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The Court of King’s Bench of Alberta recently dealt with a wrongful dismissal claim involving a general manager who spent almost his entire working life with an electrical contractor.
The worker started as a helper at approximately 23 years old, earned his master electrician certification, and worked his way up to general manager in 2008.
After 34 years with the employer, he was terminated without cause in November 2013 at age 58.
The worker argued he was entitled to a reasonable notice period exceeding the commonly accepted 24-month upper limit.
He also claimed payment for unutilised vacation time and damages for lost annual bonuses during the notice period.
Background of the dismissal claim
The worker was 58 years old at the time of his termination in November 2013.
He had started with the electrical contractor in 1978 when he was approximately 23 years old. When the worker became general manager in 2008, he ran the day-to-day business operations whilst the company founder controlled the corporate finances and overall business direction.
In late spring 2013, the founder began transitioning the president duties to his son, who was also one of the shareholders.
The son and founder determined that changes were required in the direction of the company, including a change in management styles, resulting in the worker’s termination.
The worker did not have a written employment agreement. At the time of termination, the worker had a 20% equity interest in the employer through his holding company.
Over the years, the employer grew to be one of the top companies in the electrical contracting industry, earning multi-million dollar annual revenues and annual profits in excess of $1 million or much more in the years that the worker was general manager. The court found that he was a key employee for many years.
The employer did not have a written vacation policy, and there was no evidence as to how the employer dealt with vacation for employees.
The worker testified that he was entitled to eight weeks of vacation but only took two weeks in his last year.
The court found the worker met his burden to establish that he was entitled to eight weeks of earned vacation time in 2013, and he had only taken two weeks. Therefore, the employer owed the worker six weeks of vacation pay in the amount of $29,308.
Whether 26 months’ notice justified
The employer acknowledged that the worker was entitled to 24 months’ notice based on standard factors for determining the length of reasonable notice. However, the employer argued that 24 months was the maximum level of reasonable notice any employee could receive.
The worker claimed that he was owed 26 months based on his circumstances. The court noted that Alberta courts have described 24 months as a “rough upper limit” rather than a set limit, and that Ontario courts have stated “exceptional circumstances” are generally required to support a notice period exceeding 24 months.
At the time of termination, the worker was 58 years old and had worked at the employer for 34 years, starting at age 21. The employer was effectively the only employer the worker had.
The founder’s son testified that the employer terminated the worker because his “very old school mentality” was no longer a fit for the company and the direction it wished to take.
The son agreed that the decision was made because it was “time for him to retire.” In contrast, the worker had no intention of retiring. The termination was a shock to him.
The court found that whilst the worker had transferable skills within the electrical industry, those skills were not readily transferable to other sectors at the management level.
There was no evidence that within the electrical contracting industry, the worker had realistic potential options to obtain similar employment. The court stated:
“[The employer’s] reasons for termination reflect a significant impact upon [the worker’s] ability to find work. Despite his transferable skills within the industry, there were only about two other companies comparable to [the employer] in the electrical contracting business. An ‘old school mentality’ would be difficult to sell to potential employers… His ability to find similar and comparable employment would be significantly limited as a result of working solely for [the employer] over three decades.”
Mitigation and lack of evidence
There was no dispute that the worker did not take any steps to seek comparable income or employment.
The employer argued that in the absence of medical evidence preventing him from doing a management position, it was unreasonable for the worker not to engage in mitigation efforts.
The founder’s son testified that the worker could go to another contractor and obtain a job.
However, the son also testified that the worker’s income was “extremely high” compared to the market rate, and it was “highly unlikely” that the worker could find a job with the same pay level or ownership.
The court rejected the employer’s positions that the worker bore a burden of proof on mitigation or that he needed to accept a lesser position, stating both positions were contrary to the law.
The only evidence of the employer itself hiring management staff following the termination was their current general manager being in place for the last three years prior to the trial.
Although the son testified that he believed the worker could have found a job relatively easily in the market, the employer did not present any evidence of available jobs, let alone jobs equivalent to the worker’s position.
The court stated: “Ultimately, [the son’s] assertion as to the ease of [the worker] finding employment in the market is the sum total of [the employer’s] evidence as to available employment, which total is very slim.”
The court found that, given the worker’s ownership stake, extremely high compensation level, his advanced age, employment with only one employer who had determined that his “old school mentality” resulted in the need for a culture shift, and the limited number of comparable companies, it would be highly unlikely that the worker would obtain work in the electrical industry.
The employer had not met its burden, and the claim for lack of mitigation was dismissed.
Annual bonus entitlement disputed
From 2008 onwards, the employer established an annual bonus plan to distribute income and take advantage of tax laws. The bonus plan was never reduced to writing, but was followed from 2008 to 2013.
Starting in 2009, the total bonus pool was divided into two parts paid to shareholder employees as taxable employment income. The first part was 10% of the bonus pool, allocated among shareholder employees based on the founder’s determination of their relative employee performance.
The second part was 90% of the bonus pool, distributed strictly according to the percentage of shares held by the shareholder employee.
The worker argued that the bonus payments were inextricably linked to his employment, as they were paid as employment income rather than dividends. Payments were not made to his holding company, the actual holder of the shares.
The employer argued that only the holding company had a claim to the bonus based on shareholder equity. The court found both parties’ positions attempted to unnecessarily treat the worker and his holding company as the same entity.
The court stated: “The bonus pool monies were paid to [the worker], even though they were calculated, in part, on the amount of shares held by [his holding company]. There was no requirement upon [the worker] to transfer those monies, in whole or in part, to [his holding company] after he received them… [The worker] is not seeking payment of dividends, which would be the claim of [the holding company]. He is seeking bonus payments, which would be his claim as an employee.”
Final judgment and total damages
The court applied a two-part test for determining whether reasonable notice damages include bonus payments. First, but for the termination, would the employee have been entitled to the bonus during the reasonable notice period?
Second, if yes, do the terms of the employment contract or bonus plan unambiguously take away that right? The court found the worker would have received these bonus payments as part of his employment compensation had he continued working during his reasonable notice period.
As the shareholders agreement did not deal with bonus payments or profit sharing, it did not unambiguously limit or remove the worker’s common law right.
The court calculated the worker’s damages for the annual bonus based on his historical expectation. Historically, the worker received an average of 20.9% of the bonus pool when performance was factored in.
The court stated: “Damages for a breach of contract based on the failure to provide reasonable notice are calculated on the basis of what the employee would have earned during the reasonable notice period, as if they had continued to work to the end of the reasonable notice period.”
The worker suffered damages for the reasonable notice period of 26 months, consisting of vacation pay of $29,308, base salary, Christmas bonus and benefits totaling $553,895.33, and annual bonuses in the total amount of $948,626.
There was no reduction in damages for a failure to mitigate. The court concluded:
“I find that the [factors] in [the worker’s] situation give rise to the exceptional circumstances that are necessary to award a reasonable notice period beyond the rough upper limit of 24 months. The proper reasonable notice period for [the worker] is 26 months.”
The worker’s total damages were $1,531,829.33, subject to applicable tax withholdings, plus interest.