Changes in the control of a company are often accompanied by uncertainty and volatility. For this reason, employment contracts may contain clauses designed to provide stability for both the company and the employee during such times of change. However, the wording of such clauses can significantly impact their efficacy, as illustrated in the case of Miranda v. Lake Shore Gold Corporation.
On June 1, 2007, Mario Miranda entered into an agreement with Lake Shore Gold to become the company’s CFO. The agreement included a provision stating that Miranda would be paid $175,200 in the event that he ceased to be an officer “within six months of” a change in company control.
In February 2008, Lake Shore agreed to a strategic alliance with Hochschild Mining Holdings Ltd., with the change in control to take place in June 2008. In March 2008, Lake Shore’s new president began his term at the company and, unbeknownst to Miranda, began looking for a replacement CFO. Once Miranda finished completing the company’s financial statements, he was terminated without cause on April 14, 2008, two months before the official change in control.
When Miranda claimed his $175,200, the Ontario Superior Court of Justice ruled that Miranda was not entitled to the payment since his termination preceded the change in company control. Miranda disagreed and successfully appealed the decision in the Ontario Court of Appeal in August 2010.
Multi-Directional Takeover Termination Payment?
Paragraph 1 of the agreement between Miranda and Lake Shore stated that the $175,200 payment would ensue if Miranda ceased to be an officer “within six months” of a change of company control. Since the clause contained no other express wording regarding the order of the events, the central question was whether the payment could apply in advance of the actual takeover.
Justice S.T. Goudge found that in the context of the entire agreement and in line with the true intentions of the parties, the cessation of employment and the change of control needed only to occur within six months of each other, irrespective of the order of their occurrence.
Interestingly, paragraph 2 of the agreement stated that if Miranda voluntarily resigned before the change of control, the agreement would terminate and Miranda would not receive the $175,200. This expressly indicated that cessation of employment in advance of a takeover had been clearly contemplated and, by implication, must also apply to Miranda’s being terminated in advance of the takeover.
Justice Goudge concluded that such an interpretation of the agreement provided protection for both Miranda and the company in the turbulent periods both preceding and following the corporate changeover.
Points to Note
The case of Miranda v Lake Shore Gold Corporation illustrates the complexities that can arise in the interpretation of employment contracts. In the absence of express terms, a clause may be interpreted based on the wording used elsewhere in the contract in an effort to arrive at a clearer indication of the intentions of the involved parties.
One of the best protections that employees and employers can secure is to consult an employment lawyer in advance of entering employment contracts. An employment lawyer has the expertise and experience to draft and review employment contracts so that employers and employees can save themselves time, money and the frustration of future litigation.
Minken Employment Lawyers is your source for expert advice and advocacy on today’s employment law issues.