Compensation for non-competition clause ‘doesn’t make sense’: court

Klassen v. R. , 2004 CarswellNat 324, 2004 FC 193 (F.C.)

On Sept. 14, 1988, Richard Klassen was appointed full-time commissioner of the Canadian Wheat Board. This appointment was under the Canadian Wheat Board Act, which contained a provision that “no commissioner shall hold office after attaining the age of 70 years.”

Ten years later the entire board was restructured, and all the commissioners, including Klassen, were terminated. Klassen was 57 years old and was earning $141,000 per year, plus taxable benefits of another $46,000. Two days before his last day on the job he was paid $352,000 before deductions, including $282,200 as a “loss of office payment” (LOP) equivalent to two years’ salary.

In mid-2002 Klassen sued the government for $1.3 million for loss of basic earnings and pensions, plus another $625,000 for loss of extra benefits. All this was due him as part of his original appointment as commissioner of the Canadian Wheat Board, where he was entitled to work until age 70, he argued.

The LOP payment was signed under duress and it was merely an agreement not to compete with the government for the two-year period it covered, he said. That payment was due him in addition to, not in lieu of, general damages that he is entitled to for breach of contract, he said.

Justice Martineau of the Federal Court of Canada said courts have recognized the employment relationship between the government and its workers is contractual. A legislature may abolish an office but the office-holder’s financial security survives the elimination of the office and he is entitled to severance pay, as recently affirmed by the Supreme Court in Wells v. Newfoundland,1999 CarswellNfld 214, 1999 CarswellNfld 215 (S.C.C.).

The court examined Klassen’s contract with the government. The terms provided for an “exit compensation package” that included a ‘retirement allowance’ of one week’s salary for each completed year; a ‘long service’ allowance of a half-week’s salary for each year of continuous service; and a ‘loss of office’ payment of two years’ salary. This item also contained a clause that “a commissioner is prohibited from accepting employment in a commercial grain marketing organization for up to two years after leaving the board.”

These provisions “constitute an absolute bar” to Klassen’s claims, ruled Justice Martineau: “(He) received all that he was entitled to upon retirement under the terms.” The intention of the parties, as well as the language of the agreement, is such that the LOP is akin to a severance package. Thinking of the $282,200 as merely compensation for an agreement not to compete “does not make any sense,” he added.

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