Recent Ontario decision offers cautionary tale for HR professionals
Exclusive to Canadian HR Reporter from Rudner Law.
Suppose your company dismisses a senior employee without cause? You provide what seems like a generous package, based largely on salary, and expect the matter to be resolved quickly.
Several years later, a court orders your company to pay more than $2.5 million in wrongful dismissal damages.
This is essentially what occurred in Warren v. Canaccord Genuity Corp., a recent decision of the Ontario Superior Court of Justice that highlights how significant wrongful dismissal exposure can be for employers, particularly where a senior employee’s compensation is heavily bonus-driven.
For HR professionals, the case serves as a reminder that termination liability can escalate dramatically in the absence of a properly drafted and enforceable termination clause.
Sued for wrongful dismissal
Craig Warren worked for Canaccord Genuity Corp. for approximately 18 years as an investment banker specializing in the mining sector. By the time of his dismissal in September 2019, he was a managing director and one of the most senior members of the firm’s Toronto mining group.
Although his base salary was relatively modest at $150,000 per year, most of Warren’s income came from discretionary bonuses tied to the firm’s overall performance and his individual contribution.
When his employment was terminated without cause at age 52, Canaccord provided statutory payments and some additional compensation. Warren sued for wrongful dismissal.
The two central issues before the court were:
- the length of the reasonable notice period
- how to calculate the bonuses Warren would have earned during that period.
21-month notice period
Applying the well-known factors from Bardal v. Globe and Mail Ltd., the court determined that Warren was entitled to 21 months of reasonable notice. Several factors supported a lengthy notice period:
- Warren’s 18 years of service
- his senior role as a managing director
- his highly specialized expertise in mining investment banking
- his age (52) at the time of termination
- the limited availability of comparable positions in the industry.
Real driver of $2.5-million award
The size of the damages award was driven largely by bonuses.
In many industries, bonuses are a relatively small portion of compensation. In investment banking, the opposite is often true. The court noted that year-end bonuses can represent the majority of an employee’s income.
During the 21-month notice period, the mining sector experienced a significant boom. While both parties accepted that Warren was entitled to damages representing his lost bonuses during the notice period, the key dispute was how those bonus amounts should be calculated.
Average bonus vs. comparator approach
Canaccord argued that the court should simply average Warren’s bonuses from the three years before his termination. Warren argued that the court should instead compare his compensation to other managing directors who performed similar roles during the notice period.
The court adopted the comparator approach.
Evidence showed that other managing directors in the mining group received bonuses of approximately $3 million in strong market years. The court concluded that Warren would likely have earned comparable bonuses had he remained employed.
After calculating bonuses for multiple fiscal years within the notice period, and adding his base salary, the court concluded that Warren would have earned $4.6 million during the notice period. After deducting amounts already paid and income from his new employment, the court ordered $2,540,073.95 in damages.
The termination clause that wasn’t there
Perhaps the most important takeaway for HR professionals is what did not exist in this case: a valid termination clause.
In the absence of a contractual provision limiting termination entitlements, employees are entitled to common law reasonable notice, which can be substantial for long-service and senior employees. Had Canaccord included a properly drafted and enforceable termination clause limiting Warren’s entitlements to the minimum standards under the Employment Standards Act, 2000, his entitlements would have been limited to statutory notice and severance pay.
Those amounts would have been many magnitudes smaller than the $2.5 million ultimately awarded.
Practical lessons for HR
This decision highlights several key lessons:
- Senior employees without enforceable termination clauses can have very large notice entitlements.
- Bonus-driven compensation can dramatically increase wrongful dismissal damages.
- Courts may consider actual market conditions during the notice period, including boom years.
- In appropriate cases, courts may rely on comparators rather than historical averages to determine bonus entitlement.
Most importantly, the case illustrates how the absence of a properly drafted termination clause can expose employers to significant financial risk. For organizations employing senior or highly compensated individuals, ensuring that employment agreements contain clear, enforceable termination provisions is one of the most effective ways to manage that risk.
Existing employees can enter into new employment agreements that include termination clauses, provided they do so voluntarily and without any duress. Importantly, the agreement must offer the employee fresh consideration beyond continued employment to be enforceable.
If your organization wants to limit its potential exposure through carefully drafted employment agreements, it is best to consult an employment lawyer. Proper legal guidance can ensure that your contracts are both enforceable and aligned with your risk management goals.
Alex Minkin is an associate lawyer at Rudner Law in Toronto. He can be reached at (416) 864-8500 or [email protected].
