THE EMPLOYERS' EDGE
Hiring a Former Employee? Beware of the “Prior Service” Baggage
A recent decision of the Supreme Court of British Columbia considered how to treat a break in an employee's service when determining entitlement to reasonable notice. Specifically, in Dobbs v. the Cambie Malones Corporation 2011 BCSC 1830, the BC trial court considered whether or not the prior service time should be counted in determining the notice period.
Mr. Dobbs commenced employment with "Cambie Malones", a Vancouver hotel and bar in the Gastown district, in March 1999. He later became the General Manager of the establishment. In October 2007, Mr. Dobbs resigned from his position to accept employment elsewhere. In September 2008, Mr. Dobbs was re-employed with the Cambie in a senior management capacity, but not as General Manager. 30 months later, in March 2011, Mr. Dobbs was dismissed from his employment.
Mr. Dobbs brought an action for wrongful dismissal which the court allowed. In determining how much notice he was entitled to, the court grappled with Mr. Dobb's length of service. Mr. Dobbs argued that his length of service should be counted from March 1999, less the 11 month break, giving him 11 years of service. According to the employer, due to the hiatus, his length of service should be counted from September 2008, crediting him with only 30 months of service.
The Court noted that previous decisions dealing with an employee's prior service time have held that the key question was whether or not the facts suggested that the employer recognized continuity in the employee's service. If so, the prior service would be relevant for determining total length of service in order to calculate the notice period.
Applying this test to the facts, the Court found that the parties considered Mr. Dobb's prior period of employment during negotiations. Most significant to the Court was that the Employer gave Mr. Dobb's vacation pay of 6%, consistent with his previous contract of employment, and not the base vacation pay of 4%. Further, the Court found that the employer considered Mr. Dobbs' prior experience as General Manager as an asset in deciding to offer re-employment. In effect, according to the Court, the employer treated Mr. Dobb's as a long term employee. Mr. Dobbs was therefore entitled to have his notice period calculated based on 11 years of service, not 30 months, and was ultimately awarded 12 months’ pay in lieu of notice.
The result in Dobbs will surprise many employers given that his continuity of employment was broken, by his own resignation, for a period of 11 months. Given the resignation, the length of the break and the fact that Mr. Dobbs was re-hired into an entirely new position, it is difficult to understand the necessity of recognizing the entirety of his years of service, from a fairness perspective.
Nevertheless, this unfortunate result can be avoided by including language in the offer of employment or contract of employment that says that the employee is considered to be a new employee and that prior service will not be recognized for any purpose other than as may be required under employment legislation (ie the Employment Standards Act in Ontario requires severance pay to be paid on all service, regardless of breaks and regardless of whether the employee resigned or was dismissed during the earlier periods of employment). Alternatively, employers can recognize prior service for certain employment benefit purposes, like vacation entitlement, while excluding consideration of prior service for purposes of determining notice of termination.
Hiring a former employee can be a smart business decision given the previously acquired knowledge of an employer's business that the individual brings to the table. To avoid the burdens and liability associated with the prior service, as demonstrated by the Dobbs case, employers should take care to provide an appropriate written offer or contract of employment.
CCP's lawyers are well equipped to advise on and draft appropriate contracts of employment that minimize liability and maximize management flexibility. Please feel free to contact any one of our lawyers to discuss the value that employment contracts can bring to your business.
Please Note: This blog has been prepared as an informational service for our clients and other interested parties. It is not intended to constitute legal advice, a complete statement of the law or opinion on any subject. Although we endeavour to ensure the accuracy of the content, no one should act upon the information provided without a thorough examination of the law after the facts of a specific situation are fully considered.