A Question of Law Death comes to employment law

As litigation by “restructured” employees has increased, their estates have followed, and not just on matters of survivorship benefits in insurance policies and pensions. In fact, even the obverse to this morbid little dilemma is cropping up: The business dies during the notice period. What happens to the notice damages?

Two recently released cases pose some of the complications from each perspective. From the employee side comes the Ontario case of McMaster Estate v. Imark Corp.

Janette McMaster had worked at Durkin Hayes Publishing for 22 years when Durkin Hayes “downsized” her. In a letter, Durkin Hayes offered McMaster a lump sum of 12 months’ pay in lieu of notice plus another six payments for each month McMaster was not re-employed after the 12-month notice period. The letter also asked her to sign monthly declarations that she was diligently seeking new work, and a release of all other claims. It put the deadline for acceptance at Feb. 13, 1998.

The trouble was, McMaster died just 11 days after dismissal, on Feb. 11. As the executor and sole beneficiary of her estate, her brother, Bruce Graham, visited Dan Matheson, Durkin Hayes’ president, on Feb. 13, the day of McMaster’s funeral. Graham told Matheson that he had come to accept the severance package on behalf of the estate. On the bottom of a letter Graham had brought (written on the chance that he could not get in to see Matheson), Matheson wrote at Graham’s request, “Date extended till Feb. 28, 1998.”

Matheson consulted his lawyers and his board. He then told Graham that Durkin Hayes’ position was that the right to accept the package had died with McMaster. When Graham sued, Durkin Hayes maintained this position, arguing that the fact that McMaster was obliged to certify regularly that she was looking for work showed that the offer was personal to her. (That is, it did not survive her.) They also claimed McMaster had missed the deadline for acceptance.

Q Did MacMaster’s right to notice damages die with her?

A Justice Maurice Cullity has found the authorities on the matter scant and ambivalent. They seem to suggest that McMaster’s death frustrated any contract to pay severance. But Justice Cullity ruled McMaster’s estate is entitled to the 12-month lump-sum payment, which was all that Graham sought.

The fact that McMaster died did not affect her entitlement to reasonable notice, Justice Cullity has held. The severance package was “in lieu of damages for breach of contract,” and damages for breach of contract survive the person claiming the damages.

It is irrelevant, Justice Cullity says, that the estate collected a life insurance benefit equivalent to 12 months’ salary. McMaster had paid part of the premiums (Durkin Hayes paid the other portion), and the insurance claim was entirely separate from her claim for reasonable notice.

Nor, Justice Cullity concludes, does “a duty to mitigate (mean) that the death of the employee during the period of the notice...will reduce the liability of the employer. No doubt the obligation to mitigate damages presupposes an ability to do so but it would be a non sequitur to hold that the employer’s liability — rather than the employee’s duty — is conditional upon the existence of such ability.”

There was nothing in the circumstances, Justice Cullity says, that suggested the offer would not survive McMaster’s death, and nothing preventing her personal representative from accepting the offer for the estate.

Q And what if it’s the business that dies in similar circumstances?

A The new authority on this comes from Alberta’s highest court.

Wallace Noble worked for Principal Consultants, an investment management firm, for 18 years. When Principal dismissed him without cause, he was the vice-president of finance for the company’s Prairie region.

Principal went bankrupt two months later, and KPMG became its trustee in bankruptcy. KPMG agreed with Noble that normally he would have been entitled to 18 months’ pay in lieu of notice. But KPMG persuaded the trial judge that Principal’s bankruptcy ended Noble’s severance entitlement.

The trial judge reasoned that Noble was entitled to be put in the position that he would have occupied but for the wrongful dismissal. (This is the standard approach in breach-of-contract cases.) The trial judge found that this meant Noble was entitled to no more than statutory notice under the Alberta Employment Standards Code. Apparently, on the judge’s reasoning, because Principal went bankrupt two months after Noble left, all deals reaching beyond that period were off.

A large part of Noble’s remuneration was based on a performance bonus, and the trial judge also ruled that this was unavailable to him in damages because it had become “theoretical.” But the Alberta Court of Appeal has awarded Noble the full 18 months of salary and bonus. By a majority of two to one, the court ruled that the trial judge erred in determining that Noble had in essence been terminated by the bankruptcy. Notice is to be calculated from dismissal, without considering intervening events, the court says.

Noble had become Principal’s unsecured creditor and was entitled to the full cushion of reasonable notice damages while he searched for other work. This included his incentive bonus of $129,899 for the 18-month notice period, on top of his salary of $90,000 for that period.

Even if Principal’s insolvency figured in, Justice Picard wrote for the majority, “it is clear that the bankruptcy of Principal not only did not reduce the damages suffered by Noble but also, to the extent that, as an unsecured creditor, his recovery will be less than the full amount awarded, it exacerbated them. The ‘cushion’ will be smaller and therefore the means to recuperate from a dislocation will be less.”

For more information: McMaster Estate v. Imark Corp., Ont. Sup. Ct. file 98-CV-146834, March 20/00; Noble v. Principal Consultants Ltd. (Trustee of), 2000 ABCA 133, Alberta Court of Appeal docket 18436, May 10/00.

Jeffrey Miller is editor of Canadian Employment Law Today. For subscription information, call (416) 298-5141, ext. 2642.

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