Accounting for Law

Littler LLP: Rhonda Levy, George Vassos

Decisions involving termination of long-term employees should concern employers

Employers considering terminating long-term employees in Canada should be aware of two relatively recent decisions. 

In one case, Dawe, 2018 ONSC 3130, the terminated employee, age 62, was a highly paid Senior Vice President employed for 37 years when terminated.  In the second case, Bailey, 2018 BCSC 235, the 60-year-old employee had held a sales position for 17 years when terminated.  These cases suggest that some courts believe that long-term employees of advanced age should not be terminated without being provided the financial equivalent of what they would have received had they been given reasonable notice. These courts appear to be willing to substantially extend the usual cap on reasonable notice periods or use damage awards to maneuver around enforceable termination clauses.

Notice of Termination Under Canadian Law

Canadian employees are entitled at common law to reasonable notice of termination where there is no just cause for termination.  Canadian courts generally consider 24 months to be the upper limit on common law reasonable notice (absent special circumstances and absent an enforceable termination clause).  The Dawe case indicates that the courts may consider the traditional 24-month upper limit inappropriate in cases where a long-term employee is of advanced age upon termination and comparable employment opportunities are unavailable. 

In Dawe, the employee claimed he intended to work for at least another three years.  The Court noted that in such circumstances, “Where there is no comparable employment available, termination without cause is tantamount to a forced retirement.” In the Court’s view, Dawe should have been allowed “to retire on his own terms.” The Court opined, “With no comparable employment opportunities, in particular, I would have felt this case warranted a minimum 36 month notice period.”  (Emphasis added)  However, it awarded Dawe only 30 months total compensation as that was what he sought in his claim.  An appeal of the Dawe decision will be heard on February 4, 2019. 

Termination Clauses and Ancillary Damages under Canadian Law

Traditionally, employers have been able to protect themselves from having to make significant payments to employees upon termination without cause by ensuring that their employment contracts contain enforceable termination clauses providing for minimum entitlements under employment standards legislation.  The Baileycase suggests that may not always be the case. 

In Bailey, the employee experienced a health issue that made him unable to work. He provided his employer with a note from his physician in support of this assertion.  His claim for short-term disability was denied. While he was in the process of appealing that decision, the employer terminated him, alleging that he had abandoned his employment and was therefore owed nothing.  The Court rejected this argument and determined that Bailey had been wrongfully dismissed.  Although it acknowledged that the termination clause in Bailey’s employment agreement was enforceable and restricted his entitlement to eight weeks’ notice (the minimum under the applicable statute), the Court noted:

[The employer] is part of a large corporate group with over 22,000 employees in its operations in the United States and Canada.  It has chosen to impose quite ungenerous terms of dismissal on its employees.  Because of its contract terms, [the employer] is in a position of being able to make a calculated choice to treat employees abusively when firing them, as employees will seldom be willing to risk the cost of litigation. 

Noting that, “Aggravated damages are compensatory based on foreseeable injury for breach of the duty of good faith and fairness,” the Court stated, “[The employer’s] manner of termination of Mr. Bailey breached the employer’s duty of good faith and fair dealing in a whole host of ways…” and awarded him $25,000 in aggravated damages.  In addition, the employee was awarded punitive damages of $110,000, which the Court characterized as “a meaningful award” that would “serve as a deterrent to [the employer] so that it does not choose to treat its employees so maliciously and callously as it did in this case.” The Court noted that although the damage awards were significant, they were, “…still less than what [the employer] would have likely been required to pay in general damages if the common law regarding implied reasonable notice applied…” The Bailey decision was appealed, but a settlement was reached before hearing. 

What are the Implications for Employers?

The Dawe case creates a problem for employers in that they may no longer be able to use the 24-month cap as part of a negotiating strategy when attempting to settle wrongful dismissal claims made by terminated employees, particularly long-term, senior management employees of advanced age without comparable opportunities.

The Bailey case mandates, as has a long line of cases, that employers treat employees fairly when terminating them.  Upon evidence of callous, malicious or abusive employer behaviour at the time of termination, courts may use punitive or aggravated damage awards to provide significant funds to the employee, even when there is an enforceable termination clause limiting the employee’s entitlement to the minimum under employment standards legislation.  Moreover, as was the case in Bailey, the award may be almost as significant as a reasonable notice award at common law. 

Bailey also indicates that, even in the absence of inappropriate employer behaviour, a court may look askance at a termination clause that limits entitlements to statutory minimums when the employee has worked at an organization for a long period of time.  Accordingly, while an employer should attempt to limit an employee’s entitlements upon termination by including an enforceable termination clause in the employment agreement, it should consider providing each employee something more “generous” than the minimum entitlement under employment standards legislation. Any excess beyond the minimum then forms a proper basis for a clause requiring the employee to sign a release of claims.

The Bottom Line

Treat employees fairly on termination, and for all employees, use employment agreements that contain enforceable termination clauses, which provide more than statutory minimums. 

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