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Rule of Thumb for Notice Upon Termination? Don’t Count On It

Discipline and Dismissals | Employment Contracts

Myth-Buster: If you are an employer or an employee, you have probably heard that the general rule of thumb when it comes to entitlement to notice upon termination is one month per year of service. Is that really true? What does the law have to say? 

We regularly advise employers and employees that there is no rule of thumb, and that it is simply not the law. The assessment with respect to reasonable notice at common law is based on a variety of factors, of which length of service is just one. Sometimes, using that rule of thumb will result in a notice period that is far from what a court will prescribe. Cases involving senior level employees with short term employment are notoriously difficult to predict.

A recent case is a great example. 

In Mah v ARJ Investments Ltd., 2019 ONSC 4927, the employee sought summary judgment arising from the termination of his employment. He was a 56 year old senior executive who had been employed with the company for over four years. 

The first question was whether the employee had resigned or whether he was dismissed. Justice Dow found that he was dismissed and held that absent communication of a “clear and unequivocal” intention to resign, an employee will be found to have been dismissed. 

Given that his employment was terminated without cause, Justice Dow assessed the employee’s entitlement to reasonable notice upon termination. Considering all relevant factors, including the character of employment, the length of service, the age of the employee, and the availability of similar employment, Justice Dow found the appropriate notice period to be nine months. Thus, the so-called rule of thumb of one month per year of service was clearly not applicable — his entitlement was more than double that! 

In addition, Justice Dow commented on the duty to mitigate. Employees have the duty to mitigate their damages by making reasonable efforts to find comparable employment. If the employee fails to mitigate, then their entitlement to notice will generally be reduced. Here, there was evidence of the employee’s efforts to find alternative employment. He received an offer more than 13 months after dismissal, but it was at a somewhat lower salary and he declined it. The employer argued the notice period should be reduced as a result of the employee’s failure to mitigate and failure to provide evidence to confirm the list of places he sent his application to as well as not retaining an employment search firm until after he turned down the offer. Justice Dow held that the onus is on the employer to demonstrate failure to mitigate and the employee’s efforts “need only be reasonable and not perfect”. Justice Dow found there was no failure to mitigate.

Justice Dow also assessed the issue of his bonus entitlement. While no bonus was paid in 2013, $35,000 was paid for each of the years 2014, 2015 and 2016. The Ontario Court of Appeal in Andros v Colliers Macaulay Nicolls Inc, 2019 ONCA 679 held that a common law claim for a bonus exists “where the bonus was such an integral aspect” of the employee’s compensation, unless anything disentitles the employee to such payment. Following this decision, Justice Dow found that although it was stated to be discretionary in nature, it was an integral aspect of the employee’s compensation and there was no evidence disentitling him to such payment. Accordingly, he was entitled to the bonus payment he expected to receive in 2017 as well as pro rata share of the bonus for the duration of the notice period extended into 2018. 

Ultimately, the employee was awarded $157,782.33 in damages, $2,000 in pre-judgment interest, and partial indemnity costs of $27,500 in costs. 

This decision should serve as a warning to employers. Not having properly drafted contracts can result in significant liability. That is why we always advocate working with us to implement contracts; we can help ensure that you will be able to rely upon them when you need them.

Similarly, if you are an employee faced with a dismissal, you need to have the situation reviewed by a lawyer that specializes in Employment Law. Don’t assume that the company has treated you fairly, or that there is no point in fighting for what you deserve. We can help you get what you are entitled to.

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