Court of Appeal decision reduces notice period but keeps bonus

The issues of common law reasonable notice for long serving senior employees

Court of Appeal decision reduces notice period but keeps bonus

The issues of common law reasonable notice for long serving senior employees and bonus entitlement through that notice period can be thorny ones for employers. Surprisingly, there is not a standard practice for awarding common law notice and the courts will look at a number of factors to determine the appropriate notice where the parties are not bound by termination provisions in an employment contract. Similarly, workplace parties often end up disputing entitlement to bonuses during that notice period – employers begrudge paying bonuses to employees who are no longer employed and contributing to the profitability of the company while employees argue that if they had received actual notice rather than severance payments they would have been in a position to contribute and should therefore receive their bonus through the notice period.

These were the issues facing a Judge in a summary judgment motion in Dawe v. Equitable Life Insurance Company of Canada. Both parties sought summary judgment of these two issues and agreed that claims for moral and punitive damages would proceed to a full trial.

The facts: Mr. Dawe was dismissed as Senior Vice President after 37 years of service at age 62. He claimed he had planned to work until age 65 and sought 30 months’ reasonable notice which would bring him to his 65th birthday. He also argued that his bonus entitlements under various plans should be included as part of the 30 month notice period given they were integral components of his compensation and the language in the various plans restricting his entitlement at the time of dismissal were ambiguous and/or had not been brought to his attention by the Company when introduced in 2006.

The Company argued that the appropriate period of common law notice was 24 months, which was offered to the plaintiff at the time of his dismissal. Equitable Life argued that there were no extenuating circumstances to support an award higher than two (2) years. The Company also argued that the language in the bonus plans were both unambiguous and brought to the plaintiff’s attention many time between their introduction in 2006 and the time of his dismissal. The plaintiff’s bonus entitlement in the last year of his employment was almost $400,000.00 so there was a lot riding on the judge’s decision for both parties.

The motions judge sided with the plaintiff on both issues. Relying on “societal” changes in attitude concerning retirement (for which there was no evidence tendered at the motion) and the end of mandatory retirement in Ontario in awarding 30 months’ notice, his Honour determined that prior appellate authority was no longer good law. In fact, the motions judge said he would have awarded 36 months had the plaintiff not been asking for only 30! The Court of Appeal disagreed. In holding that its 2006 decision in Lowndes v. Summit Ford Sales Ltd.that only exceptional circumstances will support a notice period in excess of 24 months was still good law, the Court of Appeal reduced the notice period to 24 months in favour of the Company. It found that the motion judge erred in relying on both the end of mandatory retirement (which had been introduced at the time of the Lowndes decision) and the motion judge’s own “societal change in attitude” towards retirement in reducing the notice period for Mr. Dawe.

On the issue of bonus entitlement, the Court of Appeal determined that the language limiting entitlement to bonus payments during the notice period was clear and unambiguous and as such, the motions judge was again in error. However, the Court of Appeal agreed that the plaintiff had not accepted the unilateral language inserted into the 2006 plans because the Court was not satisfied he had knowledge of same or that the specific language had been brought to his attention (despite his senior position and his role in the terminations of other employees where the language in question formed part of the severance offer).

The case exemplifies the difficulties for employers in creating enforceable limiting provisions in bonus plans. Our courts require not only clear language limiting entitlement but also clear acceptance/knowledge of same by the employee in question. Had the Company required a sign off/acknowledgement for the bonus plans’ terms when provided to the plaintiff, they could have demonstrated that the plaintiff had agreed to the terms the Company was now relying on. Alternatively, having the language in the employment agreement itself, as was the case in the Kielb v. National Money Mart decision argued successfully by CCP, the chances of enforcing the limiting language would have improved dramatically.

CCP can assist employers in drafting enforceable bonus limiting language in bonus plans and employment agreements as well as providing expert advice in how to implement bonus plans to increase the likelihood of defending these terms before the Courts. Click HERE for our team members who can assist you with all your employment contract issues.

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