Misrepresentation at time of termination a breach of good faith
The Ontario Court of Appeal recently decided in Halloran v. Crown Cork (2002 CarswellOnt 2730) that employers are obliged to provide accurate information to employees at the time of termination. Failure to do so may be a breach of the employer’s duty of good faith and fair dealing.
Joseph Halloran was employed with Crown Cork for 31 years as a senior sales representative. As a result of a reorganization, his employment was terminated by letter dated Oct. 31, 1990. The termination letter provided two compensation options. Option “A” permitted him to retire on an unreduced early pension. Option “B” provided a special retirement package. The letter contained the following:
“The above representations are inclusive of all amounts payable under any provincial legislation, or otherwise, including notice, payment in lieu of notice, severance pay and vacation pay. For your information, the above provisions exceed provincial requirements.”
A financial analyst provided by the company advised Halloran to accept option A. Halloran relied on the company’s representation that option A exceeded what he was entitled to under provincial law. Unfortunately for Halloran, the company’s representation was untrue.
A group of Crown Cork employees, who had also accepted option A, brought a claim under the Employment Standards Act for severance in addition to the unreduced early pension. The referee held they were so entitled in a decision released in March 1994. Halloran read a newspaper report of the decision but took no steps until later that year when the case was disposed of by the court in favour of the former employees. Halloran then consulted with a lawyer on Jan. 25, 1996, and filed a similar claim under the act.
The referee held that Halloran’s claim was statute barred by virtue of section 82(2) of the act. That section limits an employee’s claim to recover money more than two years before the date on which the employee files the claim. The referee reasoned that Halloran failed to file his claim within the limitation period even though he had ample opportunity to review the termination letter with a lawyer.
The case was eventually heard by the Ontario Court of Appeal. The court found the state of the law was contrary to the company’s representation in its termination letter of Oct. 31, 1990. The applicable law would have entitled Halloran to severance pay in addition to his pension. In view of the company’s misrepresentation, the court held it was unconscionable for the company to invoke the limitation period in order to deny Halloran’s claim when the company was responsible for his delay in filing the claim.
Halloran was an innocent party who did nothing more than rely on the word of his employer. As a result, the court allowed Halloran’s claim for severance pay in accordance with the provisions of the act.
The Halloran decision is important because it emphasizes the employer’s obligation of good faith and fair dealing towards a terminated employee. The decision highlights the court’s view that employees are in a vulnerable position relative to employers at the time of termination and employers will therefore be held to a high standard of conduct.
This case highlights the importance for employers to ensure information provided to employees at the time of termination is accurate. If representations are made that an offer of severance exceeds statutory minimums, employers must ensure this is correct. Employers should also be cautious in respect of representations made at termination in respect of the following:
•the tax treatment of any payment made to the employee;
•the continuation of, or cancellation date of, benefits; and
•the procedures and deadlines for the conversion of any insurance policies or other benefits.
If an employer misrepresents (or in some cases fails to mention) such information to a departing employee, and the employee relies on this misrepresentation, liability on the part of the employer can follow. The best way to ensure that a severance letter or offer does not contain such misrepresentations is to have legal counsel quickly review these documents to ensure they do not contain misrepresentations or material omissions.
Mark Mason is a litigator and employment law lawyer with Goodman and Carr LLP in Toronto. He can be reached at (416) 595-2172 or [email protected].