Why extra caution is required when dismissing a C-suite exec
Once a CEO, often never again a CEO. Company presidents and C-suite executives all have one thing in common: their roles often come along but once in a lifetime. The silver lining — employment law continues to favour them. Such was the case of Stephen Hale.
From 2007 to 2014, Hale, a 59-year-old chartered accountant from Strathey, Ont. was the highly paid president of Innova Medical Ophthalmics Inc., a medical equipment distribution company. He earned more than $300,000 annually, including benefits.
In July 2014, one of the owners, Victor Spear, entered Hale’s office and told him he was unhappy at work, and that either he or Hale had to go, and that it was easier to terminate Hale. He told Hale to gather his things and leave. Hale left immediately and was effectively terminated that day.
Two weeks later, Innova wrote Hale, accusing him of owing Innova $130,290 in life insurance premiums that it paid on his behalf, and that it had learned he had written off $6.8 million of the company’s debt without disclosing it. Innova claimed Hale had been dishonest and that it had cause to terminate his employment.
When Hale sued, Innova alleged that the $6.8 million writeoff, without advising of the tax consequences, was grossly negligent and dishonest. It also alleged that Hale failed to honour an agreement with the principals of Innova, Victor and David Spear, to deduct the annual cost of two insurance policies from his compensation, thereby providing himself an unauthorized $58,000 annual increase in salary.
Innova argued that it had cause to terminate Hale and also counterclaimed, seeking the repayment of the insurance premiums that Hale was allegedly required to pay back.
At trial, Justice Carole J. Brown dismissed all of Innova’s claims. She found Victor Spear to not be credible; that his evidence lacked candor and often seemed contrived. She found that there was no nefarious, deceitful or fraudulent attempt on the part of Hale to hide the fact that the company was paying his insurance premiums. There was no cause to terminate Hale as the court found that he did indeed disclose the $6.8 million writeoff to the owners despite the owners giving evidence that he did not. The judge found the evidence of the owners to be less than credible, finding that good corporate policy would suggest that they should have been regularly reviewing financial documentation.
The judge recognized that prospective employers of senior-level employees such as Hale do a lot of background research if an applicant has been terminated from a previous role. No one at Innova provided Hale with a reference letter. He applied for up to 100 jobs, had a dozen interviews and met with 15 recruiters. He had no income for 30 months. Presumably, the judge recognized that senior executives undergo extensive vetting during an interview process and the lack of a reference letter coupled with a dismissal for alleged cause would dash an executive’s chances of reemployment at the same level.
(I should note that there is an obligation on employees in an interview to be honest as to the circumstances of their departure. If they are not, that can be cause for discharge whenever discovered.)
The judge found that there was no cause for Hale’s termination and awarded him 18 months’ notice plus benefits. Innova’s counterclaim was entirely dismissed.
This case, while subject to appeal, is a boon for executives. Tips executives should consider if faced with a termination:
Record your mitigation efforts: Even though your job may be one in a million and inherently difficult to replace, a strong record of your search efforts can go a long way toward increasing your damages at trial;
Claim every possible loss: Work with competent counsel to determine your damages on bonuses, commissions, deferred compensation, insurance plans and perquisites. If you don’t claim it, a judge can’t award it to you;
Get legal advice on your employment agreement: Whether it’s before you start employment or during, if you’re a key executive in your organization, step back and negotiate a contract before limiting your rights on termination. If you are an asset to your organization, you have more power than you think.
There is a valuable lesson in this case for employers, too. Employers should never allege cause unless they are prepared to suffer the consequences. Undoubtedly Hale’s 18-month windfall was awarded not only because of his length of unemployment but by the allegations Innova levied in response to his claim.
Going to trial can sometimes be a roll of the dice, but for senior executives the payout is usually well worth the gamble.
• Howard Levitt is senior partner of Levitt LLP, employment and labour lawyers. He practises employment law in eight provinces. The most recent of his six books is War Stories from the Workplace: Columns by Howard Levitt.
hlevitt@levittllp.com | Twitter.com/HowardLevittLaw