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Court of Appeal Reaffirms “Cap” of 24 Months’ Notice in Wrongful Dismissal

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Earlier this year, the Ontario Superior Court of Justice awarded a wrongfully dismissed employee 30 months’ pay in lieu of reasonable notice in Dawe v. The Equitable Life Insurance Company of Canada.[1] To the further alarm of management-side employment lawyers across Ontario, the motion judge added that he would have awarded the Plaintiff 36 months’ pay in lieu of notice had the Plaintiff requested it. In June 2019, the Court of Appeal of Ontario reversed the Superior Court’s decision,[2] firmly reinstituting the presumptive cap of 24 months’ notice for wrongful dismissal damages. This case provides useful guidance for employers about reasonable notice periods and an important lesson when making changes to employment terms.

On appeal, the two main issues to be determined were: (1) the appropriate length of the notice period, and (2) Dawe’s entitlement under the Company’s bonus plans.

The Length of the Notice Period

Michael Dawe was a Senior Vice President with The Equitable Life Insurance Company of Canada (“Equitable Life”) when he was terminated without cause after 37 years of employment. He was 62 years old and had expressed an interest in retiring in the near future.

By virtue of his position, age and length of service, Dawe was entitled to a reasonable notice period on the higher end of the scale. Normally, notice periods exceeding 24 months are reserved for cases with exceptional circumstances. In his decision, the motion judge concluded that higher notice periods could also be awarded in circumstances warranting acknowledgment of society’s changing attitudes towards retirement. The motion judge’s award would have compensated Dawe just beyond his 65th birthday.

The Court of Appeal found that no exceptional circumstances were present, and that the 30 month award ordered by the motion judge was unwarranted. In reversing the motion judge’s decision, the Court of Appeal reduced the notice period to 24 months. The Court of Appeal criticized the motion judge’s application of mandatory retirement considerations to the determination of reasonable notice, referring to this factor as “irrelevant.”

While common law notice periods are still determined on a case-by-case basis (based on an assessment of factors including the employee’s age, length of service, level of service, and availability of similar employment), this decision affirms that there is a presumptive cap of a maximum 24 months’ notice that may be awarded for wrongful dismissal, provided that there are no exceptional circumstances.

Bonus Entitlement

Dawe’s annual compensation package consisted of a salary, benefits, and bonuses, in total exceeding $500,000. Dawe participated in various Equitable Life bonus plans since 1995. In 2006, a Long Term Incentive Plan (“LTIP”) and a Short Term Incentive Plan (“STIP”) were introduced, replacing the old bonus plans. The new plan terms stated that upon termination without cause, participants would only be entitled to receive a “Terminal Award,” pro-rated to the last day of active employment (as opposed to the full LTIP and STIP payments earned through to the end of the notice period). To receive the Terminal Award, participants would also have to sign a “Full and Final Release,” likely indemnifying the employer against any future claims. The motion judge concluded that the termination clause was unenforceable because it was “ambiguous” and was not properly brought to Dawe’s attention.

The Court of Appeal disagreed with the motion judge’s determination in part, but found the clause was unenforceable because the provision was not properly brought to Dawe’s attention. Equitable Life provided copies of the plans to Dawe and sent an internal memo about the changes. However, the Court of Appeal found that this was insufficient, stating: “Equitable Life was required to prove that Mr. Dawe accepted these adverse, unilateral changes to an integral part of his compensation package. A pre-condition to acceptance is knowledge of the changes.” The Court of Appeal noted that had the memo about the changes provided to Dawe contained one further sentence that referred to the termination provisions, the litigation would likely never have been commenced.

Lessons Learned for Employers

There are two important lessons for employers in this decision. First, while it has brought relief and some certainty back to the notoriously “artful” assessment of common law reasonable notice, it will still be costly for employers to terminate the employment of long-term, senior employees. Further, where exceptional circumstances exist, damages for wrongful dismissal may still exceed the 24 months’ pay threshold. Prudent employers will often use employment agreements to limit or remove an employee’s entitlement to common law reasonable notice.

Second, employers should carefully draft and communicate bonus provisions that limit an employee’s entitlement to a bonus paid during the termination notice period. The provision can either be communicated in the employee’s employment agreement, or in a bonus policy or plan where the employee has signed an express acknowledgement that they have read, reviewed and understood the documentation.

 

[1] Dawe v The Equitable Life Insurance Company of Canada, 2018 ONSC 3130.

[2] Dawe v The Equitable Life Insurance Company of Canada, 2019 ONCA 512.

We have used over 10 Pallett Valo lawyers on different matters and find that they are always responsive.
Dr. Don Pinchin, Pinchin Environmental Ltd.