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Social Considerations do not Trump Precedent: Exceptional Circumstances Remain Key to Receiving Notice Beyond 24 Months

 

SUMMARY

Michael Dawe (“Mr. Dawe”) was employed with the Equitable Life Insurance Company of Canada (“Equitable Life”) as a Senior Vice President. After being employed at the company for 37 years, he was terminated without cause. Mr. Dawe sued for wrongful dismissal. After the Motion Judge held that 30 months was the appropriate notice period and that Mr. Dawe was entitled to bonus payments over this period; Equitable Life appealed. In the Ontario Court of Appeal decision of Dawe v. The Equitable Life Insurance Company of Canada, an analysis into reasonable notice and bonus entitlements ensued which had Equitable Life win on their first issue, but fail on their second.

FACTS

Mr. Dawe worked at Equitable Life since 1978. When terminated, he was the Senior Vice President, 62 years old, and had worked with them his entire career – 37 years. Mr. Dawe planned to work for Equitable Life until 65, which would have been approximately 30 months after his termination date.

During his time with Equitable Life, Mr. Dawe had been a member of various bonus plans that were introduced and revised over the years. In 2006, a new bonus plan was introduced, which included new provisions that would limit employees’ bonus entitlements in cases of resignation, termination for cause, and termination without cause. While memos would be typically presented to each member of the bonus plan, at no point did Mr. Dawe receive a memo indicating the potential consequences to his bonus entitlement should he be terminated. After Mr. Dawe was ultimately terminated in 2015, he rejected the offer by Equitable Life of 24 months’ notice and what Equitable Life deemed a “terminal award”, which was a payout pro-rated to the last day of active employment.

THE ONTARIO COURT OF APPEAL’S DECISION

Two issues were at the heart of this between Mr. Dawe and Equitable Life:
  1. whether the Motion Judge erred in finding that the appropriate notice period was 30 months; and
  2. whether the Motion Judge erred in finding that Mr. Dawe was entitled to the full bonus payments during the determined notice period.
Notice Period

In deciding that Mr. Dawe was entitled to a notice period of 30 months, the Motion Judge referred to the leading decision of Lowndes v. Summit Ford Sales Ltd, which established that while the determination of what constitutes reasonable notice is case-specific, generally only exceptional circumstances would support a notice period in excess of 24 months. In coming to the conclusion of 30 months, however, the Motion Judge relied on what he classified as “broader social factors”, which concluded that the presumptive standards in Lowndes were inapplicable to this situation. These broader social factors would acknowledge that society now has a different attitude regarding retirement, and that the circumstances of the former employee must be considered. The Court of Appeal judge wholly disagreed with this interpretation.

Following the release of the Lowndes decision in 2006, courts have followed the precedent set regarding the determination of reasonable notice. The Court of Appeal determined that the Motion Judge first should have applied the Lowndes line of authority, rather than relying on his own personal perceptions of how society’s perceptions towards retirement have changed. Secondly, both Keenan v. Canac Kitchens Ltd. and Strudwick v. Applied Consumer & Clinical Evaluations Inc., which were decided a decade after Lowndes, followed the exact same line of reasoning.

Damages for Bonus Entitlement

The case of Paquette v. TeraGo Networks Inc. articulated a two-part test to determine whether an employee who had been wrongfully dismissed would be entitled to damages for their loss of bonus. The test is as follows:
  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?
Equitable Life’s bonus plans were an integral component of Mr. Dawe’s compensation package. In fact, this purpose was articulated in the purpose section of the bonus plan itself. Therefore, the Court of Appeal agreed with the Motion Judge’s view that the payment of bonuses were an integral component of Mr. Dawe’s compensation, which would give rise to a common law entitlement to damages in lieu of bonus. The Motion Judge rightfully stated, in referencing Wronko v. Western Inventory Service Ltd., that where changes are imposed unilaterally by an employer, the essence of the problem is whether the employee accepted the newly imposed terms of employment. A pre-condition to acceptance is knowledge of the changes. Equitable Life, however, could not prove that Mr. Dawe was made aware of the changes that would lead to the removal of his entitlement upon termination. Therefore, the Court of Appeal upheld the Motion Judge’s decision that bonus entitlements must be paid out throughout the 24 month notice period.

OUR THOUGHTS

With respect to reasonable notice upon termination, the Court of Appeal once again re-affirms that although there is no “cap” on reasonable notice, exceptional circumstances are required to receive anything beyond 24 months. Even if you are nearing retirement, are in an executive position, would have extreme difficulty finding a similar job, and you have spent decades with an employer that will still likely not be enough to sway a court in deciding on a notice period beyond 24 months. Although with employment law one can never be certain, given that Mr. Dawe was in the higher spectrum of all of the above factors, it remains to be seen whether future wrongful dismissal cases will have a harder time establishing a 24 month notice period, let alone anything beyond that. Finally, despite the Motion Judge arguably having a point in observing that society views retirement differently, in law, social factors will not limit the Lowndes approach. 

In terms of establishing an entitlement to bonus payouts, if an employer wishes to limit the ability of a former employee to receive the entitlements after termination, the law still remains firm that you must directly communicate any limiting factors to the former employee at the time the bonus structure is presented.
 
The above article is for general information purposes only and does not constitute legal advice. If you have concerns with regard to the foregoing issues, please make an appointment with one of our lawyers or a qualified legal practitioner elsewhere.