Have you ever wondered how much severance pay and termination pay you are entitled to after being terminated as of today? Continue reading to find out.
Topics Will be Covered in This Post:
1. What Is Termination Without Cause?
When an employee is dismissed without cause, the employer can provide the employee a "working notice" or terminate the employment relationship immediately by paying compensation "in lieu" of notice. In practice, a vast majority of employers will choose to pay compensation in lieu of notice.
The amount of compensation that an employer is required to pay under Common Law is based on the salary, benefits, and bonuses that the employee would have earned during the reasonable notice period.
An employee is deemed to be an employee during the reasonable notice period, even if the employer opt to pay compensation in lieu of notice, and as such the business is obliged to continue paying for benefits and incentives of the employee throughout the notice period.
2. What Is Reasonable Notice?
The Bardal factors as listed below are often used to determine what constitutes a reasonable notice period:
1) the type and nature of the employment;
2) the length of the employment;
3) the age of the employee and the availability of similar job; and
4) the employee’s experience, training, and qualifications.
However, the list is not exhaustive, and judges add additional considerations from time to time at their discretion.
The upper limit of reasonable notice is roughly 24 months, absent extraordinary circumstances. One such extraordinary circumstance exists when the employment contract allows for a "notice period" longer than 24-months.
3. When Will Common Law Reasonable Notice be Used?
The Common Law reasonable notice is the default position, and it shall be used unless the notice period is limited by the termination clause in the employment contract. In other words, unless the employment agreement has a legally enforceable termination clause, the Common Law reasonable notice will be used.
Please note that any termination clause attempting to limit the common law reasonable notice period is unenforceable unless they comply with the Employment Standards Act (ESA) and other employment law standards, and legal jurisprudence regarding enforceability of termination clauses in the employment contract.
This part, unfortunately, isn't rocket science and there are inconsistent legal decisions from time to time, but some general guidelines established in the Machtinger v. HOJ Industries Ltd., [1992] 1 SCR 986 decision are:
1. Many employees are likely unfamiliar with the employment standards in the ESA, and as such, it's the duty of the employers to make sure the employees know what the employment standards are before they are to sign the employment contract if the employers intend to limit termination notice to the statutory minimum guaranteed by the ESA.
2. A termination clause will rebut the presumption of reasonable notice only if its wording is clear. Faced with a termination clause that could reasonably be interpreted in more than one way, the interpretation that gives the greater benefit to the employee is to be used.
3. If the only consequence employers suffer for drafting a termination clause that fails to comply with the ESA is an order that they comply, then they will have little or no incentive to draft a lawful termination clause at the beginning of the employment relationship, and as such, any termination clause that fails to comply with the ESA will be deemed to be unenforceable.
Other considerations, in addition to those established in Machtinger, are:
4. Under the doctrine of promissory estoppel, if an employer has acted in a way that creates an expectation, even if it’s more than the ESA minimum standards require, the employer is estopped from not honouring such an expectation if the employee has relied on it to his/her detriment. See e.g. Maracle v. Travellers Indemnity Co. of Canada, [1991] 2 SCR 50.
5. When employment agreements are made, employees usually have less bargaining power than employers, and as such, when assessing the enforceability of the termination clause, if it limits the termination notice to the ESA statutory minimum, a more stringent standard will be used; whereas in a case where the notice period is more than the ESA minimum, a more pragmatic and lenient standard will be used. See e.g. Amberber v. IBM Canada Ltd., 2018 ONCA 571 (enforceable) vs. Hampton Securities Limited v. Dean, 2018 ONCA 901 (unenforceable).
6. While severability clauses can be used to remove an entire clause where it is illegal or otherwise unenforceable, they cannot be used to remove a portion of a termination clause to cure it of a defect. If you have a just cause termination clause in your employment agreement, if it allows an employee to be terminated absent wilful misconduct, the ENTIRE terminate clause (both with and without cause sections) will be stroke out. See e.g. North v. Metaswitch Networks Corp., 2017 ONCA 790; Waksdale vs. Swegon North America Inc., 2020 ONCA 391.
4. A Case Law Analysis of Reasonable Notice
So let's say common law reasonable notice is to be applied. The million dollar question becomes, how much notice is reasonable following termination without cause? For that, we need to do a case law analysis.
Paquette and TeraGo Networks Inc., 2016 ONCA 618
Bardal Factors: 14 years of service, age 49, position of Director, Billing and Operations Support Services, salary of $125,000.00 plus benefits and bonus.
Notice Period Awarded: 17 months
Larry Patterson v IBM Canada Limited, 2017 ONSC 1264
Bardal Factors: 22 years of service, age 67, position of IT Specialist, salary of $62,388.00
Notice Period Awarded: 18 months
Nemirovski v. Socast Inc., 2017 ONSC 5616
Bardal Factors: 19 months of service, 40 years of age, Product Manager, salary of $100,000.08.
Notice Period Awarded: 9 months
Post-termination, it took the Plaintiff over 9 months to find alternative employment, which paid $15,000.00 less. The employer did not provide employee with reference letter. There was significant evidence of the Plaintiff’s efforts to mitigate, including by applying for at least 215 positions and participating in over 30 job interviews.
Dawe v. Equitable Life Insurance Company, 2019 ONCA 512
Notice Period Awarded: 24 months
The Plaintiff, Mr. Dave, was a long-term employee of Equitable Life Insurance Company, and was terminated without cause in 2015. At the time of his dismissal, the Plaintiff’s individual characteristics represented the more extreme end of the Bardal factors:
a) he held the position of senior vice president and was part of the senior management team at a large insurance company;
b) he was 62 years of age;
c) he had worked for Equitable Life for an impressive 37 years; and
d) no similar employment opportunities existed for him.
Dawe v. Equitable Life Insurance Company went all the way to the Supreme Court of Canada and deserved a more in-depth discussion.
The trial judge held, in 2018 ONSC 3130, that when there is no comparable employment available, termination without cause is tantamount to a forced retirement, and found that a notice period of 30 months was appropriate in the circumstances.
The Court of Appeal held, in 2019 ONCA 512, that the notice period should be reduced to 24 months as there were no exceptional circumstances that warranted a longer notice period, but otherwise upheld the conclusions drawn by the trial judge. In reaching its decision, the Court of Appeal cited to two important principles:
1. The Poole principle as established in Poole v. Whirlpool Corporation, 2011 ONSC 4100, aff’d 2011 ONCA 808. The Poole principle states that the failure to establish that the limiting condition was drawn to the employee’s attention at any time, either orally or in writing, precluded any reliance by the employer on the precondition to defeat the employee’s common law entitlement. (2011 ONSC 4100 at para. 33; 2011 ONCA 808 at paras. 5-6).
2. The Paquette test, as established in Paquette v. TeraGo Networks Inc., 2016 ONCA 618, mentioned above. In Paquette, the Court of Appeal, at paras. 30-31, articulated a two-part test for determining whether a wrongfully dismissed employee is entitled to damages for the loss of bonus entitlement: (1) was the bonus an integral part of the employee’s compensation package, triggering a common law entitlement to damages in lieu of bonus?; and (2) if so, is there any language in the bonus plan that would specifically remove the employee’s common law entitlement?
In Dawe v. Equitable Life Insurance Company, there was no evidence that Mr. Dawe at any time assented to or agreed to any limitation to his bonus claim upon termination. Nor was there evidence that Mr. Dave was advised of this limitation. Applying the Poole principle, the Court of Appeal in Dave, 2019 ONCA 512, held that the termination provision in the bonus plan 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.
In addition, applying the first part of the Paquette test, the Court of Appeal in Dave, 2019 ONCA 512, held that Mr. Dawe’s receipt of bonus payments was an integral part of his compensation package, and as such, his bonus entitlement should continue during the notice period.
Having considered that the termination provision in the bonus plan was never brought to Mr. Dawe’s attention, the Court of Appeal decided that the limiting language of the bonus plan was unenforceable, even if such language existed in the bonus plan.
Equitable Life Insurance Company of Canada attempted to appeal the Court of Appeal decision to the Supreme Court of Canada to no avail, as shown in Equitable Life Insurance Company of Canada v. Michael Dawe, 2020 CanLII 25174 (SCC).
It's interesting to note that there's conflicting evidence as to whether Mr. Dawe was made aware of the limiting language in the bonus plan. But the Court of Appeal in Poole v. Whirlpool Corporation and Dawe v. Equitable Life Insurance Company has made it very clear that an employer has the burden of proof to establish that any limiting condition in the employment contract limiting the employee's Common Law entitlement must be brought to the employee's attention for such condition to be enforceable in a Court of law. It's not enough for such information to be made available on the company intranet, or hidden somewhere in a document provided to the employee.
5. Conclusion
How much notice is reasonable following termination without cause is technical and is heavily fact-driven. You shouldn't sign any new employment contract or accept any severance package after termination before consulting with an employment lawyer or you risk waiving your legal rights under Common law or your rights in suing for wrongful dismissal.
Call us now at 647-849-6582 or Contact Us Now if you have any questions or concerns in related to employment contract or severance package or you want to book an appointment for a legal consultation.