In circumstances where an employee’s employment contract does not contain a severance clause, it is up in the air whether the common law allows an employer to validly and unilaterally impose a severance clause into the existing employment relationship by providing appropriate working notice to an employee of the change to his/her terms of employment. Suffice it to say that attempting to do so is risky and could result in an employee successfully establishing that he/she has been constructively dismissed, and in turn, triggering liability exposure to common law reasonable notice.
That said, a recent case out of Ontario illustrates a unique, Court-endorsed approach to successfully binding an employee to a severance clause that was not initially included in an employee’s terms and conditions of employment. Namely, in Michele Lancia v. Park Dentistry Professional Corporation, 2018 ONSC 751, the employer provided the employee with adequate working notice of her without cause termination, accompanied by an offer of reemployment on new terms and conditions that included the desired severance clause as well as payment of a signing bonus. If the offer of reemployment was accepted by the employee, her current employment would be terminated immediately and the new terms of employment would govern moving forward. Conversely, if the employee did not accept the offer of reemployment by the specified acceptance deadline, her employment would simply be concluded at the end of the working notice period. The employee ultimately accepted the offer of reemployment before the deadline, however, she later resigned and commenced a legal action against the employer alleging that she had been constructively dismissed.
The Court refused to accept the employee’s allegations of constructive dismissal. Further, the Court commented that, even if the employee had been successful in establishing that she was constructively dismissed, the new terms of employment (including the severance clause) were valid and enforceable, which significantly limited any damages she would have been entitled to.
This Ontario case serves to remind employers how important severance clauses are, as well as outlines an interesting, valid manner in which a severance clause can be legally introduced into an employee-employer relationship where an employer did not initially include a severance clause in the employee's employment contract.