Can you be held responsible for severance pay to the employees of a DIFFERENT company?
In this unique case discussed below, the answer was yes.
A dispute between a luxury hotel in Toronto and a food and beverage services provider resulted in a breach of contract, and contributed to the termination of 94 food and hospitality workers.
The food and beverage services provider claimed that the luxury hotel’s breach of contract resulted in the need to terminate its own (food and beverage) employees that worked inside the hotel, and that this was a reasonably foreseeable result of the hotel’s contractual breach.
The Court determined that the hotel’s breach of its agreement was unlawful and constituted a failure to act in good faith and with honest performance. The Court therefore held the hotel financially responsible for the severance payments of the food and beverage company’s employees and required a payment over 2 Million dollars for severance.
This decision was later upheld by the Court of Appeal, dismissing the hotel’s appeal.
Key takeaway: breaking a contract & acting in bad faith can be far more expensive than might be readily apparent. Actions have consequences and in this case the consequences included an over two Million dollar severance payment.
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