Decision looks into specific clauses of employment agreement
The Provincial Court of British Columbia recently dealt with a small claims action involving the interpretation of an employment agreement between a worker and their former employer.
The case revolved around a dispute between the parties regarding the compensation owed to the worker upon their resignation following a material change in the company's ownership.
The court's decision further delved into the agreement's provisions and the principles of contractual interpretation.
Resignation with compensation
The worker, who had been employed by the employer as an operations manager since November 2020, resigned from his position on February 3, 2023, following a material change in the company's ownership.
The worker sought compensation under two provisions of the employment agreement: a bonus clause and a "material change" clause, which allowed for resignation with compensation in the event of a significant change in the company's structure.
The parties disagreed on the interpretation of these clauses, with the worker claiming entitlement to a bonus, compensation for the material change, and severance pay.
The employer, on the other hand, argued that the worker was only entitled to two months' compensation for the material change, as per the agreement.
Interpreting the resignation clause
The court focused on the interpretation of a particular clause of the employment agreement, known as the "Resignation Clause."
This clause stated that in the event of a material change in ownership, the worker could choose to resign within six months and receive "a lump-sum amount equivalent to one month's salary per year of service to a maximum of 12 months."
The worker argued that the clause was ambiguous and should be interpreted in his favour, as he was the “weaker bargaining party.” He claimed entitlement to three months' compensation and severance pay calculated according to common law principles.
However, the court found no ambiguity in the language of the said section. It stated that "the language seems clear.”
“The employer offers to pay an employee the equivalent of one month's salary per year of service. In other words, for every year an employee works, they are entitled to one month's salary upon their resignation pursuant to the Agreement,” the decision said.
The court also rejected the worker's claim for severance pay under the resignation clause, stating that "there would seem to be no legal reason to order an employer to pay severance to an employee that voluntarily resigns their position."
The “bonus” provision
The worker also claimed entitlement to a substantial bonus payment under the agreement, known as the "Bonus Clause."
This clause stated that the worker was eligible for a yearly bonus plan, set at a rate of 25% of base salary, measured against established performance goals of the company. To be eligible for the bonus, the worker had to be employed with the company on the date the bonus was paid.
The worker argued that he was entitled to the bonus, as he would have been employed by the company in April 2023 when bonuses were typically paid out, had his claimed severance period been taken into account.
However, the court disagreed, finding the section to be "clear and unambiguous." It stated that "an employee is entitled to a bonus provided the employee is with the company on the date the bonus is paid."
The court cited the purpose of a bonus as discussed in a previous case, Nugent v. Midland Doherty Ltd., which described it as "compensation intended to reward an employee's loyalty designed to encourage employees to stay in the employ of the employer."
Consequently, the court found that the worker was entitled to $16,215.00 from the employer, which represented the compensation owed to him for exercising his option to resign under the resignation clause of the agreement.
The decision highlighted the significance of clear and precise language in employment agreements and the importance of carefully considering the terms of such contracts before signing.
