Is 30 months' reasonable notice the new norm for employees near age 65? Employers can breathe easy knowing that the answer is, no! The Ontario Court of Appeal overturned the trial judge's notice award in Dawe v Equitable Life Insurance Company. It reduced the notice period from 30 months to 24 months. The Court of Appeal confirmed the generally accepted upper limit of 24 months, stating that no exceptional circumstances existed to warrant a longer notice requirement.
The Trial Judge's Decision
We recently wrote about the lower court decision in Dawe, titled A New Factor in the Test for Reasonable Notice?. A former Senior Vice President (D) was awarded 30 months' notice. D had 37 years of service with the company and was 62 years of age at the time his employment was terminated. His compensation package consisted of salary, bonus and benefits, which combined amounted to about $500,000 a year.
D argued that he had intended to work until the age of 65, and therefore was 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 was found that exceptional circumstances existed in D's case that could have warranted an award of 36 months. But D had only claimed 30 months' notice. So that was the award. 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:
• that more people now continue to work past the age of 65;
• D's age, position, length of service; and
• his commitment to work until at least age 65;
• the judge concluded that the forfeiture clauses in the bonus plan that limited D’s entitlement upon termination, were unenforceable. This was because they were ambiguously drafted and were not brought to D’s attention when introduced.
The Court of Appeal Decision
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 erred in his reasoning by departing from the established principles for determining damages for wrongful dismissal. According to the appeal court, the trial judge,
• erroneously introduced "society's attitude towards retirement" as a factor to consider when determining "exceptional circumstances"; and
• mistakenly concluded that the employer owed D more notice on the basis that he had planned to work until age 65. While D's long-service, senior position, age and difficulty finding new employment warranted "substantial notice", such factors did not support an award of more than 24 months.
Accordingly, 24 months' notice was appropriate in the circumstances. Notice periods are generally limited to that 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 recognized 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 was ambiguously drafted. It "unequivocally" stipulated that D was not entitled to bonus payments upon 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.
Takeaways for Employers
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 also reminds us of the importance of a well-drafted employment contract. This is especially important regarding an employee's entitlements upon termination. Clear and unequivocal terms of employment, that have been acknowledged and accepted by the employee, can go a long way in protecting employers from lengthy and costly legal battles. They also provide certainty to both parties.