Ontario Court of Appeal Affirms Only Exceptional Circumstances Will Justify Notice Period in Excess of 24 Months

October 2019

Previously printed in the LexisNexis Labour Notes Newsletter.

In Dawe v. The Equitable Life Insurance Company of Canada, 2019 ONCA 512, the employee, Michael Dawe, sued the Defendant for wrongful dismissal after he was dismissed from employment without cause at the age of 62.  He had worked for the company for 37 years and occupied the position of Senior Vice-President at the time of dismissal.

The parties moved for summary judgment on the issues of the proper notice period and entitlement to bonus under the company bonus plans.  The motion judge held that 30 months was the appropriate period of notice for the employee and that he was entitled to bonus payments over that period.  In the decision, the motion judge disregarded the historical “cap” on the notice period in the absence of “exceptional circumstances”, and suggested that a change in societal attitudes regarding retirement had displaced the presumptive standards previously used by courts when assessing notice periods.

The Ontario Court of Appeal overturned the motion judge’s decision on the notice period, reducing it from 30 months to 24 months.  The Court explicitly rejected the motion judge’s reasoning that the end of mandatory retirement in Ontario had altered the traditional approach to assessing reasonable notice.  While the Court agreed that the senior position and decades of service of the employee warranted a substantial notice period, the 24-month notice period properly recognized and rewarded those factors.  Loyalty and dedication to the employer’s business do not constitute “exceptional circumstances” which warrant a notice period over the presumptive cap of 24 months.

With respect to the employee’s entitlement to bonus over the notice period, the Court of Appeal held that the terms in the termination provision regarding the employee’s entitlement to bonus were unambiguous and would ordinary have been enforceable against an employee and disqualified him or her from the bonus.  In Mr. Dawe’s case, however, the terms were not sufficiently brought to his attention and therefore unenforceable against him.  Accordingly, the employee was entitled to his bonus over the entire 24 months of the notice period.

Employer takeaways

Employers can take comfort in the Court of Appeal’s clarification that the historic cap on reasonable notice stands.  The threshold for demonstrating “exceptional circumstances” to break the cap and ground an award beyond 24 months of notice requires something notable and extraordinary.

Employers should also take note of the special importance of a properly worded termination provision.  Notwithstanding the success which the employer had on appeal, it was still liable to pay out two years of base salary and bonus to Mr. Dawe — an amount which could have been greatly reduced with a protective and enforceable termination provision.  In addition to being clear, unambiguous and compliant with the applicable employment standards legislation, the termination provision, including its potential impact on bonus entitlement, must always be properly communicated to the employee and known to him or her.