December 4, 2019

In the absence of an employment contract or a valid termination clause, a dismissed employee is entitled to termination pay at common law, which is significantly more generous than the statutory minimums that the Employment Standards Act, 2000 provides.

Although courts have previously established 24 months as the limit for termination notice in employee dismissal cases, plaintiff employees often come to court citing a variety of circumstances that, from their perspective, justify a longer notice period.

A recent Ontario Court of Appeal case reaffirmed, however, that absent any exceptional circumstances, 24 months remains an upper limit on employee’s termination pay entitlements in Ontario.

The Court Case

In Dawe v The Equitable Life Insurance Company of Canada, 2019 ONCA 512, the plaintiff, Michael Dawe, was terminated from his 37 years of employment with The Equitable Life Insurance Company of Canada (“Equitable Life”). At the time of his termination without cause, Mr. Dawe was 62 years old and occupied a position of a Senior Vice President.

Mr. Dawe sued Equitable Life for wrongful dismissal and both parties moved for partial summary judgment on two issues respecting calculation of damages: (1) proper notice period at common law; and (2) Mr. Dawe’s entitlement to bonuses during his notice period.

Mr. Dawe won the summary judgment motion. The motion judge held that the appropriate notice period was 30 months and that Mr. Dawe was also entitled to receive bonus payments over this period. Equitable Life appealed.


The Result at the Court of Appeal

24 Months’ Upper Limit on Notice Can Only Be Displaced by Exceptional Circumstances

Ontario Court of Appeal allowed employer’s appeal on the issue of notice. It held there were no exceptional circumstances that warranted a longer notice period. In doing so, the court reaffirmed the holding in the leading decision on the issue of notice in Lowndes v Summit Ford Sales Ltd. (2006), 206 O.A.C. 55 (Ont. C.A.), that the determination of reasonable notice is case-specific and while there is no upper limit, generally only exceptional circumstances will support a notice period in excess of 24 months.

The Court of Appeal also rejected the motion judge’s justification that Mr. Dawe’s circumstances warranted a 30 months’ notice period, due in part to Mr. Dawe’s evidence that he planned to work until 65 years old, or roughly another 30 months after his termination date. The Court of Appeal firmly rejected this reasoning, observing that Mr. Dawe’s plans regarding retirement are not determinative of Equitable Life’s obligations towards him.

However, in light of Mr. Dawe’s age, senior position, 37 years of service and the difficulty in finding new employment, the Court of Appeal found that the notice period of 24 months was appropriate.

Unilaterally Imposed Bonus Termination Provision Unenforceable Due to Lack of Notice to Employee

Mr. Dawe’s compensation package consisted of a base salary and a cash bonus, among various other benefits.

From time to time, Equitable Life would change the terms and calculation of the cash bonus. These changes were neither negotiated with Mr. Dawe, nor was he required to sign his acceptance or agreement to the changes. Rather, Equitable Life would simply advise Mr. Dawe and others of the changes and it was up to them to decide whether to continue to work under the changed bonus terms.

In 2006, Equitable Life introduced two new bonus plans, the Long and the Short Term Incentive Plans. The plans introduced new provisions that substantially limited employees’ bonus entitlements in various circumstances, including termination without cause. Specifically, if terminated without cause, the employee would only receive a “Terminal Award” pro-rated to the last day of active employment and require the employee to sign a “Full & Final Release” as a condition of receiving it.

Although the motion judge found that Mr. Dawe likely received information about the new bonus plans, there was no evidence that Equitable Life alerted Mr. Dawe to the termination provision, other than generally advise him that additional details about the bonus plans were posted on the company’s intranet.

The Court of Appeal observed that damages for wrongful dismissal generally include all compensation and benefits, including any bonus payments, that the employee would have been entitled to had they continued to be employed during the notice period. The courts apply a two-part test articulated in Paquette v TeraGo Networks Inc., 2016 ONCA 618 to decide if an employee is entitled to damages for the loss of bonus entitlement. First, the courts ask whether the bonus in question was an integral part of the employee’s compensation package and if so, examine the language in the bonus plan to see if it specifically removed the employee’s common law entitlement to the bonus.

With a few exceptions, Mr. Dawe consistently received bonus payments under both Long and Short Term Incentive Plans since 2006. Thus, it was an integral part of his compensation package.

The Court of Appeal held that the language of the bonus plan was clear and unambiguous in stipulating that on termination without cause, the employee would only receive a “Terminal Award” as stipulated above. However, since Equitable Life could not show that it had alerted Mr. Dawe to this part of the bonus plan terms, there was no evidence that Mr. Dawe had agreed to this unilateral change to the bonus contract terms.

As such, the court held he was entitled to receive the bonus payment that he would have received had he continued in his employment during the 24 months period of notice.

Take-Away for Employers

First, in order to oust a terminated employee’s entitlement to common law reasonable notice, employers should take care to have well-drafted employment contracts signed at the outset of the employment relationship, clearly and unambiguously limiting a departing employee’s rights to common law reasonable notice.

Second, to ensure that any unilateral changes to an employee’s bonus plan are legally enforceable, it is important that any adverse terms, such as those addressing its termination, are clearly brought to employee’s attention and there is evidence of employee’s knowledge of these terms. Simply posting this information on the company’s internal website is insufficient to infer employee’s knowledge of any adverse or limiting conditions, which will ultimately prevent an employer from relying on these terms in the event of litigation.

Take-Away for Employees

Employees should always carefully review the employment contract presented to them by their potential, new employer before signing it. When unclear about any of the terms in the contract, it is a good idea to consult with an employment lawyer to review the contract and to be clear about what various terms and provisions mean and what implications might be in case of termination.

Dismissed employees would be well advised to similarly seek advice of an experienced employment lawyer in order to assess what their entitlements might be on termination before signing any Release documents put in front of them by their employer.