The recent decision in Cheong v. Grand Pacific Travel & Trade is a sobering reminder to employers of the importance of taking a transparent, clear and collaborative approach when contracting with your employees – and what can happen when you don’t. The case involved a failed attempt by an employer to rely on the provision in a staff handbook to limit the amount of severance paid to a dismissed employee, resulting in a damages award against it equal to 14 months’ of the employee’s salary.
Ms. Cheong began working for Grand Pacific Travel & Trade (GP) in July 2000 as its Director, Sales and Marketing.
In October 2003, GP introduced a staff handbook (the Handbook) that included, among other things, a limit on the amount of notice or pay in lieu of notice it would give an employee at the time their employment was terminated, using a formula of 1 week per year of service, to a maximum of 8 weeks’ severance. Ms. Cheong received a copy of the Handbook.
At the end of 2010, after over 10 years of service, Ms. Cheong resigned from her position with GP. For most of 2011, she was employed elsewhere. In early 2012, she accepted a position with a new company but, before she started her new job, GP contacted her and asked if she would be interested in returning to work for them. She agreed, and on February 1, 2012, she returned to GP in her previous role as the Director, Sales and Marketing.
On June 13, 2014, GP dismissed Ms. Cheong without cause, and paid her severance equal to two weeks’ salary.
After she was fired, Ms. Cheong started a wrongful dismissal lawsuit against GP. The court ruled in her favour and ordered that GP pay her damages equal to 14 months’ notice of termination.
Two key factors which the court considered in making this award were:
- The approximately one year gap in Ms. Cheong’s employment with GP; and
- The effect of a severance-limiting clause in the Handbook.
Gap in Employment
The first step in the court’s analysis was to decide whether to include Ms. Cheong’s employment with GP from July 2000 to December 2010 when calculating her severance entitlement. The court relied on the following principle stated in Dobbs v. The Cambie Malone’s Corporation:
a gap in service will be disregarded for the purposes of assessing an employee’s entitlement to reasonable notice if the parties expressly agreed that the prior service would be recognized or if the parties conducted themselves at the point of rehire in a manner consistent with the employee’s prior service being recognized.
The court concluded that Ms. Cheong’s notice award should be based on a total of nearly 13 years of service with GP, for the following reasons:
- it was an express term of Ms. Cheong’s re-employment in 2012 that her previous 10.5 years of service would be recognized by GP for all purposes, including determining her entitlement to notice in the event of termination;
- had there not been an express agreement, Ms. Cheong and GP conducted themselves in a manner consistent with Ms. Cheong’s prior service being recognized:
- GP actively pursued Ms. Cheong in early 2012;
- Ms. Cheong made it clear in an email to GP in January 2012 that she expected her prior years of service to be recognized; and
- Ms. Cheong was treated as a long-term employee when she returned (with regard to her rate of pay, vacation entitlement, benefits coverage, lack of probation period, receipt of a long-service gift in 2012, and no requirement to complete a new hire application in 2012).
The second step in the court’s analysis was to consider whether Ms. Cheong was bound by the provision in the Handbook that purported to limit her severance on termination.
Here, the court relied on Rahemtulla v. Vanfed Credit Union, where the court explained that a term is binding if the usual elements of a contract have been established, namely:
- Offer and acceptance
- A mutual intention that the term in question is legally binding
In Ms. Cheong’s circumstances, none of these elements was present. Specifically:
- Although Ms. Cheong acknowledged that she received the Handbook, this was not enough to infer that she agreed to its terms.
- When the Handbook was introduced, GP did not provide Ms. Cheong with any fresh consideration.
- Aspects of the Handbook itself indicated that GP did not intend for it to have contractual force.
- Even though the Handbook was accompanied by an email asking that employees contact the GP administration if they had difficulty understanding its contents, the fact that Ms. Cheong did not do so was not enough to constitute her acceptance of it as a change to her employment contract (per Wiebe v. Central Transport Refrigeration (Man.) Ltd.).
- When Ms. Cheong was re-hired in 2012, GP did not refer to the Handbook or its termination provision when they were forming her new employment contract.
Based on all of the above, the court found that GP could not rely on the termination provision in the Handbook to limit the amount of notice / severance it provided to Ms. Cheong. As such, it was up to the court to apply common law principles to arrive at the appropriate period of notice, which it set at 14 months.
The decision in Cheong is a striking example of how an employer’s failure to use Sustainable Employment™ practices when contracting with its employees can have serious, negative legal and financial consequences. By Sustainable Employment™, we mean an employment relationship that is lasting, beneficial and meaningful, for both the employer and the employee.
Clarity, transparency, mutual benefit and collaboration are key to a successful, sustainable employment relationship – and when it came to GP’s introduction of the termination provision in the Handbook, they were notably absent. The severance-limiting provision was one-sided and unilaterally imposed, and ambiguous in terms of its legal effect. By not ensuring that Ms. Cheong fully understood, accepted, and benefitted in some way from the introduction of the Handbook, GP not only failed to achieve its workplace objectives, it exposed itself to significant legal liability.
Interested in creating Sustainable Employment™ contracts for your employees? Contact us!