The Ontario Court of Appeal recently confirmed in Dawe v The Equitable Life Insurance Company of Canada (“Dawe”) that notice periods beyond 24 months will be awarded rarely and only if there are “exceptional circumstances.” A notice period serves to cushion employees that have been terminated without cause by providing them with a period to help find new employment. While the Court of Appeal’s decision in Dawe entrenches notice periods of up to 24 months as the norm, it does not prevent longer notice periods.
In addition, the Court of Appeal held that a bonus plan that removes entitlements to bonus payments during a notice period will only be enforced if the employee was previously made aware of and agreed to the plan.
Background
Michael Dawe was employed as a Senior Vice President with The Equitable Life Insurance Company of Canada (“Equitable Life”). He sued Equitable Life for wrongful termination after he was terminated without cause. The termination arose after the breakdown of extensive “exit strategy” discussions with Mr. Dawe, where he sought to leave the company because of alleged harassment. Mr. Dawe was 62 years of age at the time of termination, had 37 years of service with Equitable Life and its predecessor, and was enrolled in the Equitable Life bonus plan. Both parties sought partial summary judgment on two issues relating to the calculation of damages: 1) the common law notice period; and 2) entitlements under the bonus plan.
At trial, the judge held that 30 months was an appropriate notice period and that Mr. Dawe was entitled to bonus payments over this period. The trial judge noted that Mr. Dawe could have been entitled to a notice period of 36 months, had he requested it, given his approaching retirement. Furthermore, the trial judge explained that despite recent updates to the bonus plan, that restricted bonus payments throughout notice periods, Mr. Dawe was entitled to bonus payments because the provision was ambiguous, had not been brought to Mr. Dawe’s attention, and the requirement that Mr. Dawe sign a release contravened the Employment Standards Act.
Court of Appeal’s Decision in Dawe
The Court of Appeal overturned the trial judge’s decision, finding that the trial judge erred in determining that 30 months was the proper notice period when it should have been 24 months. In doing so, the Court of Appeal reiterated that while there is no upper limit to notice periods, only “exceptional circumstances” will support common law notice periods exceeding 24 months. The Court of Appeal criticized the trial judge for relying on “change in society’s attitude regarding retirement”, with the abolition of mandatory retirement, as the basis for the 30 months’ notice period, as opposed to the presence of exceptional circumstances. The Court of Appeal noted that Mr. Dawe’s request for an “exit strategy” from Equitable Life was a factor to be weighed against this case having “exceptional circumstances” justifying a notice period beyond 24 months.
In addition, the Court of Appeal agreed with the trial judge that Mr. Dawe was entitled to damages for loss of bonus payments. The Court of Appeal noted that a two-part test is used to determine if a wrongfully dismissed employee is entitled to damages for loss of bonus entitlements: 1) was the bonus an integral part of the employee’s compensation package; and 2) was there any language in the bonus plan that would remove the employee’s right to the bonus plan?
The Court of Appeal found that the bonus plan was an integral part of Mr. Dawe’s compensation package. However, the Court of Appeal held that while the language of the bonus plan precisely addressed what happens to bonus plan participants upon termination without cause, this language was not communicated to Mr. Dawe. The Court of Appeal emphasized that merely providing the bonus plan to Mr. Dawe was inadequate and that Equitable Life should have brought the specific unfavourable terms to Mr. Dawe’s attention. Without knowledge of the terms, the Court of Appeal found that Mr. Dawe could not have agreed to them. Therefore, the Court of Appeal held that the terms restricting bonus payments over the notice period were unenforceable.
Implications for Employers
Common Law Notice
Although the Court of Appeal held that periods of notice exceeding 24 months can only occur in exceptional circumstances, employers should be aware that there are and will be cases where greater notice periods may be provided. For example, in Keenan v. Canac Kitchens Ltd the plaintiffs were awarded 26 months’ notice, having established exceptional circumstances based on their lengths of service (34 and 25 years), ages at time of termination (63 and 61 years old), and character of employment.
It is important for Employers to appreciate that they can contract out of common law notice periods by including termination clauses in an employee’s employment agreement. Termination clauses are highly scrutinized by courts. Accordingly, it is important that employers seek advice from a lawyer before attempting to implement a termination clause into an employment agreement.
Bonus Entitlements
The Court of Appeal’s decision is significant in emphasizing the importance of properly drafting and communicating bonus provisions that attempt to remove an employee’s common law entitlement to a bonus during any period of reasonable notice. As such, it is important for employers to seek the advice of a lawyer to draft and implement such a provision.
Even if the language of the provision is clear, the employer will not be able to enforce the provision unless the provision has been adequately communicated to the employee. The provision can be communicated to an employee in their initial employment agreement. Alternatively, if the provision is found in a bonus plan or policy, it is important for employers to draw attention to such a provision and have the employee sign an attestation that they have read, reviewed and are familiar with the relevant documentation.
The foregoing is for informational purposes only and should in no way be relied upon as legal advice. For legal advice tailored to your circumstances and business, please contact any of SOM LLP’s lawyer’s by email or telephone.