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16 October 2019
Is 30 months' reasonable notice the new norm for employees nearing age 65? Employers can breathe easy knowing that the answer to this question is no, following the Ontario Court of Appeal's ruling overturning the trial judge's notice award in Dawe v Equitable Life Insurance Company. Specifically, the court of appeal reduced the notice period awarded by the trial court from 30 months to 24 months. The court of appeal also confirmed the generally accepted upper limit of 24 months, stating that no exceptional circumstances existed to warrant a longer notice requirement.
A former senior vice president (D) was awarded 30 months' notice. D had 37 years of service with the company and was 62 years old when his employment was terminated. His compensation package consisted of salary, bonus and benefits, which, when combined, amounted to approximately C$500,000 per year.(1)
D argued that he had intended to work until the age of 65 and was therefore entitled to 30 months' notice. He said his damages should include the bonus payments that would have been payable throughout this period.
While the trial judge acknowledged the principles establishing a normal upper limit of 24 months' notice, it found that exceptional circumstances existed in D's case that could have warranted an award of 36 months. However, as D claimed only 30 months' notice, he was awarded as such. Bonus payments were ordered for the entire notice period, despite language to the contrary in the bonus plan. In arriving at this conclusion, the trial judge expanded the traditionally considered factors for exceptional circumstances by introducing a new factor – "a change in society's attitude regarding retirement". In determining that exceptional circumstances existed, warranting a higher notice period, the judge considered:
The judge concluded that the forfeiture clauses in the bonus plan that limited D's entitlement on termination were unenforceable. This was because they were ambiguously drafted and were not brought to D's attention when introduced.
The court of appeal overturned the lower court's decision to award 30 months' notice. It reconfirmed that 24 months' notice is the "high end of the appropriate range of reasonable notice for long-term employees".
It was noted that the trial judge had erred in his reasoning by departing from the established principles for determining damages for wrongful dismissal. According to the court of appeal the trial judge:
Accordingly, 24 months' notice was appropriate in the circumstances. Notice periods are generally limited to this timeframe unless exceptional circumstances merit something more. D's age and desire to work until the age of 65 did not amount to exceptional circumstances. Such factors were appropriately recognised in a 24-month notice period.
In addressing whether D was entitled to his bonus payments throughout the notice period, the court of appeal upheld the trial judge's decision. However, it did so only on the basis that the forfeiture clauses were unilaterally inserted in the bonus plan and had not been appropriately brought to D's attention. The court disagreed with the trial judge that the bonus plan had been ambiguously drafted. It unequivocally stipulated that D was not entitled to bonus payments on termination without cause, except as specified in the plan. The court ruled that had D been properly notified of the forfeiture clauses when they were introduced, they would have been enforceable. But that had not happened.
The court of appeal has reaffirmed that the upper limit for reasonable notice remains 24 months, absent exceptional circumstances.
Further, when introducing unilateral changes to key terms of employment, employers should ensure that they are brought to the attention of employees and that consideration is provided where necessary.
This decision is also a reminder of the importance of a well-drafted employment contract. This is especially important regarding an employee's entitlements on termination. Clear and unequivocal terms of employment, which have been acknowledged and accepted by the employee, can go a long way in protecting employers from lengthy and costly legal battles and can provide certainty to both parties.
(1) Further information on the lower court's decision in Dawe is available here.
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