Is 36 months the new 24?

notice period

I was recently
reminded that I have been practicing law for 20 years. And for as long as I can
remember, common law notice periods had an “unofficial” cap of 24 months, which
was generally reserved for very long-service, senior level management.

In recent years,
the law has evolved somewhat, all in favour of longer notice periods. The
Courts have rejected the previous “rule” which capped “lower-level” employees
at 12 months, reserving notice periods of more than a year for executives. As a
result, we are seeing more and more awards between 12 and 24 months.

Furthermore, we are
seeing more and more cases break through that 24 month barrier. This is likely
a reflection of the fact that the workforce is aging, there is no more
mandatory retirement, and people are working well into their 60s, 70s, and even
80s. Assuming that a 63 year old would have retired soon is no longer an
appropriate way to guide the assessment of a reasonable notice period. It is
clear that employers can no longer assume that their exposure will max out at
two years.

In Dawe v. Equitable Life Insurance Company, a 2018 decision, the plaintiff was 62 years old and held the position of Senior Vice President at the time of dismissal. He had been employed for a whopping 37 years and his evidence was that he intended to continue working for at least another three years. The Court found that due to the lack of comparable employment opportunities available to the plaintiff, the dismissal was “tantamount to a forced retirement.” The really interesting part of the decision is this:

With no comparable employment opportunities, in particular, I would have felt this case warranted a minimum 36 month notice period. (emphasis added)

Because the
plaintiff’s counsel had only sought 30 months in the Statement of Claim, he was
limited to 30 months of compensation. Lesson for employee counsel: plead high,
in case you have a sympathetic judge like this.

Notably, this
matter is scheduled to be heard by the appeals court shortly.

So what does this
mean? Well, I have often said that the abolition of mandatory retirement, while
a laudable development, has led to unintended consequences. Primarily, it has
led many employers to demonstrate a reluctance to hire older candidates. In the
past, older workers might slow down, or develop performance issues, but their
employer would know that they would only continue working for a fixed period.
As a result, they could tolerate the issues for a brief period and allow the
employee to retire with dignity. Now, they have to consider performance
management or other actions that might negatively impact a senior employee. And
if they have to let the employee go, they could face a hefty price tag. While
many employers used to flinch at the notion of a 24 month package, that is no
longer the upper limit. As this case suggests, it could be 50% higher. As a
result, employers might be even less inclined to hire, or keep, older workers.

How can all this be
avoided? Through a well-drafted termination clause, which removes the
uncertainty of assessing reasonable notice pursuant to common law. Such clauses
do not have to be oppressive or unfair to the employee (and do not have to
limit the employee to statutory minimum entitlements), but they can put
reasonable limits on the entitlement to notice of dismissal.

Termination clauses and ancillary damages under Canadian
law

Traditionally,
employers have been able to protect themselves from having to make significant
payments to employees upon termination without cause by ensuring that their
employment contracts contain enforceable termination clauses providing for
minimum entitlements under employment standards legislation. The Bailey case
suggests that may not always be the case.

Noting that,
“Aggravated damages are compensatory based on foreseeable injury for breach of
the duty of good faith and fairness,” the Court stated, “[The employer’s]
manner of termination of Mr. Bailey breached the employer’s duty of good faith
and fair dealing in a whole host of ways…” and awarded him $25,000 in
aggravated damages. In addition, the employee was awarded punitive damages of
$110,000, which the Court characterized as “a meaningful award” that would
“serve as a deterrent to [the employer] so that it does not choose to treat its
employees so maliciously and callously as it did in this case.” The Court noted
that although the damage awards were significant, they were, “…still less than
what [the employer] would have likely been required to pay in general damages
if the common law regarding implied reasonable notice applied…” The Bailey
decision was appealed, but a settlement was reached before hearing.

What are the implications for employers?

The Dawe case
creates a problem for employers in that they may no longer be able to use the
24-month cap as part of a negotiating strategy when attempting to settle
wrongful dismissal claims made by terminated employees, particularly long-term,
senior management employees of advanced age without comparable opportunities.

The Bailey case
mandates, as has a long line of cases, that employers treat employees fairly
when terminating them. Upon evidence of callous, malicious or abusive employer
behaviour at the time of termination, courts may use punitive or aggravated
damage awards to provide significant funds to the employee, even when there is
an enforceable termination clause limiting the employee’s entitlement to the
minimum under employment standards legislation. Moreover, as was the case in
Bailey, the award may be almost as significant as a reasonable notice award at
common law.

Bailey also
indicates that, even in the absence of inappropriate employer behaviour, a
court may look askance at a termination clause that limits entitlements to
statutory minimums when the employee has worked at an organization for a long
period of time. Accordingly, while an employer should attempt to limit an
employee’s entitlements upon termination by including an enforceable termination
clause in the employment agreement, it should consider providing each employee
something more “generous” than the minimum entitlement under employment
standards legislation. Any excess beyond the minimum then forms a proper basis
for a clause requiring the employee to sign a release of claims.

The bottom line

Treat employees
fairly on termination, and for all employees, use employment agreements that
contain enforceable termination clauses, which provide more than statutory
minimums.

Stuart Rudner, Rudner Law

Stuart Rudner is a leading HR Lawyer, mediator and a founding partner of Rudner Law, a firm specializing in Canadian Employment Law. At Rudner Law, their approach is simple. They want to understand your circumstances, your concerns, and your goals. They will then ensure that you understand the legal regime along with your rights and obligations. Once that is done, they work with you to design a cost-effective strategy that meets your needs. They want to be your trusted advisor.Read more

Latest posts by Stuart Rudner, Rudner Law (see all)

, ,

Leave a Reply