Employment Law Update
Employer Not Required to Bridge Terminated Employee to Retirement
By: Landon Young and Jessica Young
Non-unionized employees are entitled to “reasonable notice” of termination under the common law, or pay in lieu of such notice. The only exceptions are if an employee is employed on a fixed term, has a defined contractual entitlement on termination or just cause exists for termination.
Employee entitlements to reasonable notice at common law are not based on a formula, but by a case-by-case assessment of various factors, such as length of service, age, nature of the position and re-employment prospects, which are known as the Bardal factors. For employers with long service employees, common law notice entitlements can be significant. Although there is no formal cap on these damages, typically courts will award up to 24 months.
Counsel for terminated employees frequently plead as part of their claim that employees with long service should receive a notice period that bridges them to retirement. However, the issue is seldom actually considered by the courts.
Arnone v. Best Theratronics
In Arnone v. Best Theratronics Ltd., the Ontario Court of Appeal rejected the argument that an employee’s notice period should automatically extend to retirement. The employee was terminated without cause after 31 years of service. The employee was 53 years of age at the time of termination. The reason for the termination was a restructuring. The employer had provided him with the statutory minimum pay in lieu of notice, and the employee launched a law suit.
The case was heard on a summary judgement motion. When determining the period of reasonable notice, the motion judge diverged from the Bardal factors described above, and instead calculated the period of reasonable notice by reference to the date of termination and the date the employee would have been entitled to an unreduced pension. In addition, the motion judge applied this bridging until retirement approach to his determination of the employee’s mitigation efforts and did not deduct the employee’s earnings during the notice period from the award.
The Court of Appeal rejected the bridging to retirement approach for calculating the period of reasonable notice at common law. The Court affirmed that the Bardal analysis remains the approach that must be applied by the courts, which does not include considerations of eligibility for pension benefits. In coming to this conclusion, the Court determined that the reasonable notice period should be extended to 22 months (the motion judge had awarded 16.8 months based on the employee’s pension eligibility).
With respect to mitigation, the Court again rejected this bridging until retirement approach. It held that the income earned by the employee from new employment during the period of reasonable notice must be deducted from the award of notice period damages.
Another issue under appeal was the employee’s entitlement to a retiring allowance. The motion judge found that it was customary for the employer to provide employees with retirement allowances of one week per year of service to a maximum of 30 weeks. The Court of Appeal found that there was an implied term in the contract of employment that entitled the employee to a retiring allowance. The motion judge had linked the entitlement to the retiring allowance with the pension. Although the Court found this was in error, it awarded the retiring allowance based on its determination that the employee was contractually entitled.
Depending on the situation, the bridging approach could cut both ways. For an employee who is very close to retirement, it could result in an amount that is less than the employee’s common law entitlements, which would benefit the employer. However, in other cases, the employee might receive a larger amount than they would be otherwise entitled. On balance, the Court’s decision is favourable to employers because it limits liability and provides more certainty regarding terminated employees’ entitlements.