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Unretiring Reasonable Notice: ONCA Confirms 24-Month Notice Cap

By Frank B. Portman

Employers have noted with alarm that judicial decisions regarding employee entitlements on termination have grown in leaps and bounds. Employers often applied “one month per year” as a rule of thumb, until the courts rejected it (and denied it ever really existed).  “Character of employment” capped notice at 12 months for all but the most senior positions, until the courts rejected that too.  Then 24 months was the upper limit absent contractual terms or exceptional circumstances, until that ceiling cracked.

Fortunately, a recent Court of Appeal decision has plastered over the cracks.

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

He gave evidence that he intended to work until at least age 65 – 30 months after his termination date.  As a result, he sued and 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.

Although the motion judge did not find any exceptional factor to warrant a notice period beyond 24 months, he commented that he would have been comfortable awarding a notice period of 36 months or more, but that had not been requested by the employee.

The motion judge found that caselaw supporting a presumptive 24-month cap was obsolete.  In particular, he pointed to the abolition of mandatory retirement in Ontario since Court of Appeal decision which had established the cap.

The Court of Appeal overturned the motion judge’s decision.

The Court of Appeal disagreed 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 the absence of exceptional circumstances and held that the mere fact that an employee may be entitled to a long notice period does not constitute exceptional circumstances.

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, the trial judge had committed an error of law.

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, 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 defined notice entitlement on termination would have provided certainty to the parties and eliminated the legal costs associated with litigation.

Despite the marginally favourable outcome, the Court of Appeal’s decision has confirmed lengthy (implied) reasonable notice periods are here to stay.  Enforceable termination language, in written employment agreements, is an employer’s only effective measure of defence.

For more information contact:

Frank B. Portman at [email protected] or 416-862-8085.