CFO demands salary continuance, other entitlements despite underperformance
A Nova Scotia court recently dealt with an employment dispute involving a terminated Chief Financial Officer (CFO) and the interpretation of probationary periods in employment contracts.
The case highlighted the balance between an employer's right to assess new hires during probation and an employee's expectation of fair treatment.
It raised questions about the interplay between probationary periods, just cause termination, and contractual entitlements like signing bonuses.
The disputed probationary period
The court examined a contract clause that established a 90-day probationary period while also mentioning a three-month salary continuance in the event of termination without cause.
This created confusion about which standard applied during probation - the lower "suitability" threshold or the higher "just cause" bar.
The worker was hired for a senior role, acting as the CFO for two companies with an annual salary of $125,000, participation in a bonus plan, and a full benefits package paid 100% by the employer after probation. The employment contract included responsibility for preparing year-end working papers for external accountants.
The judge emphasised the importance of giving meaning to all parts of a contract, stating:
"As a general principle of contractual interpretation, courts strive to give each and every provision in a contract some meaning."
Ultimately, the court concluded that the probationary "suitability" standard applied during the initial 90 days, while the salary continuance provision would only apply after successful completion of probation.
Employer’s termination standards
The worker argued that even during probation, the employer needed to establish just cause and provide warnings before termination. However, the court found this incompatible with the nature of probationary employment.
The judge noted:
"The issue, boiled down, is whether a progressive discipline process can be implemented during a probationary period. No authority has been provided supporting that and on principle I do not think they can exist at the same time."
The court reviewed evidence showing that the worker was informed of the importance of completing year-end financial work on her first day as part of the executive team. This task was crucial as the companies' bankers needed external financial statements to increase the limit of the operating line by $500,000.
Executive’s performance problems
A key issue was the worker's failure to complete critical year-end financial work, despite it being communicated as the top priority. The court found this constituted a significant undermining of an essential job obligation.
The evidence showed that external accountants sent an information request with 22 items to the worker on February 3. By March 23, it became clear that the materials were nowhere near completion. After the worker's dismissal on April 3, a review showed that 75% of the work was yet to be done.
The judge observed:
"To put this plainly, the [worker] had two months to do this work and in that time only completed approximately 25% of the task. [Another accountant] completed the balance of the work in the equivalent of one week."
The court also noted that the worker was routinely late for work and missed project management and billing meetings, which she had been advised to attend from her first day.
The signing and entry bonus
The court had to determine whether the worker was entitled to the unpaid portions of a $15,000 "signing and entry bonus" despite not completing probation. The contract language didn't explicitly tie the bonus to successful completion of probation.
The bonus was to be paid in three instalments: $5,000 in the first week of employment, $5,000 at the three-month point, and the final instalment at the 6-month point. The contract stated that if the worker terminated their employment within 18 months, the bonus would be repayable in full.
The judge reasoned:
"It is called an 'entry bonus.' It would seem that in some measure it provided the person in the position of the [worker], who was moving from Alberta to take this position, with some motivation to make that move and some security that there would be this money payable whatever else happened."
The court awarded the unpaid amount of $10,000 to the worker, subject to any statutory withholding requirements.
The court's decision offers several key points to consider:
- The importance of clearly defining probationary periods and associated rights in employment contracts;
- The potential issues with mixing probationary language with just cause termination provisions; and
- The need for thorough documentation of performance issues, especially for senior roles.
This case further illustrates the nuances surrounding probationary employment and the importance of clear contractual language in employment agreements.
