In a recent blog, we wrote about Milwid v. IBM Canada Ltd., 2023 ONSC 490 (CanLII), where the Superior Court of Justice determined that there is no "cap" on reasonable notice damages in the termination of a long-term employee, and held that an employee of IBM Canada was entitled to 27 months of notice and damages for the value of Restricted Stock Units (RSUs) that would have vested during the notice period.
IBM Canada Ltd. appealed the Superior Court of Justice's decision to the Court of Appeal for Ontario on the grounds that (i) the motion judge erred in finding that there were exceptional circumstances that would justify fixing the reasonable notice period at more than 24 months, and (ii) the motion judge erred in finding that the respondent was entitled to damages for the value of the RSUs that would have vested within the reasonable notice period.
In Milwid v IBM Canada Ltd, 2023 ONCA 702, the Court of Appeal for Ontario found no error in the motion judge's decision to fix reasonable notice at 26 months and confirmed that certain exceptional circumstances could warrant a notice period exceeding 24 months.
COVID-19 and Bardal factors impact notice requirements
The motion judge found that the respondent was entitled to 26 months' reasonable notice by relying on the Bardal v The Globe & Mail Ltd., 1960 CanLII 294 (ON SC) factors, considering his "age, lengthy service, the exclusivity of his employment with the defendant, the character of his employment and specialized nature of his work." In finding exceptional circumstances, the motion judge relied on the respondent's age, length of service with the same employer, managerial position, compensation in an uncertain economy, and "the technical/skilled nature of his skills geared towards the defendant's business."
The Court of Appeal for Ontario confirmed that there is nothing impermissible in relying on the constellation of Bardal factors, along with other exceptional circumstances, to find that a reasonable notice period exceeds 24 months. The court noted that the highly specialized and non-transferrable nature of the employee's skills was an exceptional circumstance that warranted more than 24 months of notice.
The motion judge had provided an additional month of notice to reflect the economic slowdown from the COVID-19 pandemic. The Court of Appeal of Ontario confirmed that the pandemic was a truly exceptional circumstance, and the respondent lost his position right at the time the global economy was shutting down. On this basis, the Court of Appeal did not interfere with the motion judge's finding.
Damages calculation
The employee was to receive 888 Restricted Stock Units (RSUs) worth $55,619.88 USD pursuant to an Equity Award Agreement, half of which were to vest on November 14, 2020, and November 14, 2022. The RSUs were cancelled on August 14, 2020. The motion judge determined that the employee was entitled to damages for the entire value of the RSUs, since it all would have vested in the 27 month notice period.
The motion judge noted that employees terminated without cause are entitled to "what the employee would have earned during the notice period." This included the RSUs. The appellant argued the Termination of Employment section of the Equity Award Agreement eliminated the employee's right to the RSUs after termination. To eliminate the common law right to the benefit, the provision would need to "unambiguously alter or remove" the right. The motion judge, affirmed by the Court of Appeal, determined that the language of the termination provision was ambiguous and did not extinguish the employee's right to participate in the Equity Award.
Takeaways
- The notice requirement for dismissal can exceed 24 months when there are exceptional circumstances, such as an employee with a highly specialized and non-transferrable skill set.
- Equity awards and compensation packages need unambiguous termination provisions to be operative to extinguish an employee's common law right to a benefit during a notice period.
