Should high-level employees be treated any differently when it comes to termination? In Gelston c. Schluter Systems (Canada) Inc., the Superior Court of Quebec reiterated that employers do not need reasonable grounds to terminate senior management employees.
Mr. Gelston was employed by Schluter for 21 years, working his way up to Senior Manager and Director of Sales for North America. The company operated in ceramic tile installation systems. At the time of termination, Mr. Gelston was earning about $355,790 annually, which included his base salary of $211,000 and various bonuses.
A new CEO and president, whose management style did not please all of the employees, was appointed in 2014. In July of that year, Mr. Gelston, having received complaints from various employees, shared these concerns with the former CEO and recommended that he continue to be involved in sales meetings so that the new CEO “could see how things have been done”.
In September 2014, while returning from a golf vacation, Mr. Gelston received a termination letter by email. The termination letter simply advised that it was in the company’s best interest to end the employment relationship. Mr. Gelston was also advised that the company intended to treat him fairly; he would receive a comprehensive settlement offer and, whether he accepted the offer or not, eight weeks of his aggregate compensation.
Schluter offered him $500,000, which Mr. Gelston refused. He countered with $583,340, representing 20 months’ compensation. Schluter rejected the counter offer. Also, Schluter never paid the eight-weeks’ compensation that had been promised or any vacation pay that was owed.
The Court considered Mr. Gelston’s age, years of service, his elevated salary, rarity of employment opportunities at a similar level and his efforts to mitigate. Applying these factors to the case at hand, the Court determined that: (a) Mr. Gelston’s salary was exceptional in 2014, (b) Mr. Gelston could seek employment at a lower salary level that reflected his earnings in previous years, and (c) the nature of the employment was really sales, and not specific to ceramic tile installation systems. Consequently, the Court determined that finding employment would not be as difficult as Mr. Gelston had argued and therefore there was no justification for more than 21 months notice.
Mr. Gelston also sought $100,000 in moral damages, arguing that the termination and conduct of Schluter were abusive. The Court reiterated that employers have the right to terminate senior management employees for any reason, provided that reasonable notice or pay in lieu is provided. That Schluter gave the notice by email and without stating a reason did not render the termination abusive, nor did its revocation of its offer to settle.
However, Schluter’s failure to pay the eight-week compensation that it had promised led the Court to award Mr. Gelston $5,000 in moral damages.
The message for employers is that while termination of senior level employees is a right, it must be exercised fairly and in good faith. Employers must compensate the employee for the period that reflects their minimum statutory notice period, failing which the employer could be held to pay moral damages.
To read more about notice periods, take a look at our previous blog post.