Canada: A New Factor In The Test For Reasonable Notice?

Labour, Employment and Human Rights Bulletin
Last Updated: March 6 2019
Article by Avneet Jaswal

In the absence of enforceable contractual provisions limiting an employee's entitlements on termination without cause, the employee is eligible to receive reasonable notice under common law. It has generally been accepted that the upper limit for such notice is 24 months. While courts have awarded more than 24 months, such awards have generally been seen in cases involving unique and/or exceptional circumstances. The Superior Court of Justice in Dawe v Equitable Life Insurance Company, 2018 ONSC 3130, appears to have expanded what is considered to be "exceptional" circumstances.

Facts

The Plaintiff (D) was a Senior Vice President with 37 years of service when he was terminated without cause. He was 62 years of age and had a compensation package including salary, bonus, and benefits. At the time of termination of his employment, D earned a salary of $249,000 and had received a bonus of approximately $379,000 the year before.

During D's employment, the Company unilaterally made several changes to the bonus plans. These changes included amendments to the formula for calculating payments and changes to the eligibility criteria. Specifically, the plans were amended to include clauses limiting an employee's entitlement to bonus beyond the last day of active employment: "Awards earned and awards actually paid shall not be considered in determining any entitlement to termination, severance or common law notice or payments in lieu of notice". Changes to the plans were communicated to employees by memorandum.

On motion for summary judgement, D challenged both the notice period and forfeiture clauses. He claimed he was entitled to 30 months' notice and bonus payments for that notice period.

Decision

While the court acknowledged that exceeding 24 months' notice requires "exceptional" circumstances, it recognized "a change in society's attitude regarding retirement" as a factor to be considered when determining whether "exceptional" circumstances exist. In arriving at this conclusion, the court considered:

  • Changes to pension plans affecting individuals across the province, the abolishment of mandatory retirement, and the fact that many employees continue to work past the age of 65;
  • D's commitment to work until at least the age of 65; and
  • The traditional Bardal factors (age, character of employment, length of service, and availability of similar employment) and the idea that D should have been "allowed to retire on his own terms".

According to the court, these factors, when considered, resulted in "exceptional" circumstances warranting an award of 36 months of notice. However, as D had only requested 30 months, the court awarded this amount.  

With respect to D's entitlements to bonus during the notice period, the court held that the forfeiture clauses included in the bonus plans were unenforceable. D was entitled to receive bonus payments for the duration of the 30 month notice period. In arriving at this conclusion, the court considered:

  • The forfeiture clauses were not clearly brought to D's attention;
  • Although D did not challenge the unilateral changes to the bonus plans, as the Company failed to seek approval from its employees regarding these changes, D could not have accepted and/or acquiesced to the forfeiture clauses.
  • While there were several forfeiture clauses addressing eligibility criteria for bonus payments at the time of termination, none of the provisions unambiguously referenced the treatment of bonus at the time of termination of employment and the effect of such bonus on the statutory and/or common law notice period.

This case was heard by the Court of Appeal on February 4, 2019. The Court of Appeal reserved its decision, which is expected within the next six months.

Takeaways for Employers

It appears that while reasonable notice awards greater than 24 months have traditionally been seen in cases involving "exceptional" circumstances, by introducing a new factor ("societal attitude regarding retirement") into the analysis, the court may have expanded the considerations applied when determining notice awards. However, we note that a decision on the appeal is pending.

We will report on the outcome of the appeal. This decision may present additional considerations for employers terminating older employees. Following this decision, employers should:

  • Draft clear and unambiguous termination and forfeiture clauses that effectively limit an employees' entitlements at the time of termination;
  • Consider requiring a release for entitlements above statutory minimums; and
  • Ensure that unilateral changes made to key terms of employment are effectively communicated to employees and consideration is provided.

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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