Yahoo Finance Howard Levitt: New Brunswick doctor's record $1.8-million severance award provides lessons for employers
The largest severance award in New Brunswick history was awarded in February to Dr. John Dornan, in a case in which I had the opportunity to act as co-counsel with Kelly Van Buskirk, a lawyer based in that province.
The issues raised in this case are ones that employees and employers across Canada often grapple with and include: whether oral employment agreements are enforceable; whether written contracts signed after an employee has commenced employment are enforceable; what damages will be awarded for the termination of a fixed-term contract; and when aggravated damages — on top of damages for wrongful dismissal — will be awarded.
While the issues are common, rarely have both the financial and political stakes been so high.
Dornan took a high-profile job leading one of the province’s major health networks, only to be fired by the Minister of Health as the government faced scrutiny over a death in a hospital waiting room. While the province attempted to pay him only 12 months’ severance stipulated in a contract, Dornan filed a grievance under the province’s Public Service Labour Relations Act seeking payment for the entirety of his five-year contract. The case was heard before an adjudicator, George Filliter, former chair of the New Brunswick Labour and Employment Board.
As laid out in the Adjudicator’s decision, the background was as follows.
Dornan was named interim CEO of Horizon Health, the health network in question, on Aug. 25, 2021. He had previously worked there as chief of staff while continuing his work as a clinical physician. He then applied for the permanent position, advising the government that, if he was unsuccessful, he would return to his previous roles.
As interim CEO, he quickly learned just how political the position was. At one point he was instructed to abolish a hospital department but, when protests erupted, he was told by the health network’s board to reverse the decision and received a call from Premier Blaine Higgs who, according to the ruling, stated he had been “thrown under the bus.”
Dornan successfully received the permanent CEO position on March 7, 2022, for a five-year term based on a series of conversations and texts. The five years, however, was agreed to only orally. Although his combined previous positions paid more than the new one, the CEO position came with this five-year term and, at age 61, would take him to retirement. He accepted the position and found permanent replacements for his previous ones.
One week after starting, he asked whether there was a contract to sign and received a written contract which included the following provision: “The Minister may terminate your employment under this agreement without cause subject to providing you with twelve (12) months’ severance pay in lieu of notice.”
He was not asked to obtain legal advice but told to contact HR with any questions. Dornan testified that he never would have taken the job with this termination provision because, from the experience he already had, he knew the position was political and insecure. But now, with nowhere else to go, he felt forced to sign.
Four months later, the death in the emergency room of one of his hospitals occurred. According to the decision, Dornan testified that “an investigation into this death concluded it had nothing to do with his management.”
He was summoned to Fredericton to a news conference by the minister of health, but, just before it was to start, received a call from the Premier advising him that the minister of health had been replaced by Bruce Fitch. Fitch then took the phone and fired him.
The Premier and Fitch then held the press conference in which they announced the health minister had been fired and that Dornan had been removed from his position, among other changes made in response to the death. They discussed the hospital death with an inference, according to the ruling, that Dornan bore some responsibility for it.
Dornan struggled to find other work. The closest he came was a job in Saskatchewan but, after two good interviews, the process ended when, as he was told, New Brunswick provided him a bad reference.
Filliter concluded that, despite some portions of the employment agreement, such as the five-year term, not being in writing, the parties had an enforceable employment contract. The province argued though that the parties had subsequently signed a written contract with a 12-month termination provision. But the adjudicator found this new contract was unenforceable because Dornan had received nothing in return for signing it.
“While some employees may enjoy a measure of bargaining power when negotiating the terms of employment, once they have been hired and are dependent on the new job, they become more vulnerable,” he wrote. “The law recognizes this vulnerability and, to vary an initial agreement, the employee must receive something of benefit in return and Dr. Dornan did not.”
He noted that Dornan would never have taken this job if he knew he could be fired at any time before the five years were out.
The adjudicator accepted that the remedy for the termination of a term agreement was full payment until its end, or over $1,800,000 in salary and benefits.
In addition to this large severance award, was the large award of aggravated damages, also a record in that province.
“I accept that his dismissal was done in a ‘public, disingenuous and callous manner,’” he concluded. “It would be reasonable for a member of the public to conclude that the Premier had concluded (Dr. Dornan) was responsible for this unfortunate death”
Filliter went on: “The manner in which the grievor was terminated was the antithesis of good faith. The employer did not meet with the grievor in private to discuss its decision, it did not give the grievor an opportunity to address the concerns of the employer and it was done in a very public manner that had the effect of diminishing the otherwise stellar reputation of (Dr. Dornan).”
As result, a further $200,000 in aggravated damages were awarded, a record for that province and one of the highest ever awarded in any province.
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What are the lessons for employers:
1) Put all the terms you require into the initial contract.
2) If you wish to amend the contract, ensure the employee receives something of value in return for any new terms.
3) Be careful how you announce a termination as, if the timing or messaging could negatively impact on an employee’s reputation, you could be liable for aggravated damages.
4) Almost never provide term contracts as they generally result in higher severance awards.
Howard Levitt is senior partner of Levitt Sheikh, employment and labour lawyers with offices in Toronto and Hamilton. He practices employment law in eight provinces. He is the author of six books including the Law of Dismissal in Canada.
