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.