In Hetherington v Saskatchewan Liquor and Gaming Authority, 2020 SKQB 110, the Queen’s Bench for Saskatchewan considered the impact of an employee’s voluntary interruption of employment on her entitlement to common law reasonable notice following her wrongful dismissal without cause. The primary question before the court was whether the employee’s notice period should be calculated solely on her most recent years of service, or on the totality of her years of service.

Background

The employee was dismissed without cause when her position as a Director with the Saskatchewan Liquor and Gaming Authority (SLGA), a Crown corporation, became redundant due to a privatization. Although she served in this particular position for nine years, she had 28 total years of service with the Government of Saskatchewan (Government), interrupted for 29 months when she voluntarily left her Government job before taking the position with the SLGA. The contract of employment was not determinative of the issue.

Decision of the Court

In its decision, the court summarized principles emerging from the case law on the effect of an interruption in employment on a re-hired employee’s severance calculation, paraphrased below:

• The employment agreement or negotiations prior to the former employee’s re-hiring may determine the issue. If it expressly acknowledges that seniority will be given to the returning employee in recognition of their prior service, severance will be calculated based on the totality of the employee’s years of service with the employer.

• If the employment agreement is silent about a rehired employee’s employment interruption, the matter is less clear.  Some courts have decided that if there is no contractual term addressing an employee’s prior service, the employee is treated as a new employee, and their severance will be calculated on the time between the rehire and the termination.

• Other courts have taken the approach that in the absence of an express contractual term addressing the gap in employment, the question becomes whether the employer effectively treated the employee as a long-term employee.

• The reasons for the service gap may be significant. For example, if the employee voluntarily left the employer for other employment, this would be a factor against including previous service when severance is calculated.

• On the other hand, if the employee is induced to return to the original employer, this may overcome an extended break in employment, especially if the employee left for a job with better compensation, or if the rehired employee is reinstated to the same position, and offered their previous salary and paid vacation entitlement. However, even if the employer induces the employee to return, this will not counterbalance evidence that the employer made it clear to the employee that on their return they would be treated as a new employee.

• A number of courts have identified the following factors to support a finding that a break in employment should be waived or ignored, and the employee’s previous employment with the employer should be considered in the calculation of any severance: (a) salary; (b) vacation leave entitlement; (c) pension benefits; and (d) long service awards.

• A returning employee’s remuneration is an important factor. If the employee’s remuneration is the same as that which they were receiving when they first departed, this supports a finding that the employer is disregarding the interruption in the returning employee’s employment.

• An individual’s vacation entitlements are based on their years of service. If a returning employee receives greater vacation entitlements than a new employee, this may suggest that the employer is recognizing the employee’s previous service. If the returning employee does not receive such credit, they will likely be viewed as a new employee.

• A returning employee’s pension entitlements may indicate whether they should be considered a new employee for severance purposes. If a returning employee’s pension entitlements continue as before their departure, this suggests their prior service will be recognized.  On the other hand, if a returning employee is required to make up lost pension entitlements or “buy back the pension,” this suggests the employee is viewed as a new employee.

• If a returning employee’s long service awards are based on their total years of service, this will suggest that for severance purposes the employee is recognized as a long-term employee.

• Finally, the duration of the returning employee’s break in employment measured against their total years of service is a relevant factor. If the break’s duration is comparatively short, this suggests the employee’s total service to the employer is relevant for severance. However, if other factors indicate the employer is treating the returning employee as a new employee, even a very brief break in employment may exclude the employee’s total years of service from a severance calculation.

For the following reasons, the court concluded that the employee’s prior Government service would be taken into account in assessing her severance entitlement:

• The SLGA operates under The Alcohol and Gaming Regulation Act, 1997 (AGRA). The AGRA identifies the SLGA as an agent of the Crown for all purposes and “…as an agent of the Crown in right of Saskatchewan, SLGA is an emanation of the Government of Saskatchewan.” (para. 36)

• The leading binding authority on the subject in Saskatchewan, Larsen v Saskatchewan Transportation Co. (1993), 1993 CanLII 9124 (SK CA), 113 Sask R 185 (CA) [Larsen CA], aff’g Larsen v Saskatchewan Transportation Co. (1992), 1992 CanLII 8062 (SK QB), 106 Sask R 277 (QB) [Larsen QB] held, “…in effect, that for severance purposes employment with one or more Crown corporations generally qualifies as employment with the Government of Saskatchewan, i.e. Crown in right of Saskatchewan.” (para. 36)

In addition, the court emphasized that despite the break in the employee’s service, the SLGA effectively treated her as a long-term employee with the Government except when it came to paying her severance after her job was abolished. The court cited the following evidence of such treatment:

• When she joined the SLGA, the employee was given an enhanced salary package to acknowledge her credentials and previous experience;

• The SLGA recalculated her entitlements to vacation leave and long service recognition awards based on her prior employment with the Saskatchewan Workers’ Compensation Board and the Saskatchewan Property Management Corporation;

• Upon her return to the Saskatchewan public service, the employee rejoined the Public Employee Pension Plan with no difficulty; and

• Had the employee chosen to retire rather than work until her last day of employment, her retirement benefits would have been based on the totality of her service to the Government.

The court also noted the employee’s:

…break in service was relatively short when compared to the totality of her employment with the Government of Saskatchewan – 29 months of the approximately 28 years of service or 7.86% of the time. Accordingly, it would, in my view, be unreasonable and illogical to ignore her previous years of service with the government when assessing her severance entitlement. (para. 91)

Applying the factors set out in Bardal v Globe& Mail Ltd. (1960), 24 DLR (2d) 140 (Ont H C) (length of service, age, character of employment, employee’s experience, training, and qualifications, and availability of alternate employment), to the employee’s circumstances, the court concluded that the reasonable notice period was 17 months: 5 months of working notice and 12 months damages in lieu. In arriving at this decision, the court noted: the employee served for 28 years; she was 65 years old; she held a senior management role; she had exceptional credentials and was highly qualified; and, as a career civil servant with little, if any, private sector experience, her prospects for finding alternate comparable employment were minimal, if not non-existent.

Bottom Line for Employers

To ensure that an employment agreement does not leave an employer vulnerable to liability for common law reasonable notice based on prior service, employers should seek the advice of experienced employment counsel to draft appropriate termination clauses. 

Employers are encouraged to take proactive steps to protect against any requirement to recognize a re-hired employee’s prior service upon termination without cause. To improve the likelihood of this outcome, an employer should ensure that the employment agreement entered upon rehiring specifically addresses the interruption of employment with these express terms:

• The employee will be treated as a new employee upon return and will not be given seniority in recognition of prior service for any purpose; and

• If the employee is dismissed without cause, the reasonable notice period will be calculated based only on years of service between re-hiring and termination, and not on total years of service.

If the employment agreement does not contain such express contractual terms, employers are encouraged to avoid treating a rehired employee as a long-term employee with respect to salary, vacation, pension benefits, long service awards, and other employment entitlements.