We are often asked why employers would settle for more than they want to pay when they have the resources to fight every matter to trial, whereas employees may feel the financial pinch if there is not an early settlement. The question comes from both terminated employees and somewhat more rhetorically from management counsel.
A good answer to these questions can be found in the decisions of the Ontario Superior Court of Justice in Pavlov v. The New Zealand and Australian Lamb Company Limited, 2021 ONSC 7362, and the Court of Appeal for Ontario in Pavlov v. The New Zealand and Australian Lamb Company Limited, 2022 ONCA 655.
In Pavlov, the Ontario Superior Court rendered a summary trial decision regarding a wrongful dismissal action. The plaintiff, Phillip Pavlov, was employed with The New Zealand and Australian Lamb Company Limited for a period of less than three (3) years as a Director of Marketing and Communication<, when he was terminated without cause on May 28, 2020. He was forty-seven (47) years old at the time of dismissal.
While he did not have any employees reporting to him, Mr. Pavlov held an important role at the 125-person company. Unfortunately, his employment was terminated early in the pandemic, which added challenges to his diligent search for new employment.
Mr. Pavlov commenced litigation when the company refused to settle, and the matter was brought to trial before Justice Stewart.
Mr. Pavlov sought a lengthy notice period despite his short service to help bridge him to new employment.
Throughout the litigation process and at trial, the company raised several arguments, claiming that the employee’s contract restricted his severance to two (2) weeks, that alternatively his notice/severance period should be no more than five (5) months, that no bonus should be paid to him, and that he failed to make reasonable efforts to find a new job.
The trial judge rejected all of those arguments, and awarded the amounts that Mr. Pavlov was seeking, namely ten (10) months of pay in lieu of notice, pay for loss of benefits, and pay for loss of the bonus for the period that his colleagues were eligible for bonuses. He was also awarded $50,000 in legal costs, plus disbursements.
The employer appealed.
On appeal, the employer argued that the notice period was excessive, that the bonus should not be paid, and that they should not be required to pay the employee’s cost for attending the mandatory mediation.
The employer also argued that the fact that the employee had applied to over one hundred (100) jobs by the time of trial showed that there was wide availability for alternate employment, which should reduce the notice period. The employee argued that the fact that there were jobs to apply to did not change the fact that there were no jobs made available to him, as he was not offered any positions prior to trial despite his diligent efforts.
In a unanimous decision of the three-judge panel of the Court of Appeal for Ontario, the employer’s appeal was dismissed, and an additional $24,000.00 in legal costs were awarded against the employer.
The case of Pavlov v. The New Zealand and Australian Lamb Company Limited provides important lessons for both employees and employers:
- For employees, even if you have short service, your notice period can be substantial. Similarly, even if you have no direct reports, you can be treated as a member of senior management for the determination of your notice entitlement if your duties reflect that level of responsibility. Any severance package should be reviewed by a qualified employment lawyer to avoid leaving substantial sums on the table;
- For employers, the fact that you can play hardball and refuse to settle doesn’t mean you should do so. Ultimately, the shareholders of the New Zealand and Australian Lamb Company lost out when the company decided to take an aggressive litigation strategy on a non-cause termination rather than consider an early resolution that fairly compensated their former employee while he sought out new employment.
Read more about the Pavlov decisions, including commentary from Matthew Fisher, in Canadian Lawyer Magazine: