24-Month Upper Limit Reasonable Notice Period Reinstated

The case of Dawe v. Equitable Life Insurance Company 2018 ONSC 3130, which extended the 24-month upper limit on the reasonable notice period for an older, long-term, senior manager who was unable to secure comparable employment to 30 months; and were the motion judge stated that, if asked, he would have awarded 36 months, was appealed.

You can read more on the motion judge’s decision on Slaw here.

On appeal, which decision (Dawe v. Equitable Life Insurance Company of Canada 2019 ONCA 512) was released on June 19, 2019, the appeal’s judge held that the motion judge’s approach to reasonable notice was incorrect.

To reach this conclusion, the Court of Appeal relied on the guiding principles of the Lowndes v. Summit Ford Sales Ltd. [2006] O.J. No. 13 and endorsed in Keenan v. Canac Kitchens Ltd. 2016 ONCA 7, which approach can be summarized in three points:

  1. that the determination of what constitutes reasonable notice is “case-specific”;
  2. that there is no absolute upper limit or cap on what constitutes reasonable notice; and
  3. generally only exceptional circumstances will support a base notice period in excess of 24 months.

The Court of Appeal noted that the motion judge arrived at the conclusion that a 30-month notice period was appropriate based on “his perception of broader societal factors” such as changes in society’s attitude toward retirement and the abolishment of mandatory retirement in Ontario, and not on the exceptional circumstances test outlined above (see [34] and [36] of the appeal’s decision). The Court of Appeal concluded that the motion judge should have applied the Lowndes line of authority instead of “his perception of broader societal factors.”

The Court of Appeal did agree with the motion judge that the employee was entitled to a substantial notice period based on his senior position, years of service, age and difficulty in finding new employment, but these factors are already recognized by the 24 months’ notice award, which is already at the high end of the appropriate range of reasonable notice for long-term employees.

In a separate consideration in Dawe, the motion judge found that the employee was also entitled to the bonus payments because (see [45] in the appeal’s decision):

(a) They were an integral component of his compensation; and

(b) His right to bonus payments during the notice period was not displaced by the termination provisions:

(i) They were ambiguous;

(ii) They were not brought to the employee’s attention and the employer did not meet its obligation to communicate them; and

(iii) The employer’s requirement that the employee sign a release contravened the Employment Standards Act, 2000 (ESA).

The employer contends that the motion judge erred by failing to find that Dawe’s bonus entitlement was limited by a termination provision contained in the employer’s bonus plans.

Even if the Court of Appeal disagreed with the motion judge that the termination provision was ambiguous (“unclear and confusing”) and found instead that the LTP and STP unequivocally restricted the employee’s common law rights upon termination, the Court of Appeal agreed with the motion judge that the company’s bonus plans were an integral part of the employee’s compensation, giving rise to a common law entitlement to damages in lieu of bonus. Moreover, the Court of Appeal concluded that the termination provision could not be enforced because the employer could not prove by evidence that the employee accepted it. It stated “I agree with his finding that the termination provision was unenforceable because it was imposed unilaterally and was not brought to Mr. Dawe’s attention by Equitable Life at any time before his termination. See [5] and [46] of appeal’s decision”

Takeaway for employers

The decision of the Ontario Court of Appeal in Dawe provide employers with the factors to follow to determine what constitutes reasonable notice on termination for older, long-term, senior managers. Employers should follow “the Lowndes approach,” which provides that absent exceptional circumstances, 24 months is the “high end” of a reasonable notice period. Employers are reminded that the employee’s senior position, long years of service and advanced age are not exceptional circumstances supporting a notice period in excess of 24 months; they are already included in the 24-month upper limit reasonable notice period.

In addition, the Dawe’s decision clarifies that when making changes to the terms of an employee’s entitlement to a bonus upon termination without cause, the employer must prove that the employee clearly knew about the changes and accepted the changes.

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