Trouble in paradise: Terminating C-suite employees

[AUDIO LOGO] ELISA SCALI: Good afternoon, everyone. My name is Elisa Scali. I'm a partner with Gowling WLG, practicing in the Employment, Labour & Equalities Group, what we like to call the ELE Group. On behalf of the ELE team, I'd like to welcome you. And thank you for joining us for our program today.

Before we begin, I'd like to take a moment to acknowledge that because we are all based in different cities, provinces, and territories across Canada, we're located in different traditional Indigenous territories, some of which are covered by treaties. I encourage all of us to take a moment to reflect upon and acknowledge the land upon which we are living. If there are Indigenous people attending this webinar, please feel welcome to share your home community so that we may also recognize you.

So today, marks the second session in our 2026 webinar series. And we will be tackling an important and sensitive topic today, terminating the employment of C-suite executives. Guiding us through this conversation today, we have two members of our ELE team, Jordan Epstein, a partner in our Toronto office, and Tasia Presber, one of our newest additions to our Calgary office. They've prepared an engaging and practical session for you.

But before we get started with that, just a few housekeeping notes to take care of. The PowerPoint presentation will be sent to all attendees after the webinar. We're also recording today's session. And you will receive a link to the recording as well. If you'd like to review any sessions that have been previously recorded, including the first webinar of our 2026 series, which was investigating C-suite misconduct, you can find those recordings on our website.

If you have any questions during the course of the session today, please click the Q&A icon at the bottom of your screen and ask away. We'll do our best to answer as many questions as possible during the session. But as this session is not intended to be legal advice, we'd ask you, please keep your questions general. If you need specific advice, we'd be happy to connect after the session.

So thank you again for joining us. We hope you find today's webinar both informative and engaging. And now, I'd like to hand it over to Jordan.

JORDAN EPSTEIN: Great. Thank you. Good afternoon, good morning. Thanks for joining us today. And today's date may be April 1, but there is certainly no joking about this topic, because terminating executive employees can have significant impacts across the organization. We'll touch on some of the key issues during today's session. And you can see the main topics outlined on your screen.

That said, this presentation is very much a high level overview. Each of these areas could really be its own standalone presentation. So we'll do our best to highlight the key takeaways, then walk through a fact scenario to bring it all together at the end. As Lisa said, if you have questions, please feel free to use the chat button and the Q&A function. We'll try our best to address some questions during the session. Otherwise, we'll leave time at the end to discuss.

So before we get into the substance of the topic, let's set the stage a little bit. In today's topic, we're focusing on executive employees. And Tasia, maybe I'll turn to you. If you could briefly talk about who is actually considered an executive for employment law purposes.

TASIA PRESBER: Sure. So the rule of thumb, like the title of this session is C-suite, meaning a CFO, CEO, CPO. Anything that has chief in it is quite often considered an executive. But it can be a director or a vice president. Often, it is a managerial capacity that they have a lot of people reporting up to them. And they're likely running at least some part of the show in the business.

JORDAN EPSTEIN: That's right. And from a legal perspective, is terminating an executive employee really different from terminating any other employee?

TASIA PRESBER: Certainly. It really raises the stakes for things like confidential information and crafting a narrative on how this departure is happening. If it's going to be phrased as a resignation, and if they're going to be walked out the door, if there's working notice. Everything is a lot more serious and often a lot messier when you get to higher level positions and the bigger personalities that often come with them.

JORDAN EPSTEIN: That's right. And with that in mind, let's turn to our first substantive topic. And that's just cause terminations at the executive level. But let's have a quick reminder of the core legal concepts here. And this should be a refresher for those lawyers and HR professionals in the room.

But as you probably have heard, just cause is often described as the capital punishment of employment law. And this reflects how serious the allegation really is. It applies to situations where the employee misconduct is so serious that it breaches the employment relationship beyond repair.

Just cause requires a contextual analysis. Courts will look at the nature and severity of the conduct, along with all of the surrounding circumstances. Notably, it is extremely difficult to prove. The burden of proof is on the employer and it's very high.

If an employer gets this right, the employee may have no entitlement to termination compensation at all. But if the employer gets it wrong, the consequences can be significant. The employee will receive their full entitlements. And in some cases, courts may award extraordinary damages.

Just cause dismissal is a topic that fills entire textbooks. For today's purpose, the key question is whether there is a different just cause standard for executives. And the short answer is no. The legal test does not change. However, an employee's position can play an important part in the overall analysis. Courts may hold executives to a higher standard of conduct, given their leadership role and the level of trust placed in them.

The stakes are also higher at the executive level. These employees are typically more highly compensated. Their terminations are more visible. And the exposure can be substantial if cause is alleged without a real basis. And that's why context is everything. Courts look at the full picture, including the seriousness of the conduct, the executive's role, if there's any prior history of discipline, and whether the misconduct truly undermines the employment relationship.

From a practical standpoint, the employer must take a cautious approach when even thinking about terminating for just cause. They should pause, investigate, and document the situation. Take the time to build a clear evidentiary record before making any decision. A rush to allegation of cause can be more damaging than the underlying misconduct itself.

Now, we thought it'd be helpful to provide a recent case law example, partially because the just cause cases, they really have the most interesting fact patterns. And this case is no exception. In this one, Mr. Render was the executive employee. He had over 30 years of service, working as an operations manager most recently. While technically not a C-suite executive by the definition, this was a small business, he was certainly in a position of authority at a small elevator company.

Now, this workplace had a very casual culture. There was evidence of joking and inappropriate teasing amongst all employees, including between Mr. Render and a particular subordinate employee. The situation escalated when Mr. Render effectively slapped this coworker in the butt in front of other colleagues, and then proceeded to make jokes about it. He showed no remorse for his conduct, didn't realize how serious the situation was.

The employee reported the incident to HR, who conducted an investigation. The investigation determined that this was an act of sexual harassment. It also clearly breached the respect in the workplace policy that was introduced just weeks earlier. As a result, Mr. Render's employment was terminated for cause. No notice, no severance, no pay at all after 30 years.

At trial, the judge upheld the termination for cause. Even when considering a clean disciplinary record, the court found the misconduct serious enough to justify immediate dismissal. Importantly, the judge emphasized that Mr. Render had different standard of behavior expectations as a manager. He had responsibility for maintaining a safe workplace. And his position of authority made the conduct more serious.

Mr. Render was not satisfied with that answer, so he appealed. The Court of Appeal ultimately agreed that just cause was met at common law. However, it found that the conduct was not willful under the Employment Standards Act standard. Because this was not a pre-planned act, it was a momentary lapse in judgment.

As a result, Mr. Render ultimately received his statutory minimums. In this case, was all of 8 weeks pay. But no damages under the common law. And in its decision, the Court of Appeal agreed that Mr. Render was held to a higher behavior standard than lower level employees.

So when it comes to cause at the executive level, courts are clear that the employee's role matters in the analysis. But even with those higher expectations, there is no easier path to establishing just cause. And Tasia, I'll turn things over to you now to speak about the common law exposure for without cause termination.

TASIA PRESBER: So particularly in terminations for executives, we have a concept called extended reasonable notice. Meaning that reasonable notice in a normal situation where it's just an employee or a lower level employee that doesn't have a managerial capacity or doesn't meet that definition of executive, isn't going to get the same amount of notice as an executive will.

So I've pulled a couple factors here that are from the Bardal factors, which is what the court uses to determine how much an employee should be paid following their dismissal. And it's things like availability of future employment. That's in positions and in the industry. The type of employment. If they're a manager or an employee. Age. And the last one is tenure, meaning, how long they've been at the company.

So for an executive profile, there's often limited positions available. It's quite rare that you see a position for a CEO posted, and even a CFO, or a lot of these roles where there's just fewer of them in the industry because they're at the top of the organization. There's not that many organizations that are often going to be big enough to have multiple C-suite positions. And they're often very industry-specific. So there's just less CEO positions available, for example, in the oil industry or tech industry, as there would be for a consultant in one of those industries that isn't quite in that executive capacity.

And this turns to the character of employment as well. Meaning that you need someone who has enough industry experience to have the depth to understand the company, but also has that managerial capacity to run a team or an entire company. And quite often, this means employees are going to be older.

So age can be a factor for executives, as they're often 40-plus, depending on the industry too. Obviously, this turns. Some executives will be working at the company for 20 years-plus, some of them just for 3-years terms. And of course, there's tech industries and other startups where the executives are going to be younger.

But age is an important factor because it affects how likely and how easily the executive can land alternative employment after. If the executive is 65, for example, they may struggle to get interviews at the next company because they're close to retirement as compared to a 30-year-old executive. This is where we get this golden parachute example for a lot of these executives when they do intend to leave the company.

So inducement issues can become a factor here. Inducement, meaning, firstly, was the executive poached from another company? Because quite often, people and HR teams will use headhunters to select an executive from another company and not post the job publicly instead. Meaning, are you carrying over experience from that last company? It would be continuity of employment.

Or there's concerns with the employee leaving the company and possibly being induced by another employee and-- by another company, sorry, and taking their confidential information and whatnot, and the trade secrets and the strategies with them. So there can be issues on both ends.

And the other factor with executives that we often see is there'll be termed agreements, where the CEO has a term for 2 years, 3 years, 5 years. And it may or may not be open to extension. And it's really important that you have a very clear termination clause in those agreements, so that you're not paying out the entirety of that termed agreement.

And that's going to turn a little bit on each province that you're in as well. Whereas Alberta may give more credit to the language of the agreement, versus Ontario is going to focus more on the term of it and if it was terminated properly. So in short, here, you've got a longer notice period for a shorter tenure for executives generally.

JORDAN EPSTEIN: Yeah. Great. I think you touched upon a really important topic that we're not talking about too much today, which is the value of a good termination clause of an employment agreement. And that's really critical. And it comes in two ways. One is to limit the amount of reasonable notice that an executive employee could receive. But two, and as I'll explain here, limit to the amount of compensation that would be included in that termination notice period. Because the compensation exposure could be really significant.

At common law, there is a presumption that an employee should receive their full compensation during the applicable termination notice period. The goal is to put the employee back in the same place they would have been had they been working through the entirety of a termination working notice period. And that includes not just base salary, but potentially, all components of compensation in addition to base salary.

And this could be expensive when considering the different elements of an executive compensation packages. Think. The executives get more than just base salary. They get comprehensive benefits, RSP contributions, sometimes car allowances, sometimes a company car. And then of course, cash bonuses and long term incentive compensation. Without clear drafting by a lawyer, all of these compensation terms could be on the table when it comes to severance package negotiation.

For example, issues often come up regarding bonus pay following termination. In most cases, employers try to rely on language of an employment agreement that prevents an employee from receiving any unpaid bonuses following the termination date.

However, employees are increasingly challenging these clauses, especially in Ontario, where I work. The courts are increasingly striking them down. References to active employment conditions alone are generally not enough to remove employees' entitlements without further clear language.

To displace the common law presumption that an employee gets everything, the contract language really must be clear and unambiguous. If not, the employee will typically have a claim for damages in lieu of bonus, prorated through the entire termination notice period.

And the same principles apply to long term incentives, including stock options and equity plans. Participation in those plans can continue through the notice period, unless the plan clearly says otherwise. So if the language falls short, the result is that the separation package can include everything but the kitchen sink.

Now, a leading case on this issue is Matthews v Ocean Nutrition. And notable because this one actually went all the way up to the Supreme Court. And in that case, the executive actually resigned from his employment and later claimed constructive dismissal. The court agreed and awarded a 15-month notice period.

The decision included damages in lieu of continued participation in a long term incentive plan throughout that 15-month notice period. And as a result, Mr. Matthews was able to capitalize on a corporate transaction, a change of control event that occurred 13 months after his resignation. And this was because the forfeiture language of the bonus, the LTIP plan, the employment contract, it didn't clearly say otherwise.

In doing so, the Supreme Court confirmed a two-step test. The first question, whether the employee would have received the incentive during the notice period. In this case, the answer was yes. Had proper termination notice being given? Mr. Matthews would have been employed at the time of the transaction. Second, is there a clear and unambiguous language that removes that entitlement? If the answer is no, the employee has a real claim to the additional compensation following the termination date.

TASIA PRESBER: Now, we're going to discuss post-employment obligations. These are really important with executives in particular because they know where the bodies are buried. It's not just trade secrets and confidentiality, but it is all the personal and confidential information that has gone on in-- so I just go to the slide prior, during their employment. And what's really important is defining confidential information and the common law duty of confidential information.

So firstly, the definition is not completely broad. Not everything in the company and all of the business dealings is going to be confidential. If anything is public, if it's being published in a news article and whatnot, that's public information. It's not confidential. Even if it has specific details for the company, or things like the CEO's name, position, and email. If that's publicly available, likely not going to be confidential.

But the key here is, is the executive aware of what is confidential information and what is not? So there's a few places that this is often defined. Firstly, in the employment agreement. You'll often see clause that says confidential information. And executives will often have to produce any information that they know of beforehand about the company to prove that they are aware of this, especially if they were informed of this in, perhaps, an indirect capacity.

There can also be a separate confidentiality agreement. And this can be introduced at the start of employment or at the end, if you have a non-disclosure agreement, as it's often called, where you pay a sum of money as consideration so that the executive will continue to keep these secrets confidential.

But there is a common law duty of confidentiality as well. This means, even if there isn't a specific agreement for the executive to keep all this information confidential, it applies regardless. They have to keep the trade secrets and any unique competitive advantages, anything that would obviously be considered confidential information by a reasonable person, confidential as well.

And this is not just for the next year of their working notice or their severance package or whatnot. This is for eternity. So just because you leave your place of employment doesn't mean you can disclose all the company secrets. So that continues not just for executives, but any employees in any workplace.

And executives in particular are often a fiduciary representative of the organization. So that means that they have a duty to choose the organization's best interests over their own. They cannot put their personal interests first or personally benefit from decisions that affect the organization.

And they have the duty to act in good faith and in honesty and basically ensure that their decisions are defensible. And this applies after employment as well. That they can't just immediately capitalize on share prices or whatnot, or trade on insider information. This is going to be a continuing duty.

Often, though, we do have a kind reminder in the termination letter. Just a little parting note saying, we remind you that the confidential information remains to be confidential. And if it is breached here, the possibility of consequences and the remedies that may be pursued. This is definitely recommended to include. And it's very important to make sure that the executive knows specifically what is confidential and that you call that out.

Next are non-competes and non-solicits. So we'll go over non-competes first. These are essentially a competition clause preventing the executive to continue to work in some industry in different capacities or competitors. So just go to the previous slide here. And depending on what role as well.

So basically, once they leave the company, there's some restrictions on the job that they can take next, because they now have this confidential information, the list of clients, competitors, and whatnot. And the idea is to protect the legitimate business interests of the prior company so that they're not losing something as a result of this executive taking on new employment.

But it's very important that these restrictions are quite limited as much as possible and only to the business interests. So it's often factors of a geographic area, meaning the City of Calgary, for example, and for a time limited period, like 12 months. And lesser is better for enforceability here. It will be limited to an industry such as oil and gas, or to specific positions for the executive in different levels as well.

Or often, companies will list competitors specifically in the agreement and say, you cannot work for this competitor, [MUTTERS], in any capacity that would have you reveal confidential information. But these are often paid. So there will be some form of consideration, either as a lump-sum payment or a continuing payment to abide by this non-compete. However, not everyone can have a non-compete, as Jordan will discuss. Ontario has some limitations.

JORDAN EPSTEIN: That's right. And it's an interesting topic for the purposes of today's presentation about post-employment non-competes. The Ontario government actually changed the law in the fall of 2021, in that post-employment non-competes are now prohibited, except for narrow exemptions. And one of those exemptions is for a C-suite executive employees. So if you have a new employment contract since the fall of 2021, it cannot include a non-competition provision unless the employee is a C-suite executive.

And that's not to say it's easy to prevent an executive from not competing after their employment. It just suggests that you can only try if you actually have a C-suite executive. It's still very hard to do so. But it's notable in that there's opportunities to try to limit competition or unfair competition from executives following employment. And it might be easier to do so for an executive than a lower level employee, at least here in Ontario.

TASIA PRESBER: There are other restrictions that can apply post-employment as well. And non-solicitation is generally limited a little bit less. So if you just go back a couple slides here.

So non-solicitation means that the executive cannot solicit, often, employees or clients of the company that they're working at following their employment. And these will be time limited as well. These can be a lot broader because we don't want to restrict an employee's ability to move from one company to the other. But the idea here is, is the executive proactively approaching the employee to join their company?

Because what we want to avoid is the executive takes their entire team with them, and it creates a huge cost to business. Not just for recruitment, but loss of confidential information, competitive advantage, and certainly, a very difficult situation for the company to remedy.

And the last post-employment obligation that we're going to discuss on this point is IP ownership gaps. And all the confidential information, as you can see, that was stored in Mar-a-Lago in one of the Trump's bathrooms there. It's important that this IP information is clarified prior to termination.

So if the executive came in with some sort of invention or design prior to their employment, if that was disclosed ahead of time, or if something was developed during their employment, it's important to know who owns what before any of these details are ironed out to see if there's any patents or anything that need to be transferred over and ensure that the company has the rights to everything.

Because oftentimes, executives, they are proactive thinkers and they are going to start early for looking at their next job if they think that maybe this isn't the best place for them anymore. This happens with other employees too. But it's key with executives because they're going to be using all of that confidential information.

So as you're managing these teams, it's important to flag things that will create a significant competitive advantage, that you may want to call out as information that you want protected going forward, as there are risks of sharing confidential information while still employed, especially if there's tighter relationships with the competitor or talks of purchasing a competitor. These are all more difficult areas to manage when it comes to executives, as there's going to be a lot of overlap in between.

And this is why there's often a tight timeline for these terminations. So you want to have all the details ironed out before you deliver the message. This isn't, here's your working notice, and we'll get everything figured out as you go. You want to have all these contingency plans for if they want to work for this competitor, if they are taking this information with them, and if any of this information is being disclosed prior to the end of their employment.

JORDAN EPSTEIN: Great. Another key consideration is the exit narrative. How the executive's departure is communicated, both internally and externally. If mishandled, this can create real business risk, if not just legal risk. Poor messaging can disrupt operations, it can affect morale of your continuing employees, and it can raise concerns for people outside the business. And this isn't just a legal issue. It sits at the intersection of legal risk, business strategy, and broader public relations.

From a legal perspective, a mutual non-disparagement clause is a helpful tool. These clauses help ensure that neither side makes damaging statements to the other after the departure. Arbitration clauses can also be valuable here. And arbitration allows employment disputes to be resolved more quickly and privately than a public civil court process. This is actually one of the rare situations where arbitration may be preferable for employers.

In a lot of cases, delaying the litigation process through the civil court has strategic benefits. But in cases involving executives, a faster and more confidential process is often the better approach. And in some situations, when it comes to the exit narrative, there may be an opportunity here to frame the departure as a mutual separation, or align on language that indicates that the executive was open to ending employment or pursuing other opportunities.

And while this might save face for both company and employee, it really needs to be handled carefully. It really must reflect the reality of the situation. You can't get into a situation where the employer is imposing language that the employee executive might not actually agree to. An employer cannot suggest that an executive wanted to leave or end their employment voluntarily, unless that message is clearly aligned with the executive's position.

So ultimately, the goal is to control the narrative in a way that protects the business, while maintaining credibility and trust.

TASIA PRESBER: So who can terminate the executives? This is where corporate governance and regulatory questions come in. So for someone as high level as a CEO, who gets to make that decision? And how is that made independently without the CEO's knowledge?

So these decisions will often go to the board. So the board is going to decide-- there will often be a vote to see if the executive should be removed from their position. And this becomes a key issue if the executive is a director or an officer of the organization. You're really going to want to review the bylaws.

Another consideration is if the executive is a board member as part of their position. And if there are any other resignations that they need to submit as part of their termination. If they're on any national or international boards specifically because they're the CEO of this company, and what the messaging is going to be to that board. And if there's any sort of notice that is required for this.

And for other C-suite roles, the CEO can often make this decision, but it's going to depend on the makeup of the organization. But if you're looking to terminate the CEO themselves, it'll be the board. Or often, there will be a board committee. Meaning that there's individuals that are all board members that are specifically assigned to a human resources committee, for example. And they're tasked with finding out the best way to terminate this executive, what the possible considerations are internally and externally, and what that exit narrative is going to look like.

Past practice matters a lot with executives because they are aware of prior termination packages. And they are going to influence expectations and negotiations going into something like this. The first package that you offer might not be what's accepted, especially if they are aware of or helps negotiate another executive's exit. And they're definitely going to be using their position to their advantage.

So these are more exit strategy considerations. If you're going to have interim leadership. If the CFO is going to step in for a period of time. Or if you've already been headhunting and you already have a candidate available. And all the types of continuity planning so that the business can still proceed with as little disruption as possible. And updating corporate authorities is very important, especially if you are changing the officers, as I mentioned prior.

Because all this helps to manage the reputational risk. Because you're often looking at higher level companies where it's going to be in the public eye if the executive is changing roles or is moving. And that party line is really important that everyone is on the same page from the executive, the company, the board, and other employees at the organization as well.

JORDAN EPSTEIN: So I think we've given you an action-packed list of topics and subject matter that's really dense here. Impossible to take away everything. But if there's anything we want to leave you with, it is this list of key points. And Tasia and I will run through this together.

On a basic level, executive terminations lead to increased risk and exposure. They get paid more money. Their separation packages will almost always be more than lower level employees.

TASIA PRESBER: Just cause remains difficult to establish when you're looking at the context of what actually happened, the proportionality. Is there a lesser punishment available? Would a suspension work? Would a leave of absence work? Or that's how it's often phrased.

And was a proper investigation conducted? Was an external investigator used or an internal investigator used? Was this documented properly and appropriately? And for executives, these are often people who are going to be a bit more aware of the legal tests and are likely going to have the ability to have their own legal representation. So prepare for a fight when it comes to just cause and executives.

JORDAN EPSTEIN: And even when it's not just cause. On a without cause basis, expect that the reasonable notice period is extending. All of the Bardal factors that assess the applicable notice period are high for executives. They are usually older. They have a higher level of seniority. The character of their employment indicates that it will be harder to find other jobs like this, especially in the geographic region that they work at.

TASIA PRESBER: The incentive compensation exposure for executives is huge. Their base salary is often a fraction of what they're actually taking home when it turns to compensation. So things like bonuses or LTIP or STIP, which is a short-term incentive plan or a long-term incentive plan.

These are often provided to executives as a performance metric based on the share price of the company, and they're going to vest over a period of years. So what's left in the vesting period? How is this going to be paid out? What does that agreement say based on termination? If it's termination for cause or termination without cause. What is the approximate cost of all these bonuses and all these incentive plans to let this executive go?

JORDAN EPSTEIN: Important to remember that employers are uniquely vulnerable to executive employees. Executives have knowledge and access to the confidential information. They're probably the ones who developed key customer, supplier, employee relations. And they may very well might try to maintain those relationships with a competitor business afterwards.

Make sure you have good post-employment restricted covenants in any employment agreement. Make sure you remind executives about their post-employment legal obligations during the termination meeting and afterwards if there's an issue that you need to raise.

TASIA PRESBER: The exit narrative really matters here because the story might not just be internal, but also external. A lot of these are going to hit the news. So you need to make sure that you're on the same page when it comes to messaging among the internal team, the PR team that is handling this, and the executive of course, as well.

Often, this will be a written statement that everyone is signing off on. And it will be part of the release and the overall agreement to make sure that everybody is clear what the narrative is and why this person is leaving and what the party line is for anyone who asks.

JORDAN EPSTEIN: And of course, there's corporate governance questions as well. In many cases, it is the terminated executive who usually makes these termination decisions. You got to think about, who can make the call in this case? How can they make that decision? And their ramifications afterwards as well.

But perhaps, if there's any lasting message from today's presentation, let me leave you with a self-serving one. And that's to call an employment lawyer. Terminating executives is complicated, and it can be costly. It requires a considered approach that should be guided by an experienced employment lawyer. We're certainly here to help, at Gowlings, in just about every province that you may have executive employees.

And with that, we thought it would be helpful to try to tie together these complicated and dense topics with a fact pattern scenario. So we prepared a story about an executive named Jane Smith and the company that she served named We The North Technologies Inc.

To set the stage, I'll talk to you about the company, the executive, and the storyline. And in this case, it's an Ontario-based private tech company. 300 employees. So relatively substantial size. Notably, there's a board compensation committee that oversees executive compensation and presumably, other executive decisions. And there's a personal factor here, like there often is. The CEO and CFO are long-time close friends, roommates at business school, and have worked together at this company as dual executives.

TASIA PRESBER: Let's talk about Jane here on the next slide, please. So Jane is the CFO. She's 54 years old. She's been at the company for almost 10 years. And she manages and leads the finance team. So we can certainly call her an executive in a managerial capacity. She has people reporting directly to her. And she's got oversight of the company's finances and their operations.

So she's got $350,000 as her base. And her annual cash bonus is $150,000 target, which is split between the company and personal performance, which is assessed by the compensation committee. So you've got two factors there, the company and personal, which are both going to be up for debate when it comes to the notice period.

And the long term incentive plan, with the RSU vesting annually over 3 years. RSU meaning the restricted share units or stock units, and when they're going to be paid out. And if they were granted 2 years ago, 1 year ago, or if they're still being granted, and how many years they're supposed to come.

And a comprehensive employee benefits package is always standard. Monthly car allowance and RSP matching up to $10,000 per year. Jane has a nice little package. There's a lot of parts to discuss for her termination.

JORDAN EPSTEIN: It is not atypical for an executive. We often see this laundry list of compensation terms for people at the top of the pyramid. So here's what happened. The company isn't doing great. They've missed projections the last two quarters. There's some internal misalignment. The COO thinks Jane is not strategic enough. Her friend, the CFO, is confident that she'll figure it out.

Notably, there's been a recent whistleblower complaint. The whistleblower alleges there's issues with the internal financial controls. The company did its job in response to the complaints, and conducted an internal audit. It found some serious issues at work.

Documentation practices aren't good enough. Financial reporting is problematic. Maybe Jane is charging too much on personal expenses. However, there's no clear evidence of fraud or wrongdoing. The board is divided. Some want to retain Jane for continuity. Others want to terminate for cause to send a message.

Meanwhile, she's signaling that she's looking for other work. She's job searching online. She's taking external meetings. She might have also forwarded some emails to her personal Gmail account. All things considered, this doesn't look like a healthy relationship going forward.

TASIA PRESBER: Let's talk about some questions in this case matter here. Should we terminate for just cause or without cause or with a separation package?

JORDAN EPSTEIN: We can't tell. We can't know from this fact pattern that we provided so far with the limited details that we have. But if there's any real thought or any consideration about a just cause termination, I would strongly recommend first conducting a real workplace investigation.

Sure, there was an internal audit, but it's unclear who actually managed that audit and to what extent the issues were actually investigated. But even then, there were some issues that came up. And those issues really ought to be fleshed out in a proper, impartial workplace investigation. Without substantive documentary evidence, it would be a mistake to terminate for just cause.

TASIA PRESBER: What would a further workplace investigation look like?

JORDAN EPSTEIN: I think at the very least, and given the level of Jane's seniority, retaining someone who's impartial and outside of the workplace to conduct that investigation. Look at the available evidence, documentary evidence, and talk to the relevant parties. Talk to the company to determine what the allegations against Jane might be. Talk to Jane to get her response to those allegations. And ultimately, that investigator will make a finding of fact.

Is it more likely than not that Jane is guilty of misconduct? If so, is it severe to a certain degree. And that investigation process will not make a decision on behalf of the company, but it will help the company make a decision with the knowledge and context provided by the investigation process.

TASIA PRESBER: Who makes the final decision here?

JORDAN EPSTEIN: That's a good question. I'll say, it shouldn't be Jane's friend, the CEO. There might be a conflict of interest there. If anything, I'd suggest to recuse the CEO from these discussions altogether. She should not be personally involved if she's conflicted through her personal relationship.

There was a reference earlier to a board committee for compensation. There might also be a board governance committee. Surely, there's some group of the board of directors who can make an impartial decision in the best interest of the company.

TASIA PRESBER: An ad hoc committee can be established as well for these types of matters. Let's talk about issues with the employment agreement. It tries to limit Jane's entitlements to the Employment Standards minimums. With Jane at 9 and 1/2 years, she's getting about 8 weeks notice and 9 and 1/2 weeks statutory severance pay. Statutory severance pay, of course, is just an Ontario concept. It's not used in Alberta or Saskatchewan or BC, other provinces. But it can be for our labor code. There could be severance pay for that.

But 8 weeks notice is pretty low for an executive like this, so that better be an airtight clause. And it's unlikely to be enforceable. The law has changed a lot from 2019. And particularly Ontario, judges do not want to enforce limiting clauses for termination, especially if it is just to the minimums. So we're looking at common law reasonable notice here. And because she's an executive, likely extended reasonable notice as well.

JORDAN EPSTEIN: I'd say that there's been so many changes in this area of law in Ontario specifically, since 2019, 2020, that if I see an employment agreement that predates COVID, I'm going to assume every time that it's not legally enforceable. It really pays to have these employment agreements updated, even for executive employees, because small updates that you invest a small bit of time in now can create a lot of savings in these circumstances.

So turning to the next slide. Tasia, let me ask you some questions about the potential separation package here. So assuming the company's decided that they took some good advice from their lawyer and they're not going to terminate for cause because they didn't have a case there, but what do they pay? Or before they decide what to pay, what do you think about giving Jane some prior working notice for termination? Or alternatively, terminating her effective immediately, like most terminations are administered.

TASIA PRESBER: Well, since she's the CFO and she's been on for a while, she's going to have a lot of confidential information that she's aware of. And she's going to have a lot of the passwords, logins, connections, business relationships, and a lot of the trade secrets that the company is still operating on. So working notice can be beneficial because you can iron out the transition for a lot of these things, if she's on any boards, committees, and really tie everything up with a bow to figure out that messaging as well.

But there can be some concerns that maybe the company wants to terminate immediately because, well, she's an executive. She's made a bit of a rookie move by forwarding emails to her Gmail account. So she's already showing that she's disclosing confidential information, taking it out of the company, possibly for her personal use.

So that should be flagged as a possible issue that if she did distribute any of this information, that she needs to destroy it immediately and disclose if it was provided to anyone else. But it's ultimately going to be a business call. And if the business is prepared to terminate immediately, or if they need that working notice to ensure that the business can operate smoothly as soon as she departs.

JORDAN EPSTEIN: That's great. A real risk-reward scenario. A risk with the working notice period. But for the right employee in the right circumstances, there could be some good mutual value here. So I guess the million dollar question is, what is the actual exposure here? We've established that the termination clause is not legally enforceable. So what could Jane get as an executive employee in her mid-50s, with nearly a decade-long service, with earning target compensation that's nearly a half million dollars?

TASIA PRESBER: She's got a lot of factors that are going to increase her notice period here. So generally, we look at the maximum of 24 months, sometimes 30 months in exceptional cases. But it's unlikely she's going to get less than 9 months at a minimum because she's working for almost 10 years here, she's in a managerial capacity. And it's probably going to be higher than that.

But the good news is that she's already looking for other jobs. So if she can secure another position, then that helps as a mitigation factor. Because the goal here is just to cover the gap between employment, not give her some extra on top.

JORDAN EPSTEIN: Yeah. I call it the million dollar question because we don't have any answer to what the common law notice period is. They really can only be determined by a judge at the end of the day, with comparisons to other cases with similar employee characteristics.

I'll tell you, every time that we actually conduct the legal research regarding the applicable notice period, I'm shocked at how high the courts are increasingly awarding these notice periods. It is almost always higher than what I argue to employee side counsel. And I'll tell you, if we assess the notice period here to be maybe around 12 months pay, a full year salary, which is probably around the sweet spot, I can assure you that a demand letter from Jane's lawyer will be asking for 18 to 24 months, even though the high end is not actually attainable.

Do you have a sense of what the right offer could be? If the real notice period is around a month and she'd be entitled to a guaranteed minimum of 17 and 1/2 weeks pay under the Employment Standards Act. That's 4 months. What would you suggest offering her?

TASIA PRESBER: Well, the right offer is certainly above 4 months. But that's going to be a business decision as well. It's going to turn on the business's appetite to litigate. Do they want to start low and assume that she's going to get another lawyer and begin to counter because they anticipate it's going to be a fight anyways?

Or you start higher because you want to avoid litigation risk? Or does that CEO have their finger on the scale here a little bit, trying to influence the discussions for how much their best friend should be getting as a package? All of these are going to be factors that the business is going to have to consider when it comes to negotiating a severance package for Jane.

JORDAN EPSTEIN: You're absolutely right. So let's take a look at the next slide and see what this business actually decided in terms of their termination package. So they decided to give a short working notice period. Gave Jane 4 weeks heads-up that her employment will be terminated. The remaining ESA entitlements reflects 4 weeks pay in lieu of notice, and 9 and 1/2 weeks severance pay.

In addition to the ESA minimums, there is an offer of an additional 4 weeks lump sum base pay in exchange for signing a release. The total package here, 21.5 weeks, including the working notice and the ESA minimums, this comes out to just about 5 months pay. The indication here is base pay and basic benefit continuation only.

I'll tell you what. This is a light package. It is marginally above the guaranteed ESA minimums. The fact that it does not include any compensation elements above the ESA minimums is concerning for Jane's sake, and will likely motivate her to get a lawyer and negotiate for more money.

TASIA PRESBER: Let's talk about the termination exposure here, and circle back to that mitigation factor.

JORDAN EPSTEIN: Yeah. This is always like, from the employer's perspective, that there are not too many factors that are in our favor. The law, unfortunately, has developed in the employee's favor. And in many cases, designed to ensure employees receive as much money as they can get at termination.

But the mitigation is one of the few tools in the toolbox that we have left. And that's to say the common law entitlements here. Anything above the employees minimum statutory requirements could be subject and deducted by any mitigating income that the employee earns in the notice period.

For example, if the right common law notice period here is 12 months, and Jane secures the same paying job 8 months after her termination, her damages will essentially be capped at that 8-month mark. So because of this, employees often are and really should be incentivized to secure a quick lump sum severance package agreement that's at a discount from their best case, to give them an opportunity to get this money from their prior employer and start earning income elsewhere without impacting an already determined settlement agreement.

TASIA PRESBER: What about the other types of compensation here? How is a cash bonus calculated and things like a car allowance, RSP, or any continued vesting? Does that happen during the notice period as well?

JORDAN EPSTEIN: The cash bonus is really an interesting question. So assuming that the employee has a claim for a cash bonus prorated up to the termination date and throughout that termination notice period as well, how do you then calculate the value of a cash bonus? Well, it would be easy if the employee received the same value cash bonus every single year. Then you would assume that the bonus would be payable in the sub-year of termination and following the termination date.

But it gets more complicated if the bonus was variable. If some years, the bonus was very low, some years, bonus was very high due to anomaly factors in that year where the bonus was skewed. If there's evidence to establish what the value of the bonus actually would be in the termination year or subsequent, following the termination year, then that evidence would be helpful.

For example, if the business is struggling, if it's going through a restructuring process and bleeding revenue and there's evidence to show that, then it'll be clear that this employee shouldn't receive their top bonus following the termination date. In those cases, the bonus might reasonably be reduced. In other cases, when there's no clear evidence of that nature, the courts will use an average. Maybe an average of the last 2 years or 3 years of what the employee received for bonuses in the past. And that's usually a sort of a good barometer factor going forward.

And then a question about these other allowances and perks and compensation terms. I think to be clear, the employee must receive all forms of their compensation during the ESA statutory minimum period. So in this case, it was 8 weeks. The car allowance must be continued for at least 8 weeks. The RSP must be continued for that period, as well as the vesting under the LTIP. But beyond that minimum 8-week period, there's some level of interpretation that's open for negotiation.

I wouldn't give the kitchen sink at the outset in a separation package. But be open to play with some of these variables to negotiate a deal. If you ultimately agree to a close to the right number in terms of months per notice, then you can start playing with what variable items are included in that notice period to determine what the real package is.

But in almost every case, I would not play around with the vesting notice period. When it comes to LTIPs, I would rather be more generous in other respects than allow this employee to continue to participate in an LTIP plan beyond a date that the company might be comfortable with.

TASIA PRESBER: Just to wrap up here, we'll talk about the exit strategy and post-employment questions. The key point here is that narrative and how it's going to be communicated internally and externally because there was a whistleblower allegation and there were some issues with it.

So now there's already going to be some suspicion on if there's going to be any moves with Jane and if she's going to be permitted to keep her job or not. And if this is going to be an amicable parting. And what are the concerns if the CEO is wishing her well publicly after an issue like this?

These are not necessarily legal concerns, unless Jane or the company disparage each other. And that's where you can run into issues with things like a release. And if Jane's ability to land another job is damaged because of this damaged reputation.

And as far as a working notice period, you really want to manage this closely because Jane already has some issues with the confidentiality concerns of her forwarding confidential information to her Gmail. And you can still be terminated, and for cause, during a working notice period. It's not locked and loaded. You certainly can have your duties removed.

And you might want to even change this to a leave of absence, where the working notice is just the employee doesn't come in anymore and they just continue to receive pay. And it's sort of a salary continuation instead. And that's where this post-employment conduct turns as well if Jane is continuing to make decisions in the best interest of the company or not, and if that is going to affect her severance package going forward.

JORDAN EPSTEIN: I'll just note here, for a number of reasons, there's value in being generous to departing executives. For one, you avoid a high value dispute. And there's value of parting ways on mutually amicable terms. But also, if the company is generous or reasonable on the way out, then it's more likely that the executive won't cause issues.

Alternatively, the executive might be more difficult or intentionally difficult if they feel slighted by an unreasonably low separation package. So keep that in mind. Treating your executives well on the way out could have value that pays dividends. If you don't, then there's risks that come along with that.

A lot of questions about this fact pattern can come up at any time. In the context of these executive terminations, these side issues and considerations are unavoidable. So we hope you found that as interesting to listen to as we found to prepare, because it really is a lot of fun issues for us to talk about.

ELISA SCALI: Thank you so much, Jordan and Tasia. We do have two questions that-- we do have some time for them. So let's go over them quickly. The first question is a question about termination for cause of a CEO. The question is, if a CEO has a relationship with one of their coworkers, let's just say it's a consensual relationship, is this a fireable offense?

JORDAN EPSTEIN: Well, not in and of itself is a fireable offense. In many cases, there should be a workplace policy regarding relationships at the place of employment. And in those policies, it is often discouraged or prohibited to have a relationship with a subordinate employee or an employee who you have oversight of or you make decisions on behalf of. There's an obvious conflict of interest if you're having a relationship with someone who you are supervising.

Alternatively, if there are two coworkers who do not directly work together or don't report to each other, then that in and of itself would not be as problematic. I think that the McDonald's example that's being referenced here more speaks to the CEO's judgment and character than necessarily to any breach of employment policy.

ELISA SCALI: Thank you.

TASIA PRESBER: It also depends if they hide it. That's a key issue here. Are they failing to disclose a relationship, especially if there's a policy? And is the employee benefiting at all from the relationship with the CEO?

ELISA SCALI: And I think we can just say generally, these decisions are really fact-specific, as you mentioned. So each case has to be decided on their own facts. Now, Jordan, you mentioned earlier that you notice that the awards being handed down by these courts are seemingly larger and larger. But the question we have here is, are you seeing this as a trend or is it really fact-specific? The award.

JORDAN EPSTEIN: Certainly both. I would say that the trend line of damages under the common law are increasing across the board. I think this specific question in the Q&A is with respect to a short service executive. And this too, is a relevant trending topic. I find it to be disproportionately difficult to assess the appropriate common law notice for a short service executive.

There's some case law there that indicates that if an employee moves companies and is only there for a year or two, then perhaps the termination itself is a black mark on their experience and resume. And as a result, the common law notice might boost it to allow that employee to land on their feet afterwards.

So yeah, it's quite hard to land or properly assess a reduced notice period for executive employees at all. Perhaps even harder if that employee is short service and they might receive more or comparably as much as what their longer service colleagues could get.

ELISA SCALI: And we have one more question. Actually, we might have two more. We have just a few more minutes. You mentioned that executives may know the severance package of other former executives. Would the court consider those severance packages in assessing whether the employer severance offer was fair?

JORDAN EPSTEIN: I'd say no. It doesn't matter from a legal perspective. It only matters from a practical negotiation perspective if the executive actually has knowledge.

ELISA SCALI: I agree. I'm going to just go through these two additional ones. I know we're a little bit over time. Would the court be more severe towards the employer if constructive dismissal is invoked? For example, the CEO and the CFO refuses to misrepresent financial information.

JORDAN EPSTEIN: I think constructive dismissal generally is a challenging argument for employees to make out. And typically, the courts are not less or more severe in cases of constructive dismissal. They only determine whether or not there has been a constructive dismissal. And if so, the employee would then receive their termination entitlements. It's rare that there are extraordinary or extra damages unless there's some real bad faith conduct at play.

ELISA SCALI: OK. And we have one last question. And this has to deal with older, very senior tenured employees. In this example is, you have an employee that's over the age of 70, has many years of service. Is there any specific common law around, I'm guessing, reasonable notice for employees with that tenure and at that age?

TASIA PRESBER: I'd say, courts could go either way with this. It can be a shorter notice period because it's unlikely that they're going to continue in the workforce. It also depends on the employee stance. These are all going to be very fact-specific.

But courts have sometimes taken the position that the employee should have some sort of retirement package in recognition of their years of service. And there should be some deference for the many years of tenure and their inability to secure future employment. So that one's really going to depend on the facts of the matter.

ELISA SCALI: OK. Well, that brings us to the end of our session. A huge thank you again to Tasia and Jordan for sharing their expertise and their insights today. Again, if you have any additional questions, please don't hesitate to reach out to either Jordan and Tasia or to the Gowling WLG counsel that you may be currently working with.

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I'd like to thank you again for joining us. We look forward to seeing you at the next session, which is coming up in May. Keep an eye on your inbox for the invitation that will be coming soon. Have a good day, everyone.

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