Supreme Court awards nearly $1 million after contract deemed unenforceable
The Supreme Court of British Columbia recently dealt with a wrongful dismissal case involving a long-serving salesperson who challenged his termination without cause after 17 years of employment.
The worker argued that his employer's termination clause was unenforceable and sought damages representing both his base salary and substantial commission earnings during the notice period.
The worker also claimed that his former employer breached its duty of good faith by making baseless allegations against him in its legal pleadings. These allegations allegedly hindered his ability to find new employment and caused him significant emotional distress.
With annual earnings that averaged over $650,000, mostly from commissions, the worker sought damages for pay in lieu of reasonable notice, unpaid vacation pay, and additional compensation for the mental distress he suffered as a result of his employer's conduct.
The worker was employed as a salesperson in the equipment leasing business from 2005 until 2022. He generated substantial revenue, bringing in more than $15 million in originating leases annually and earning his employer end-of-lease profits that often exceeded $1 million per year.
His remuneration included a $100,000 base salary plus commissions. The commission structure included "front-end" payments based on new equipment leases and "back-end" payments generated at the end of a lease term. His portfolio of active leases amounted to $60 million at termination.
On November 29, 2022, the employer terminated the worker without cause, citing concerns about his interactions with internal staff, a complaint about responsiveness from a referral source, a previous conduct notice, and potential reputational damage related to a personal lawsuit.
Following termination, the employer paid the worker 52 weeks of base salary totalling $100,000, in accordance with the termination clause in his 2009 employment agreement.
This clause provided for four weeks' notice for the first year of employment, plus three weeks for each additional year, to a maximum of 52 weeks. However, it expressly excluded commission payments.
The court found this termination clause void and unenforceable because it could potentially fall below minimum statutory requirements under the Employment Standards Act.
The court explained: "A termination clause that has the potential of not meeting statutory minimum standards is void from the beginning, and not only if it falls below the statutory minimum during the hiring, employment or termination of an employee."
With the termination clause deemed unenforceable, the common law presumption of reasonable notice applied instead, entitling the worker to significantly more compensation.
The court considered the Bardal factors: the character of employment, length of service, age of the employee, and availability of similar employment when determining the appropriate notice period.
The court noted the worker's significant responsibilities, his 17-year tenure, and his age (43) at termination. It also considered the challenges the worker would face finding comparable employment, especially given the commission structure in the industry which would likely result in substantially lower earnings for several years after joining a new employer.
After reviewing comparable cases, the court determined that 19 months was an appropriate notice period, resulting in damages of $836,424 based on the worker's average annual income of $528,268.
After termination, the employer alleged "after-acquired cause" based on several claims, including that the worker had ingested cannabis during work hours, provided unauthorised pricing to a client causing significant losses, disclosed confidential information to a competitor, and worked remotely from the United States without authorisation.
The court found some of these allegations unreasonable and lacking proper evidence. Regarding the pricing allegation, the court stated: "This assertion was unreasonable regarding both ends of the range, given the information then in [the employer's] possession or easily available through inquiries with [the client]."
The court determined that continuing with allegations about workplace drug use breached the employer's duty of good faith:
"An allegation of work-place use of intoxicating drugs carried a real potential to harm [the worker's] search for a new job. The allegation should have been withdrawn once it became clear there was no reasonable chance of proving it at trial."
The worker experienced severe emotional distress following his termination, describing 2023 as "probably the most depressed year" of his life. He sought professional help for depression and suicidal thoughts, and was once detained in hospital due to concerns about his suicidality.
The court found the employer's unreasonable allegations played "a substantial role in creating serious and prolonged emotional distress exceeding that typically associated with termination," warranting $35,000 in aggravated damages.
The court also awarded $106,329 for unpaid vacation pay that should have included commissions. However, it declined to award punitive damages, stating:
"Unreasonableness without more does not meet the high threshold for awarding punitive damages. And I am unable to conclude that [the employer] also acted in bad faith in conducting the litigation the way it did."
In total, the worker received damages of $977,753, reduced by the $100,000 already paid and a set-off for income earned during the notice period.
