Stowar v. Telehop: HR Mistakes Can Prove Costly

A while ago, I did a post discussing an attempt by Microsoft to recover money it claimed it mistakenly ‘overpaid’ employees when they were fired.  I noted that if the amount paid is in the range of what the common law ‘reasonable notice’ would provide, I couldn’t see any reason why the employee would have to pay it back, since the employee would be entitled to take the position that the payment was satisfaction for the employer’s legal duty to pay notice upon termination.  
A similar issue arose in the recent Ontario decision in Stowar v. Telehop Communications .  This case shows how simple mistakes by human resource managers can prove costly to the company, and embarrassing to the HR Manager.  In Stowar, the employer decided to dismiss the employee, and provided her with a letter that stated the employer would pay her 5 months’ salary “as per [the employer’s] obligations under the Employment Standards Act”.  My employment law students would recognize immediately that 5 months’ pay is way more than the ESA requires for any employee.  In fact, she was only entitled to 3 weeks pay under the ESA, having been employed just over 3 years.  The employee smartly signed the document as requested by the HR manager.
A couple of days later, the HR manager realized the mistake, told the employee an error had been made, and asked her to sign a new letter providing for only 3 week’s pay.  The employee refused to sign, and told the employer she wanted the original 5 months.  When the employer refused to pay, the employee sued for breach of the document that required the employer to pay 5 month’s pay.  She won.
The Court ruled that the original letter including the promise to pay 5 months’ pay was like an amendment to the employment contract and enforceable as a contract.  The employee was entitled to assume that the offer was made in consideration of all entitlements the employee might otherwise be entitled to under both the common law and the ESA.   Since there was an offer, an acceptance, and mutual consideration involved here, this was an enforceable contract.  In addition, since the  employer had offered to pay a lump sum payment of $5000 at the time of dismissal, the court ordered the entire amount be paid, even though the employee had obtained another job shortly after her dismissal.  In other words, the employer was not entitled to benefit from the employee’s mitigation of her damages.
Note an underlying theme here, one I have raised before.  The ESA only sets out the minimum amount of notice that is required to be given to an employee when their contract is being terminated.  If the contract does not include a term specifying how much notice must be given, then the courts imply a term requiring ‘reasonable’ notice.  In that case, the employer is contractually required to provide reasonable notice, which is often longer than the ESA minimum, sometimes considerably so.  In other words, an employer who provides only ESA minimum notice, when it is required to pay more than that as ‘reasonable notice’, is breaching the contract.  I have raised the issue before about whether it is unethical to knowingly pay an employee less than ‘reasonable notice’ in the hope that the employee will not bother suing for breach of contract.   The employer in Telehop seemed to believe that it was only legally required to pay ESA minimum notice, when in fact it was legally required to pay the employee ‘reasonable notice’, which in this case, could have been in the 5 month range.  That’s why courts will have little sympathy for employers who claim they only ‘intended’ to pay ESA minimum notice.