Termination clauses, old contracts and dismissal

Contracts containing termination clauses can result in short notice dismissal for employees, even if they’ve been working for an employer for a number of years. However, if the employment agreement doesn’t support the current position and responsibilities of the employee, everything can change.

Signing an agreement at the beginning of your employment creates a contractual base which is appropriate for the position for which you were hired. But what happens as you gain seniority and climb the ranks into a better position? Is the original contract still valid even though you’ve been promoted and your duties and responsibilities have changed?

Dismissal after many years of service

Our example comes from a dismissal case involving a geotechnical engineer who was employed by a multi-national construction and engineering firm. The firm had changed hands several times over the years and the engineer was employed by this firm and its predecessors for most of his professional career. The new company hired him on as a senior engineer and he signed a new contract which included a termination clause that limited the amount of severance pay and notice. His dismissal occurred 16 years later, and his employer followed the terms of the original contract despite his length of service and change in job title.

Inappropriate dismissal terms - when the substratum of an employment contract “disappears”

Dismissal cases involving potentially out-dated contracts are common. The courts must decide whether or not the substratum in the agreement has disappeared. If it has, the employment agreement is no longer applicable and the employee may be entitled to compensation appropriate for the position they held at the time of their dismissal.

The courts recognize that increased responsibility and changes in job title should result in changes to the substratum in the agreement. Directly prior to his dismissal, the engineer was performing senior management duties that had little to do with the position he was originally hired for. He was consistently promoted, his salary increased significantly and he was also offered stock options in the company, which he purchased. This evidence led the court to decide that the substratum had disappeared as the employee was no longer performing billable engineering work, but management and administrative duties.

A new title and responsibilities should result in new dismissal terms

It seemed that with all the promotions and pay raises, both the employee and the employer had a mutual understanding that the original contract was no longer valid. The contract was never referred to over the course of 16 years, and its substratum wasn’t altered to reflect any employment changes. For this reason, the employer believed it was within its rights to provide notice and compensation according to the original terms which were appropriate for an engineer only. They conveniently ignored the senior ranking management position held by the employee at the time of his dismissal, and any rights associated with a position of that calibre.

Fortunately, the courts sided with the employee and awarded him appropriate notice based on his length of service, his age, type of employment, and availability of similar employment. The engineer was 53 years of age and his experience in a specialized field made it difficult for him to obtain future employment. Based on 26.5 years of employment, he was awarded 22 months’ notice.

If you have found yourself in a similar situation involving dismissal, please contact Yeager & Company.






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