Canada: How Not To Terminate A Long-Service Employee

Last Updated: February 25 2015
Article by P.A. Neena Gupta

Lessons learned from Arnone v. Best Theratronics Ltd., 2015 ONCA 63, on appeal from 2014 ONSC 4216

The recent Ontario Court of Appeal in Arnone v. Best Theratronics Ltd., 2015 ONCA 63, illustrates how the litigation process can hammer employers who do not make reasonable offers when terminating a long-service employee. Hard-ball litigation tactics can end up costing the employer way more than a reasonable settlement proposal.

On Nov. 26, 2012, Best Theratronics terminated Matthew Arnone, solely due to restructuring. There was no just cause alleged and the only issue was how much was reasonable notice.

At the time of termination, Arnone was 53 and had worked 31 consecutive years with his employer. He was a certified mechanical engineering technologist with expertise in Cobalt 60 industrial and medical equipment. He was earning approximately $95,000 at the time and belonged to a defined benefit pension plan.

Best Theratronics provided Arnone with the statutory minimum of 14.4 weeks' notice and severance as stipulated in the Canada Labour Code. Arnone sought legal advice. Negotiations were not successful. Litigation ensued. Arnone sued for the following:

  1. 24 months of compensation in lieu of notice;
  2. $65,000 due to the loss of pension benefits; at the time of termination, Arnone was within 16.8 months of having a vested actuarially unreduced pension;
  3. a retirement allowance equivalent to 30 weeks, worth approximately $55,000, based on Best Theratronics' written policy of providing one week per year of service up to a maximum of 30 weeks upon an employee's retirement;
  4. Legal costs and interests.

The First Round

The plaintiff proceeded by way of Summary Judgment – a motion where issues are determined on the paper record. Best Theratronics argued that a full trial with witnesses was necessary to determine whether (a) Arnone had mitigated his damages properly; and, (b) whether Arnone was a low-level supervisory or managerial employee.

Did the court need a full trial?

The judge on the summary judgment motion determined he had no difficulties resolving the outstanding issues on the paper record. The judge had the benefit of the transcripts of cross-examinations on affidavit evidence. The judge made it clear that he did not need live witnesses to resolve the minor factual disputes, especially since Arnone conceded that his role was only supervisory, not managerial, for the purposes of the summary judgment motion. The judge determined that this subtle difference would not impact on his assessment on damages. Furthermore, in light of the fact that Arnone had applied for well over 800 jobs and had ultimately accepted work in a grocery/retail job, the trial judge determined he did not need to hear from witnesses to determine the issue of reasonable mitigation.

The First Round -- The decision on the Summary Judgment motion

The motions judge noted that Arnone was only 16.8 months away from the vesting date of his pension benefits. As such, the trial judge reduced the normal notice period, based on the timing to full pension. The motions judge ruled that Arnone was entitled to:

  1. Compensation in lieu of notice to the date on which his pension would have vested, approximately $133,000;
  2. Compensation of $65,000 for loss of pension benefits;
  3. Approximately $55,000 for the retirement allowance;
  4. Costs of over $52,280, inclusive of HST; and,
  5. Interest.

Had there been no pension issue, the motions judge would have assessed 22 months in lieu of notice. The total award exceeded $305,000.

The Second Round – the Ontario Court of Appeal

Best Theratronics decided to appeal the decision of the trial judge to the Ontario Court of Appeal. At the appeal, Best Theratronics insisted that reasonable notice amounted to 14.4 weeks and argued that the retirement allowance was awarded in error by the motions judge, as Arnone was not a "retiree."

Best Theratronics also argued that it should have received credit for any earnings received by Arnone by way of mitigation. Arnone cross-appealed, complaining that the motions judge ought not to have artificially limited the notice period to 16.8 months.

The Court of Appeal ultimately agreed with Arnone that he should have received 22 months of notice. It stated:

The Bardal analysis remains the approach courts must apply to determine what constitutes reasonable notice of termination, an approach which has not included a consideration of the time between the date of dismissal and the point at which the employee would be eligible for a full pension. In the present case, calculating the period of reasonable notice by reference to the amount of time required to "bridge" the dismissed employee to his date of eligibility for a full pension did not accord with the Bardal analysis. Consequently, the motion judge erred in setting the period of reasonable notice to which Arnone was entitled at 16.8 months, the period of time needed "bridge" his entitlement to full pension.

 The Court of Appeal then determined it was appropriate to deduct Arnone's mitigation earnings, which were in the modest $10,000 to $20,000 range. The Court of Appeal followed its earlier decision in Taggart v. Canada Life Assurance Co. (2006) in awarding both the retirement allowance and the loss of pension benefits.

Interestingly, Arnone's counsel was able to persuade the Court of Appeal to re-open the issue of legal costs. Arnone had "beat" his offer to settle the case and his lawyer argued that Arnone should have received greater indemnification for actual legal expenses. The Court of Appeal ordered the issue of costs be reviewed by the original judge, after consideration of the issues of offers to settle. The Court of Appeal's own cost decision is under reserve.

Once Best Theratronics' own legal costs are factored into the mix, the total cost of fighting the case and the award will no doubt be in the $350,000 to $400,000 range. Given that the Offer to Settle was for 18 months for an employee earning $95,000 a year, you can work out which option would have been cheaper for the company.

Lessons Learned

There are many lessons to be learned from the Best Theratronics saga.

  1. Employers who believe that employees have a real opportunity to mitigate need to have strong evidence. Employers should consider offering transition counselling. If the issue is going to be litigated, hire a professional recruiter to give expert advice on the realistic opportunities in the marketplace and the time the average employee will need to mitigate damages. A list of job postings collected from a website is simply not enough.
  2. Employers who want to reduce the cash outflow might wish to consider the value of working notice coupled with a strong transition package and a cash incentive to find work quickly. Employees who know they will not get a big package at the end of the working notice period may be motivated to find work quickly in a healthy job market. While there are issues with working notice, it is a technique that is appropriate to consider with long-service employees.
  3. For employees with a defined benefit (DB) plan, calculate the pension risk. It is often far cheaper to continue making contributions for the notice period than to face a judgment for the pension shortfall.
  4. Be realistic. There is no judge who is going to consider 14.4 weeks "reasonable" for an employee with 31 years of service. The Court of Appeal commented dryly that the lawyer for Best Theratronics was unable to provide any authority supporting his contention that 14.4 weeks was reasonable notice in the circumstances.  
  5. If you believe that the employee is simply not going to try to find work and will simply retire early, make sure you have the evidence to support that suspicion.1
  6. Courts are increasingly using summary judgments to resolve matters which previously took a trial. Summary judgment motions can be a powerful took for employees.
  7. Employers should look very carefully at formal offers to settle they receive. Failing to achieve or "beat" the offer means that the loser will often end up paying for two sets of lawyers.

Footnote

1 In Kimball v. Windsor Raceway Inc., 2014 ONSC 3286, another summary judgment motion, the motions judge commented: "If the dismissed employee has no intention to look for work, but has instead decided to retire, the very purpose for which reasonable notice is required to be given is absent. That is a factor that may well be relevant in assessing what constitutes reasonable notice in this case."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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