What happens to a loan from the company upon termination?

Winterburn v. Domtar Inc. (2002), 20 C.C.E.L. (3d) 283 (B.C. S.C.)

Julie Winterburn was a 37-year-old chemical engineer hired by Domtar on March 16, 1999, as a manager of quality control. Domtar operates a paper mill in British Columbia.

Winterburn had more than 10 years experience in the pulp and paper field and was actively and happily employed by an Ontario company prior to joining Domtar. Nevertheless, in 1998 she sent her resume to two different recruiters to see whether there were any opportunities for advancement in her field. Domtar had been actively looking for a qualified individual to fill its quality control position.

In early 1999 Domtar flew Winterburn to Vancouver for an interview. After some negotiation, the parties came to terms in respect of the employment arrangement. Winterburn agreed to accept the position as manager of quality control for a salary of $80,000 per year.

In order to assist Winterburn in purchasing a home, Domtar offered a $30,000 interest-free loan that was forgivable in equal yearly installments over a five year period. In addition, Domtar offered her a mortgage of $45,000.

The terms of the loan provided $6,000 would be forgiven on completion of each full year of service for the first five years of employment. In the event Winterburn ceased to be an employee of Domtar, for any reason, the balance of the loan amount outstanding and the mortgage were to become due and payable within 30 days. Winterburn accepted the position and moved her family from Ontario to B.C.

She performed her duties capably. Nevertheless, on Sept. 13, 2001, she, and nine other employees, were terminated without just cause due to external business reasons. Domtar offered Winterburn a severance package that provided her with nine weeks’ pay in lieu of notice and continuation of her benefits for the nine-week period. Domtar’s severance offer requested repayment of the $18,000 remaining on her “forgivable loan” within 30 days and repayment of the balance of the mortgage (then $41,707.83) within 90 days. Domtar said it planned to withhold the termination payment to offset the $18,000 remaining on the forgivable loan.

Winterburn started legal action, claiming she was entitled to a much longer period of notice and she should not be required to repay any portion of the forgivable loan. In addition to the typical Bardal factors that govern reasonable notice, Winterburn argued she was entitled to a lengthening of the reasonable notice period due to several other factors. (For more on Bardal see page 2902 of the Sept. 4, 2002, issue of CELT.)

Winterburn claimed she had been induced by Domtar to leave secure employment. She claimed the fact she was nearly five months pregnant at the time of dismissal should lengthen the notice period.

She also alleged Domtar had engaged in bad-faith conduct by requiring immediate repayment of the loan and mortgage, putting her in a very difficult financial position, and threatening to withhold termination payment to offset these amounts.

The court held reasonable notice in these circumstances amounted to 10 months’ pay and benefits in lieu of notice. This finding was based primarily on the specialization of Winterburn’s skills and the difficulty she had encountered in securing alternate employment due to that specialization. The court refused to lengthen the reasonable notice period based on inducement or pregnancy. The court noted both employer and employee had sought each other out and each felt the relationship was mutually beneficial.

The employer had not made any unwarranted promises of security of the position. The mere fact Winterburn was pregnant was not a proper factor for lengthening the reasonable notice period. There was no evidence her pregnancy had hampered her employment search, although the court concluded the notice period should not run during the period that Winterburn was in receipt of leave benefits.

The court held the demand for immediate repayment of the loan and mortgage had the effect of plunging Winterburn into a financial crisis and this fact was taken into account in determining the appropriate period of notice.

Finally the court concluded that since the third anniversary of the forgivable loan fell within the reasonable notice period, the third year of loan forgiveness was applicable. The court concluded that upon the completion of the 10-month reasonable notice period, the contractual obligations for Winterburn to repay $12,000 of the loan and the full mortgage amount were triggered.

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