An Employee Could Have Received 36 Months’ Notice

In a recent Ontario Superior Court case, the unofficial rule of thumb of one month of notice per year of service with an upper limit of about 24 months was set aside when an employee was awarded a 30-month notice period. The Court also held that it would have awarded more, 36 months in fact, if the employee had asked for it.

The Court stated in the decision that,

[30] As a general principle, 24 months has been identified as the maximum notice period in most cases.

Quick facts

The employee was a Senior Vice President of a large insurance company with 37 years of employment. He was 62 years old and earned a base salary of $250,000 and an annual bonus of $380,000 when he was terminated without cause.

The employee filed a wrongful dismissal suit against the employer and sought damages amounting to 30 months of notice. The employee argued that he had intended to continue to work for at least another three years, until he reached the age of 65.

Both parties’ sought partial summary judgment, requiring the court to decide the calculation of damages, particularly as to the appropriate notice period and entitlement under the bonus plans.

Decision of the court

1. Appropriate notice period

In their analyses of the appropriate notice period, the Court took into consideration the abolishment of mandatory retirement in Ontario in 2006 to protect against age discrimination, which allowed many employees to work past the age of 65.

They also considered the Bardal factors applicable to reasonable notice, which include the age of the employee, the character or nature of the employment, the length of service to the employer and the availability of similar employment given the experience, training and qualifications of the employee.

Based on the above considerations, the Court accepted the employee’s argument that he had intended to work until at least retirement at age 65. The Court also found that due to the lack of comparable employment opportunities available to the employee because of his age, among other factors, the dismissal without cause was “tantamount to a forced retirement.”

The Court stated,

[33] [The employee] was 62 at the time his employment was terminated. He had devoted his entire working career to [the employer] and its predecessor, 37 years in total. [The employee] was a senior vice-president. He was a member of the senior management team. There are no similar employment opportunities. No doubt, [The employee]’s age is a significant factor. His mitigation efforts demonstrate the lack of other opportunities.

[34] Reasonable notice is often referred to as the period of time it should reasonably take the terminated employee to find comparable employment. … When there is no comparable employment available, termination without cause is tantamount to a forced retirement.

Therefore, the 30 months’ notice requested was considered more than reasonable by the Court and was awarded to the employee.

However, the Court did not stop there. It went further in its analyses of reasonable notice periods and added that if the employee had asked for more, he would have received it.

[35] … [The employee] had made no decision as to when retirement would occur. He says he was committed to working at [the employer] until at least age 65. … On the evidence, I conclude it is more likely [The employee] would have worked at [the employer] until age 65. …

[36] Counsel referred to a number of cases as examples of a reasonable notice period. Such were helpful in my review. [The employee] is at the extreme high end of each of the Bardal factors. He should have been allowed to retire on his own terms. With no comparable employment opportunities, in particular, I would have felt this case warranted a minimum 36 month notice period. [Emphasis added by the author]

2. What about entitlement to the bonus plans?

It is important to look at this aspect of the case as well, as it confirms relevant factors related to entitlements to a bonus plan upon termination. At issue was if the employer had excluded the employee’s common law entitlement to the bonus in the notice period by the terms of the bonus plans.

The employee’s compensation package consisted of his salary, a variety of benefits and a cash bonus. In this case, there were two bonus plans.

Initially, the terms of the bonus plan were negotiated and signed into an agreement. The plan was revised in 2018 with an added term requiring that the employee be in the employ of the company at the time the variable pay is processed in order to be eligible for the payment.

In 2006, the employer introduced two new bonus plans to replace the existing bonus plan, referred to as the Long Term Incentive Plan (LTIP) and the Short Term Incentive Plan (STIP). These plans included the following provision:

“An Eligible Participant must be employed by the Corporation on the date an award is paid in order to receive an award.

If an Eligible Participant resigns or his/her employment is terminated for cause, he/she will forfeit all rights under the Plan including any awards earned but not yet paid as at the date of resignation or termination and no award or pro-rated award shall be paid.

An award shall be determined and paid in the following circumstances subject to the following conditions:

…

iii) Termination without Cause: An Eligible Participant terminated without cause will be entitled to receive only Terminal Awards calculated pursuant to the terms in sub-paragraph (a) (iv) (below), pro-rated to the last day of active employment, regardless of whether notice of termination is given or not given and regardless of whether the termination is lawful or unlawful, and only if the Eligible Participant provides the Corporation with a Full and Final Release in the manner required in the Eligible Participant’s termination letter.”

The employee in this case was notified of the two new plans by memo. The plans were regularly changed, and memos of the changes were sent to the employee. He also received memos regarding the calculations of the bonuses according to the plans’ terms. However, during summary motion, “[12] There is an evidentiary dispute as to whether [the employee] was provided with copies of the LTIP and STIP documents or informed of the limitations on payment of bonuses.”

Even if there are no records of the electronic delivery in this case, the Court did not dispute that the employee had received the plan documents and other memos. What the Court had trouble with was the question of whether the employer made a reasonable effort to clearly bring the forfeiture provisions to the employee.

According to the Court,

[43] An employer is required to communicate conditions of employment, such as the requirement to be on the payroll as of the date of payment for a bonus, to the employee. See: Grace v. Reader’s Digest Assn. (Canada) Ltd., [1995] O.J. No. 2671 (Ont. Gen. Div.), at para. 64. Posting on the intranet is insufficient: See: Poole v. Whirlpool Corporation, 2011 ONSC 4100 (CanLII), at para. 33.

[…]

[47] As described in Grace, the requirement is communication of the term the employer seeks to rely on. I am not persuaded simply providing a copy of the plan document meets this standard. In essence, providing only a copy of the document transfers the onus to the employee of finding any negative terms of employment. These are complex documents, drafted by lawyers, and most difficult to read and understand. In my view, an employer has a duty to inform the employee of all expected terms of employment. That is particularly the case here as [the employer] had changed the method of establishing bonus plans and was attempting to introduce a forfeiture clause that was not part of the prior system.

[48] In result, I conclude [the employer] has not met its obligation to communicate the terms of employment. On this issue, the forfeiture clause is unenforceable.

In addition, the forfeiture clause that was added to the bonus plan was never accepted by the employee and was a unilateral and fundamental change to the terms of employment.

The Court also concluded that where the bonus is an integral part of the employee’s compensation, it would be inappropriate and unfair to the employee to be deprived of the bonus by reason of the unilateral action of the employer, which in this case was the termination without cause. Therefore, the employee remained entitled to consideration of his bonuses, both for the period he worked and the notice period.

However, the remaining claims in this case are yet to be tried, and this matter is scheduled to be heard by the appeals court shortly. Thus, we have not heard the last word on the employee’s notice or bonus entitlements.

Lessons for employers

In recent years, we have seen reasonable notice periods shifting higher, opening the door to more employee wrongful dismissal claims requesting damage awards in excess of the unofficial 24 months. Termination package negotiation based on a 24 months cap may become harder.

Although there is no guarantee, one way to avoid litigation is to ensure that your employment contracts contain carefully drafted and enforceable termination provisions that limit the employees’ entitlements to termination and statutory severance pay based on the statutory minimums found in employment standards with the continuation of benefits.

There is a presumption that an employee is entitled to common law notice upon the termination of employment without cause; therefore, an employer can (and should) enter into an agreement to contract out of the provision for reasonable notice at common law upon termination without cause.

Frequently, an employer will rely on a term in its bonus plan requiring “active employment” as a condition of eligibility or stating that eligibility will cease in the event of termination of employment, whether voluntary or involuntary. Recent case law, including this example, confirms that such language alone will not achieve its objective, and it needs to be clearer, explicit and communicated if it is to eliminate an entitlement to a bonus during the notice period. If your organization is considering the implementation of a new or amended bonus plan, its design, the language used to describe it to employees and how, when and where it is communicated to employees ought not to be taken lightly. The employment agreement should also include terms that allow the employer the flexibility to change the employee’s compensation and benefits, among other factors. Entering into a new contract that reflects fundamental changes to the employment relationship will ensure that you have the employee’s consent to the revised terms. In order to constitute a “new” employment agreement, an employer must provide new consideration in exchange for the changes. Consideration includes job security, new benefits or a raise, among other options.

Employers should make sure that expectations are clearly communicated by providing employees with access to designated individuals and workplace policies. By developing channels for effective communication, employers can address employees’ concerns before a claim for wrongful or constructive dismissal arises.