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Termination of employment can be risky for employers. In the absence of enforceable termination clauses in employment agreements and clear provisions in bonus plans limiting employees’ entitlements on termination of employment, courts have awarded employees hefty damages for both reasonable notice of termination of employment and bonus entitlements.

In a (mostly) positive decision for Ontario employers, the Ontario Court of Appeal (“ONCA”) reduced a 2018 award of 30 months’ reasonable notice and bonus payments in Dawe v Equitable Life Insurance Company of Canada [Dawe] to 24 months’ notice and bonus.

Background

At the time of the termination of his employment, Mr. Dawe was a 62-year-old Senior Vice President with 37 years of service. Equitable Life Insurance Company terminated Mr. Dawe’s employment without cause following a disagreement about purchasing tickets to a sporting event for business promotion. In response, Mr. Dawe sued for wrongful dismissal, seeking 30 months’ reasonable notice. The motion judge who heard Mr. Dawe’s claim awarded him 30 months’ notice and his bonus entitlements for the notice period.

The ONCA Decision

The Good News

The ONCA reversed the motion judge’s 30-month notice period award.

Prior to the motion judge’s decision, there was established appellate authority in Ontario that capped reasonable notice entitlements to 24 months barring exceptional circumstances. Despite this authority, the motion judge expanded the criteria for awarding reasonable notice in excess of 24 months by awarding Mr. Dawe 30 months’ notice based on what he deemed to be society’s changing attitude towards retirement. The ONCA firmly rejected this idea and affirmed its previous authority by stating that 24 months is the maximum reasonable notice period that may be awarded, except in exceptional circumstances.

What constitutes exceptional circumstances? Dawe demonstrates that merely being a long service employee who is close to retirement does not constitute exceptional circumstances warranting a reasonable notice period greater than 24 months. However, other cases provide examples of what may meet the standard of exceptional circumstances.

For example, in Keenan v Canac Kitchens Ltd [Keenan], the ONCA found that a husband and wife couple who had worked for Canac Kitchens LTD for 32 and 25 years respectively established exceptional circumstances warranting a 26-month notice period. The husband and wife were 63 and 61 years old respectively and both held supervisory positions with significant responsibility. The ONCA found that both were entitled to notice in excess of 24 months as they were Canac Kitchens LTD’s public face for over a decade and they relied on Canac Kitchens LTD to support themselves and their family for a period of approximately 30 years. Therefore, , a court is unlikely to award a notice period of over 24 months.

In light of Dawe, employers can feel confident that without circumstances above and beyond long service, advanced age, and high responsibility they likely will not have to pay more than 24 months’ reasonable notice when terminating an employee’s employment without cause.

The Not-So-Good News

Although the ONCA reversed the motion judge’s notice award, it upheld his finding that provisions limiting bonus entitlements must to be brought to the attention of the employee to be enforceable.

It is settled law that employees will be entitled to damages as compensation for a lost bonus during the reasonable notice period when the bonus forms an integral part of the employee’s compensation and the wording in the bonus plan does not unambiguously alter or remove the employee’s common law entitlement to a bonus (see our blog titled Carefully Drafted Language to Limit Incentive Compensation on Termination for more information). In Dawe, the ONCA found that the limiting provisions in Mr. Dawe’s bonus plan were clear and unambiguous, which should have limited his bonus entitlements during the reasonable notice period. However, the ONCA stated that the unfavourable provisions were not enforceable because there was not enough evidence to establish that they had been brought to Mr. Dawe’s attention. This finding effectively adds another requirement for creating enforceable provisions that limit an employee’s bonus entitlements upon termination: that unfavourable provisions be brought to the employee’s attention.

The Court did not specify how limiting bonus provisions must be brought to an employee’s attention. It did not go as far as to require that employers obtain a signed acknowledgement from the employee recognizing the limiting provisions, but this might help employers defend the enforceability of their bonus plans. In Dawe, the Court stated that it might have been enough for the employer to include a line about the limiting provisions in a memorandum sent to Mr. Dawe regarding the bonus plan.

Key Takeaways

Dawe provides two key takeaways for employers. First, barring exceptional circumstances, employers will not have to pay more than 24 months in reasonable notice to employees dismissed without cause.

Second, in order to limit an employee’s bonus entitlements on termination, limiting provisions must not only be clear and unambiguous, but they must also be brought to an employee’s attention. As such, to proactively limit risks related to ending an employment relationship, employers would be well advised to require employees to sign off on limiting provisions in bonus plans to demonstrate clear acknowledgement.

This blog is provided as an information service and summary of workplace legal issues.

This information is not intended as legal advice.