What You Need to Know – 86-Year-Old Gets 18 Months’ Severance

Mr. Nicki Lang, in 1961, started working for his father-in-law in the family business. On May 29, 2018, when he was 80 years of age, his employment was terminated by 137579 Canada Inc. and 1290276 Alberta Inc. (collectively the “Defendants”), holding companies which, by then, controlled the family business.[i] Over that time. Mr. Lang’s responsibilities in the family business grew and as did the business’ assets.[ii]

At the time of his dismissal, Mr. Lang “…was managing real estate, dealing with tenants and partners and coordinating with accountants, lawyers and bankers for the [family business] he also interfaced with financial advisors and brokers and managed investments. In sum, he had the stewardship of the family assets…”[iii]

When his employment was terminated, he was told that the family business was “… under new administration…” and his services were no longer required.[iv] He sued the Defendants alleging that he was dismissed without cause, was consequently, entitled to 18 months’ notice prior to his dismissal, and in absence of which he was entitled to 18 months’ salary as severance pay.[v]

The Defendants argued, among other things, that:

1.????Mr. Lang was not their employee, but was rather an independent contractor under a service contract;

2.????If he was an employee with an employment contract then they had good and sufficient reason for terminating his employment; and

3.????That Mr. Lang’s demand for 18 months severance pay was “exaggerated and excessive.”[vi]

The Court considered each of these defenses.[vii]

The Defendants contended that no employment contract could exist between Mr. Lang and them because there was no relationship of subordination between the Defendants, on one hand, and Mr. Lang, on the other.[viii]

Under an employment contract is formed when“… a person, the employee, undertakes, for a limited time and for renumeration, to work under the direction and control of another person, the employer.”[ix] In other words, the 3 essential elements of an employment contract are “… work, renumeration and subordination.”[x]

The Court described subordination as:

“…the employer’s ability to determine the work to be performed, to supervise its performance and to control it. The employer may choose to exercise these prerogatives to a greater or lesser extent or not to exercise them, but it does not change the legal situation of the parties.

In turn, the employee accepts the employer’s direction and control in performing the duties provided for in the contract of employment. He recognizes that he is an integral part of a whole and accepts the employer’s power of decision and the need for his work to be consistent with the purpose of this whole. His work must be performed in a manner consistent with the decisions made by the employer for the business’ interests and with the guidance provided, subject to any express or implied agreements between the parties.”[xi]

Each relationship must be analyzed on its own merits in order to determine if a relationship of subordination was created. However, “…compulsory presence at a workplace, more or less regular assignment of work, imposition of rules of conduct or behavior, requirements of activity reports, control of the quantity or quality of the service, ownership of tools, possibilities of profit, risk of loss, approval of vacation dates are indicators that are typically considered when making such a determination.”[xii]

The Defendants argued there was no relationship of subordination because Mr. Lang “… had a high degree of autonomy” where the Defendants “…did not really exercise their power of direction and control over him…”[xiii]

The Court disagreed and noted that “…the fact that [an employer] does not exercise its power of direction and control does not change the nature of the agreement entered into between the parties.” In other words, the fact an employer does not exercise its power of direction and control over an employee does not change the contractual relationship from an employment contract to a contract of service.

In this case, the Court found that Defendants’ exercised power and control over Mr. Lang, notwithstanding his degree of autonomy, because:

1.????Mr. Lang provided monthly reports to the Defendants;

2.????Mr. Lang’s performance was put in doubt in 2013 when the services of an outside party were retained to “oversee” investments being managed by Mr. Lang;

3.????Mr. Lang gave verbal reports to the Defendants when requested;

4.????In 2014, a new process was introduced to improve investment return; and

5.????Mr. Lang oversaw the sale of investments when so instructed by the Defendants.[xiv]

Additional facts also led the Court to conclude that there was an employment contract between the litigants. These facts included:

1.????Mr. Lang’s remuneration was not tied to any performance standards;

2.????Mr. Lang worked exclusively for the family’s interest for over 55 years;

3.????Mr. Lang personally carried out his work and did not sub-contract it or delegate it to anyone else;

4.????Mr. Lang never sent any invoices to the Defendants and never registered for GST or QST;

5.????Each of the Defendants paid a salary to Mr. Lang and issued to him T4 and RL-1 slips;

6.????The Defendants offered to pay Mr. Lang his renumeration for 2018 “less whatever deductions at source the companies may have taken in the past.”[xv]; and

7.????It was only when Mr. Lang threatened to sue the Defendants in July, 2018 that they took the position that he was not an employee but rather an independent service provider.

Next the Court considered the Defendants’ argument that they had just cause to terminate Mr. Lang’s employment. The Court noted that either party to an employment contract with an indefinite term may end the contract at any time but, unless the contract is terminated for “serious reason,”[xvi] the party terminating the contract must give the other party sufficient prior notice.[xvii]

However, not every fault committed by an employee constitutes just cause to terminate an employment contract.[xviii] Examples of circumstances which could give rise to cause for termination given by the Court were: “… incompetence, gross negligence, insubordination, insolence, [wrongful] absenteeism, intoxication, sexual harassment, conflict of interest, breach of fiduciary duty, lack of integrity, breach of the duty of loyalty by an executive or of their duty of transparency…”[xix]

The Court also observed that “[A] progression of disciplinary measures is desirable and, except in exceptional circumstances, the employer must give the employee notice to modify his conduct. However, such progression does not apply to management staff to the same extent as to other employees…”[xx]

The Court concluded that the reproaches made by the Defendants against Mr. Lang, which are detailed in the Judgment but which we will refrain from detailing here, did not rise to the level of justifying his dismissal for cause.[xxi]

The Court, finally, turned to the question of the amount of severance Mr. Lang was entitled to receive. It highlighted that notice of termination of employment by the employer to an employee must “…be given in reasonable time, taking into account, in particular, the nature of the employment, the specific circumstances in which it is carried out, and the duration of the period of the work.”[xxii] The Court went on to write:

“Said indemnity is intended to replace the remuneration that the employee would otherwise have received during the notice of termination by working for the employer. It is not intended to compensate the employee for the loss of his job or to reward him for his past services. It is meant to provide financial stability for a reasonable period of time during which the employee can find new employment similar to the one he lost.?Therefore, it is not a matter of punishing the employer for terminating the contract of employment.

For employers, it is the price to be paid for terminating a contract of employment without a serious reason. For employees, it is an indemnity providing them with the time needed to get back on their feet.

What constitutes a reasonable notice of termination depends on the individual circumstances of the employee who claims it. It is basically a question of fact that will depend on the circumstances of each case.

The reasonableness of a termination notice will be assessed on the basis of a number of parameters: the nature and importance of the position, whether the employee left another job to take the position, the employee’s age, years of service and experience, how easy or difficult it is to find an identical or similar position, and subsequent efforts to find work. The length of the employment relationship is usually the first criteria considered.”[xxiii]

Jurisprudence has held that, barring exceptional circumstances, severance pay should not exceed 18 months of salary and that, even in the event of exceptional circumstances, severance pay should not exceed 24 months of salary.[xxiv] In this case, the Court held that Mr. Lang was entitled to 18 months’ salary in lieu of notice of termination, in other words severance pay, because:

1.????He worked for the Defendants for many years and for the family business since 1961;

2.????He was described as being “a dedicated and irreproachable employee… [who was] very easy to deal with… and as someone who never makes a mistake and with whom everything comes back in time and in an orderly manner.”

3.????He “…had the stewardship of the family assets including the very significant portfolios of the [D]efendants.” And in light of his age, it would be almost impossible for him to find identical or similar employment.[xxv]

The Defendants were condemned to pay Mr. Lang $291,000.00 plus interest.[xxvi]

WHAT YOU NEED TO KNOW

·??????Both an employment contract and a service contract envisage work will be performed in exchange for remuneration. The difference between them is that there is a relationship of subordination between an employer and an employee whereas there is no such relationship between a client and a service provider;

·??????A relationship of subordination requires that the employer be entitled not only to tell the employee what to do but how, when, and where to do it;

·??????The employer need not exercise its power of control over the employee. It is sufficient that the employer has the right to control the employee for the necessary relationship of subordination to be found to exist;

·??????The manner in which the employer treats the employee and the way in which the employee is remunerated is also indicative of a contract of employment;

·??????If an employment contract is set to end on a fixed date, neither party can termination before that date;

·??????If an employment contract has no termination date, that is to say it is for an indefinite term, either party may terminate upon giving the other reasonable prior notice. Where an employee’s employment is being terminated, the notice must take into account “…the nature and importance of the position, whether the employee left another job to take the position, the employee’s age, years of service and experience, how easy or difficult it is to find an identical or similar position, and …[t]he length of the employment;[xxvii]

·??????Where an employee’s ?employment contract has an indefinite term, he or she is required to give a reasonable prior notice to the employer and may be found liable for damages to the employer it such notice is not given;[xxviii] but

·??????An employment contract, whether for a fixed term or not, may be terminated by either party, without prior notice, for serious reason, in other words for cause.

It goes without saying that the preceding comments are general in nature and are not intended to offer any legal advice regarding any specific situation.

[i] Paragraphs 1 & 59 of the Judgment in Lang vs. 137579 Canada Inc. (2021 QCCS 5292) (Internal footnotes omitted). (Unless otherwise indicated, all references to paragraph numbers refer to paragraph numbers of the Superior Court’s Judgment.)

[ii] Paras. 2 & 5.

[iii] Para. 5.

[iv] Para. 6.

[v] Paras. 7 & 8.

[vi] Para. 10.

[vii] Para. 12.

[viii] Paras. 61 & 62. (Internal footnotes omitted).

[ix] Para. 63 & Article 2085 Civil Code of Quebec (“CCQ“)

[x] Para. 66. (Internal footnotes omitted).

[xi] Paras. 70 & 71. (Internal footnotes omitted).

[xii] Paras. 72 & 73. (Internal footnotes omitted).

[xiii] Para. 82.

[xiv] Para. 85.

[xv] The Court citing the Defendants’ own words.

[xvi] Article 2994 CCQ.

[xvii] Paras. 90 & 91. (Internal footnotes omitted).

[xviii] Para. 93. (Internal footnotes omitted).

[xix] Para. 94. (Internal footnotes omitted).

[xx] Para. 95. (Internal footnotes omitted).

[xxi] Para. 120.

[xxii] Para. 125.

[xxiii] Paras. 126, 127, 129 & 130. (Internal footnotes omitted).

[xxiv] Para. 132. (Internal footnotes omitted).

[xxv] Para. 138.

[xxvi] Para. 166.

[xxvii] Para. 130 (Internal footnotes omitted).

[xxviii] Art. 2091 CCQ.