Resignation and rehire not continuous employment

Ontario employee resigned, was rehired and then dismissed; Not entitled to notice based on entire length of service
By Ronald Minken
|Canadian Employment Law Today|Last Updated: 09/04/2019
credit: hxdbzxy/SHUTTERSTOCK

BACKGROUND

Employers must recognize an employee's full term of service when providing reasonable notice of termination, unless there is a significant interruption in that service. But as one recent Ontario case shows, the notice entitlement can be less if the employee resigned at one point — even if the employee never actually left.

An employee’s resignation may impact the length of notice she receives if the employee is rehired by the same employer. The Ontario Court of Appeal considered the effect of an employee’s resignation and re-employment by the same employer in a wrongful dismissal case. 

Jasmine Theberge-Lindsay began working in Dr. Kutcher’s dental practice in Stoney Creek, Ont., as a hygienist in 1993. Kutcher restructured his practice in various ways in the succeeding years; accordingly, the respondent was required to sign a series of employment agreements starting in 1999 until 2011, all of which limited her notice of dismissal entitlement to the minimum required by Ontario’s Employment Standards Act, 2000 (ESA).

By correspondence dated March 28, 2005, Theberge-Lindsay tendered her resignation effective July 7. She was engaged to a man who lived in Guelph, Ont. and had secured employment there.

However, during the notice period and prior to her effective day of resignation of July 7, Theberge-Lindsay ended her engagement and advised Kutcher of her intention to remain employed at his office. 

On June 30, 2005, Theberge-Lindsay was presented with and subsequently signed an employment agreement so that she could be rehired on July 1. The employment agreement limited the dental practice’s liability should it terminate her without cause to notice or payment in lieu of notice in accordance with the ESA. Theberge-Lindsay’s employment was continuous as she never did leave her employment with Kutcher despite her prior resignation and Kutcher didn’t issue a record of employment.

In Feburary 2006, Kutcher wrote a letter stating that Theberge-Lindsay had worked in his office since 1993 to help Theberge-Lindsay get financing.

In December 2012, Kutcher terminated Theberge-Lindsay’s employment without cause. She was given one week’s salary as the ESA minimum in accordance with a 2011 employment agreement that had been reached following restructuring of the practice.

The trial court

The trial judge held that Theberge-Lindsay was wrongfully dismissed and assessed common law damages in lieu of reasonable notice at 15 months.

“In my view, none of the three employment contracts signed by (Theberge-Lindsay) are enforceable,” the trial judge said. “Each of the contracts fail respectively for lack of consideration… (Theberge-Lindsay) received no more from signing each of the three agreements but for continued employment.” 

The trial judge also found that Kutcher had accepted Theberge-Linday’s retraction of her resignation and it had no impact on her continuity of service with the dental practice, noting that in February 2006 Kutcher was prepared to recognize the continuity of Theberge-Lindsay’s employment with his practice since 1993.

Regarding the effects of the 2005 resignation, the trial judge held:

“(Theberge-Lindsay’s) resignation was rescinded well prior to July 7, 2005. The evidence demonstrates that (she) was happy to remain employed with the practice of Dr. Kutcher and Dr. Kutcher was happy that she was to do so. (Theberge-Lindsay) continued with her responsibilities for the practice consistently and without interruption after March 28, 2005. Dr. Kutcher’s efforts to replace the plaintiff were brief and uncostly.”

The Ontario Court of Appeal

Kutcher appealed to the Ontario Court of Appeal, arguing that the trial judge had failed to properly consider Theberge-Lindsay’s resignation, specifically that “the 2005 resignation broke the chain of Theberge-Lindsay’s employment since 1993. She was required on June 30, 2005 to sign a new employment agreement in order to be re-hired on July 1, 2005. Consequently she [was], at best, entitled to the Employment Standards Act, 2000 minimum notice measured from the date that she was re-hired in 2005.”

The Court of Appeal agreed. In a brief decision, the court held that Theberge-Lindsay’s “unequivocal resignation and re-hiring in 2005 marked a break in the employment relationship, after which an entirely new contract was reached between her and (Dr. Kutcher). There was consideration for that new employment: the respondent expressed her desire to again be employed by the appellant, and he agreed to employ her.” 

The appeal court held that Kutcher could rely on the 2005 employment agreement with its ESA termination clause and awarded Theberge-Lindsay 7.5 weeks’ salary at $1,204 per week, less the $1,200 already paid.

Other employment agreements invalid

Kutcher restructured his dental practice multiple times to minimize taxes and split income with his wife after Theberge-Lindsay began working for him in 1993. As a result, he had Theberge-Lindsay sign a series of employment agreements limiting her notice upon termination of employment to ESA only. Even though the respondent was paid by Kutcher personally, from different corporations and at different times, it was always Kutcher who signed the cheques. Despite his attempt to limit the notice through the use of employment agreements, the trial court found that none of the agreements was enforceable due to a lack of consideration. The Court of Appeal agreed with the trial court’s decision that the employment agreements were not binding, except for the 2005 agreement, in which the only consideration was the respondent’s offer to be re-employed and Kutcher’s acceptance of that offer. It is unusual that Kutcher would go to such efforts and expense of restructuring his practice and having new employment agreements prepared without considering what is proper monetary consideration to make all the agreements valid and enforceable. Had Kutcher provided additional monetary consideration for each agreement, the remaining employment agreements would have likely been found to be valid and enforceable and Kutcher would have been able to rely on the 2011 agreement and limit his notice to the respondent to ESA only. Whether he was ill-advised or extraordinarily thrifty with his finances, we do not know.  

A clear resignation

This decision is interesting with respect to the meaning of a resignation. Although the respondent never actually ceased working for Kutcher, the Court of Appeal declined to find a continuous period of employment from 1993 to 2012. The court essentially determined that where the employee resigns and retracts her resignation, an employer may re-hire her on new terms — even when she is taken back on identical terms to her previous employment — that are valid and binding. The consideration for the new employment was the offer in 2005 by the respondent to Kutcher to become employed and Kutcher’s acceptance of that offer. At that point, new employment began, which effectively broke the chain of employment so that the respondent’s previous service was of no effect on her new employment. No other new consideration was required. The result was the respondent’s notice being based on the period commencing the day her new employment began on July 1, 2005 until Kutcher terminated her employment in December 2012. Given the Court of Appeal decision, it can likely be concluded that had Kutcher agreed to recognize the respondent’s initial start date for an anniversary gift or waive the probationary period for the purpose of calculating vacation, this would have not impacted the significance of the resignation nor would the period of employment prior to the resignation be considered in determining the amount of notice to provide.  

Lessons for employers

If an employer is restructuring its business and wishes its employees to sign new employment agreements, care should be exercised to ensure proper consideration is provided in the agreement so that it is valid and the ESA clause is enforceable. The issue of consideration for signing new agreements should be examined to ascertain that the consideration is sufficient and not something that the employee would otherwise expect or receive. It is comforting to know that adequate consideration will make an agreement valid and termination clause enforceable, which may negate an employee’s previous years of service for the purpose of calculating the appropriate amount of notice to provide to an employee. 

If an employee resigns and later wishes to be rehired, the existence of a new employment contract may result in the employee’s previous service not being considered. It is recommended that employers have an employee sign a new employment agreement containing an enforceable termination clause and also provide additional consideration to prevent an argument that the agreement fails due to no or inadequate consideration. The notice of resignation should always be accepted in writing.    

For more information see:

Theberge-Lindsay v. 3395022 Canada Inc. (Kutcher Dentistry Professional Corporation), 2019 ONCA 469 (Ont. C.A.).

Ronald S. Minken is a senior lawyer and mediator at Minken Employment Lawyers, an employment law boutique in Markham, Ont. Minken and his firm can be reached by visiting www.MinkenEmploymentLawyers.ca.

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