A recent decision by the British Columbia Court of Appeal highlights the importance of carefully crafting written employment agreements whenever shares are issued as part of employee compensation.
In Hawkes v. Levelton Holdings Ltd., Hawkes, a professional engineer with more than 18 years’ service, had his employment terminated without cause and without notice (the company alleged cause at trial but the judge ruled it had none). After a lengthy trial the judge ruled he was entitled to 18 months’ reasonable notice less mitigation from new employment he obtained shortly thereafter.
Levelton had compensated certain employees, in part, by issuing shares. The company determined the proportion of shares to be issued to each employee from an available pool based upon a number of objective and subjective factors. The shareholders’ agreement provided that only employees could be issued shares and that upon any termination without cause the employee was required to sell his shares. The company appealed the trial decision, not on the issue of the quantum of reasonable notice, but instead on the trial judge’s findings that Hawkes’ unwritten employment contract contained an implicit term which effectively granted him benefits not contemplated under the shareholders’ agreement.
The trial judge focused on whether or not the shareholders’ agreement, interpreted in light of the implied employment contract, provided that Hawkes was not required to surrender his shares immediately upon termination. The Court of Appeal cut through that analytical Gordian Knot and held that the question was irrelevant. Instead, the Court of Appeal found that an employee whose employment is terminated without reasonable notice has the right to be compensated in a way that places him in effectively the same position as he would have been had he received the notice to which he was entitled.
Whether or not the shareholders’ agreement provided for surrender or valuation at any particular time was moot. The employment contract—the unwritten employment contract—provided implicitly for reasonable notice. Regardless what the shareholders’ agreement said, once the judge found that Hawkes would have remained a shareholder and accrued certain benefits during the reasonable notice period if he had remained an employee, it was possible to quantify the difference between what he would have received and what he lost by way of damages for wrongful dismissal. It was unnecessary to determine whether he had or could maintain rights as a shareholder post-termination.
This case demonstrates that an employer cannot avoid damages in lieu of reasonable notice by amending benefit-related documents alone. If cost certainty and risk management is your goal, a properly drafted and implemented written employment agreement is the best tool for the job.
This blog was first published July 10, 2013 on First Reference Talks.