Unretiring Reasonable Notice - Ontario Not-for-Profit Corporations Act Confirms 24-Month Notice Cap Absent Exceptional Circumstances

By Frank B. Portman - Stringer LLP

June 28, 2019

Employers have noted with alarm that judicial decisions regarding employee entitlements on termination have gradually been increasing in size.  This “notice creep” has impacted notice awards for employees of all types, whether they are short service and junior employees, or longer tenured, senior employees.

For the latter category of employees, such awards now frequently approach 24 months.
However, a recent Court of Appeal decision may serve as a brake on this trend, at least for those cases at the upper end of the range.

In Dawe v The Equitable Life Insurance Company of Canada, the stage was set for a massive notice award.  The employee, who had been dismissed without cause, was a senior vice president.  He commanded significant compensation.  At 62, he was nearing the end of his career.

Perhaps most significantly, he had accrued 37 years of service, essentially his entire adult life, with the employer.

The employee gave evidence that he intended to work until at least age 65, a further 30 months from his termination date.  As a result, he brought a summary judgment motion asking for 30 months of notice, including payments under the two bonus plans in which he was enrolled.  Those two bonuses could be greater than his salary in any given year.

On the basis of the usual factors, as well as the employee’s stated intention to work until at least age 65, the motion judge awarded a reasonable notice period of 30 months.  This notice period would have ended shortly after the employee’s 65th birthday.

In fact, the motion judge stated that he would have been comfortable awarding a notice period of 36 months or more, but that had not been requested by the employee.
Importantly, beyond the usual factors used to determine an employee’s notice period, the motion judge did not point to any exceptional factor that would warrant a particularly lengthy notice period.
The motion judge therefore had to deal with case law that suggested that a notice period ought not to exceed 24 months except where there were exceptional circumstances present.
However, the trial judge found that such a presumptive cap of reasonable notice had become obsolete.  In particular, he pointed to the abolition of mandatory retirement in Ontario since the cap had been established in a decision of the Court of Appeal, and the stated intention of the employee to possibly continue working even after he turned 65.  On this basis, he determined that the 30-month reasonable notice award was reasonable.
The Court of Appeal overturned the motion judge’s decision.
The Court of Appeal disagreed with the motion judge’s determination that social circumstances had changed, such that the presumptive maximum of a notice period of 24 months no longer applied.  The Court of Appeal found no reason to depart from the case law that established such a presumptive cap.
The Court of Appeal agreed with the motion judge that the employee’s circumstances warranted a lengthy notice period, and that a 24-month notice period was certainly appropriate in this instance.  However, the Court of Appeal noted that the trial judge had noted no exceptional circumstances that would warrant exceeding the cap.  It held that the mere fact that an employee may be entitled to a long notice period does not constitute exceptional circumstances.  Consequently, the excess notice was inappropriate in this case.
Further, the Court of Appeal disagreed with the motion judge’s framing of the case as a forced retirement.  This viewpoint seemingly shaped his thinking and informed the length of the notice period.  It was not coincidental that the notice period ended shortly after the employee’s 65th birthday.
 The Court of Appeal confirmed that employers are not under any obligation to employ workers until retirement, and that employers do not expect to be required to pay a terminated employee until they would have voluntarily retired.  By taking into account the employee’s desire to work until he was 65 and using that to inform the reasonable notice period, the trial judge had committed an error.
As a consequence, the Court of Appeal revised the notice period of award downwards to 24 months.
While this represented a significant victory for the employer, the cost to the employer was still extraordinary. Despite disagreeing with the motion judge on the length of notice, the Court of Appeal confirmed the motion judge’s determination that the employee was entitled to his full bonus and benefits for the entirety of the notice period, as a result of deficiencies in the manner in which contractual language that would have minimized those entitlements was presented to and executed by him.
As a result, even after the reduction of the notice period, the total value of the employee’s entitlements could well exceed one million dollars.
While the employer was ultimately successful in decreasing the length of the notice period, it did so only after incurring significant legal costs, and was still required to pay a hefty termination package.  Had an enforceable contract limited the employee’s entitlements on termination, the length of the notice period, as well as employee’s entitlements to bonus payments could have been reduced.  At a minimum, a defied entitlement on termination would have provided certainty to the parties and eliminate the legal costs associated with litigation.  Employers would do well to ensure that they insulate themselves by such risks particularly amongst high earning and long service employees, by regularly conducting reviews of termination language to ensure that termination benefits are defined precisely and taking steps to ensure that any contractual language is enforceable.

For more information contact: Frank B. Portman at fportman@stringerllp.com or 416-862-8085.