that wrongful dismissal damages “should put terminated employees in the same financial position they would have been in had reasonable notice been given.”
Norvic was ordered to pay Sanghvi eight months’ salary plus benefits in lieu of notice and the bonus he earned in 2017 and to the end of the notice period in 2018.
For more information, see:
- Sanghvi v. Norvic Shipping North America, 2020 ONSC 8068 (Ont. S.C.J.).
