Mar 7, 2016

In February 2015 we wrote about a case where a former employee was ordered to pay $56,116.11 as a result of his failure to give reasonable notice of resignation. While these so-called wrongful resignation cases are rare, they should give anyone contemplating a hasty exit from their workplace second thoughts.

However, as evidenced by a recent decision out of Sudbury, employers too should think twice prior to going to court on the basis of wrongful resignation.

The facts from Gagnon & Associates Inc. et. al. v Jesso et. al. (2016 ONSC 209) involved a senior sales employee at a small HVAC company. The employee was dissatisfied with his compensation. In response, he and the company's only other salesperson approached a competitor about opening up a new office. Once the competitor agreed, the employee and his colleague quit on the spot. No notice was given but the employee did offer to work for another two weeks, provided the employer pay out commission payments owed. The employer refused; the employee never returned.

What then followed was a 10 year legal saga. A few interesting points that can be drawn from the history of the case:

1. Non-competition agreement and failed injunction: The employer quickly brought an injunction motion in an attempt to stop their former employees from working for their competitor. Each had employment contracts which included a three (3) year non-competition clause covering all of Northern Ontario.

The Court had little trouble cutting the employer's non-competition clause to ribbons. First, the clause for each worker was over-broad in both its duration of three years and its scope [to learn what makes for an enforceable non-competition agreement, see our article here]. Second, given that in the Court's opinion a non-solicitation agreement would have been sufficient to protect the employer's interests, it was held to be unnecessary to enforce non-competition. Finally, the employer had put the relevant clauses in fixed contracts (which had expired long before the resignations). As no new contracts were ever signed, the non-competition clauses were moot.

As a result of its failed attempt to enforce the non-competition clauses, the employer had costs of $45,000.00 assessed against it by the Court.

2. Wrongful resignation: Years later, Gagnon & Associates' full case against one of its two former salespersons was heard. As the salesperson had given no prior notice, the Court quickly concluded that the resignation was wrongful. Justice Gordon commented:

Although Jesso was a salesperson with no managerial responsibilities, he was a senior employee with ten years' experience and was responsible for a significant percentage of GA's sales. The evidence at trial established that the market for experienced HVAC salespersons was limited and that a replacement hire could not be made until September of 2006. In addition, Jesso knew that Comeau, the other senior salesperson would be leaving GA on the same day thereby putting GA in a significantly difficult position. In these particular circumstances, a notice period of two months would have been appropriate. [emphasis added, para. 40]

In terms of the lost revenue associated with the lack of notice, Gagnon & Associates' led expert evidence suggesting the figure should fall between $154,000 and $174,500. Unfortunately for the employer, the Court rejected these numbers as being based on inflated sales estimates. Instead, Justice Gordon calculated the loss flowing from the two month notice period at $35,164.00.

3. Unpaid commissions: In response to the employer's lawsuit, the former salesperson counter-claimed for unpaid commissions. Gagnon & Associates denied any monies were owed on the basis the relevant commissions were not invoiced at the time the worker was still an employee. On this issue, Justice Gordon sided with the former salesperson. The Court stated that as the former employee had made the sales while still employed by Gagnon & Associates, he was owed the related commissions. These were ordered to be paid at a value of $38,501.24.

Final Outcomes

To tally up the figures to date, after a ten year legal odyssey involving at least one failed injunction motion and eight days of trial, the employer in this case won $35,164.00. Stacked against this are $38,501.24 in unpaid commissions owed to the former employee and $45,000.00 owed to the Defendants for the costs of the failed injunction. Keep in mind, Gagnon & Associates also had its own legal bills to pay during this process.

At the end of the day the employer did win its wrongful resignation fight. Ironically, it is likely far poorer for the effort.