Ontario Court of Appeal Overturns 30 Month Notice Period

Employers can breathe a sigh of relief after the Ontario Court of Appeal (the “Court of Appeal”) reduced the unconventional 30 month notice period awarded to a long-service executive to 24 months in Dawe v The Equitable Life Insurance Company of Canada (“Dawev Equitable Life”). The Court of Appeal’s decision suggests that notice periods in excess of 24 months are still generally reserved for exceptional circumstances.

The Background

The long-service executive, Mr. Dawe, was terminated without cause after working for 37 years with Allstate/The Equitable Life Insurance Company of Canada (“Equitable Life”).

At the time of his termination, Mr. Dawe held the position of Senior Vice President, was 62 years old, and received an annual compensation package of over $500,000, which included base salary and bonus entitlements. Mr. Dawe also claimed that he had planned to work until he turned 65 years old (about 30 months after this termination date).

Mr. Dawe sued for wrongful dismissal and sought 30 months of reasonable notice.

The motion judge considered the employee’s age, character and nature of employment, length of service with Equitable Life, and availability of similar employment (having regard to the experience, training and actions of the employee). The motion judge also considered the fact that mandatory retirement had been abolished, and that Mr. Dawe was committed to working at Equitable Life until “at least age 65” and it was plausible he may have worked longer.

The motion judge concluded Mr. Dawe was on the “extreme high end” of these factors and “felt this case warranted a minimum 36 month notice period”. However, Mr. Dawe was only awarded 30 months because that was all he had asked for. The motion judge also found that Mr. Dawe was entitled to his bonus for the notice period because it was an integral component of his compensation and the terms of the plans did not displace his common law entitlement to the same. Equitable Life appealed the motion judge’s decision to the Court of Appeal.

The Court of Appeal’s Decision

The Court of Appeal granted the appeal on the issue of notice, reducing the notice period from 30 months to 24 months, but not on the issue of Mr. Dawe’s bonus entitlement.

The Court of Appeal found that the motion judge erred when determining the reasonable notice period for a number of reasons, including:

  • The motion judge should have applied the established line of authorities that suggest a base notice period in excess of 24 months is only supported by exceptional circumstances;
  • The motion judge should not have relied on his own perceptions of the “change in society’s attitude regarding retirement” in determining the notice period; and
  • The motion judge should not have charted “his own course”, since the authorities have not changed the approach in determining reasonable notice at common law in light of the end of mandatory retirement.

Applying the established line of authorities to the facts of Mr. Dawe’s case, the Court of Appeal found that the facts did not warrant more than 24 months, since a 24 month notice period is the “high end of the appropriate notice period for long-term employees”.

The Court of Appeal also considered the motion judge’s decision that Mr. Dawe was entitled to bonus payments during the reasonable notice period. Despite finding that the language of the bonus plans went well beyond stipulating “active employment” as a precondition for the bonus entitlement and anticipating the very event that occurred (Mr. Dawe’s termination without cause), the Court of Appeal decided not to overturn the motion judge’s decision that Mr. Dawe was entitled to the bonus payments. The Court of Appeal determined that the motion judge’s decision was owed deference because the issue hinged largely on factual considerations regarding Equitable Life’s failure to make him aware of the unfavourable terms in the bonus plans or that he had accepted the same.

Key Takeaways for Employers

  • Generally speaking, a notice period of 24 months constitutes the high end of the appropriate range of the reasonable notice period for long-term employees;
  • Exceptional circumstances may warrant notice periods in excess of 24 months;
  • Employment contracts with carefully drafted termination provisions may help an employer avoid the uncertainty of a court determining the appropriate reasonable notice period at common law for a long-service employee; and
  • Bring unfavourable terms of bonus plans (and employment contracts for that matter) to an employee’s attention, and document their acknowledgement and understanding of the same.

If you have any questions with respect to the decision or how to plan for and manage the dismissal of a long-service employee, please contact any member of the National Labour & Employment Group at McCarthy’s.

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