Ontario Court of Appeal reins-in lengthy severance award

Labour and employment litigator Michael Stitz writes that there’s a lesson for employers in a recent Ontario Court of Appeal decision

Ontario Court of Appeal reins-in lengthy severance award
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A recent Ontario Court of Appeal case highlights the costly and unpredictable nature of wrongful dismissal litigation and wisdom of employers instituting contracts that limit liability at the point of hire or when a significant change to an employee’s status occurs.

Whether it is in social circles, boardrooms or negotiations between legal counsel, 24 months is generally regarded as the high water-mark when it comes to severance packages and determining common-law reasonable-notice awards for departing employees when they litigate over a wrongful dismissal.

In recent years courts have shown an increased willingness to exceed the so called ‘cap’ where exceptional circumstances are found. This is often the case where there is a long-time employee who’s closer to 65, aka a ‘lifer.’

This has become troubling for employers with an aging workforce that is not inclined to retire or resign. In that scenario, with no mandatory retirement, a legitimate restructure or negotiated departure is often the only solution (and a costly one). When you consider many employers do not have employment contracts with their employees that limit their liability at the point of termination; you have a financial nightmare waiting to happen.

Employees are becoming more sophisticated and resources easier to navigate in determining if an offer is fair. Restructuring, packaging out and the like are all informed by what courts are awarding. While somewhat predictable, these legal concepts are fluid. Certainly, this is the case when determining ‘exceptional circumstance’ on a case-by-case basis when dealing with lengthy reasonable notice awards.

In Dawe v. The Equitable Life Insurance Company of Canada, 2019 ONCA 512, the Ontario Court of Appeal overturned the decision of Justice Donald Gordon in which a 62-year-old senior vice-president with The Equitable Life Insurance Company of Canada who had 37 years of service was awarded 30 months damages.

In reviewing the decision, the Court of Appeal did not find exceptional circumstances to exist or the motions judge to have based the decision on accepted principles. Consideration of the individual and societies perspective on retirement and age were improperly considered.

In this case, the motion judge took a different approach over previous decisions that in large part consider the existence of exceptional circumstances, focusing rather on the abolition of mandatory retirement and its impact on determining an appropriate award in the context of the Plaintiff’s retirement plans. His conclusion that a notice period of 30 months was appropriate did not rest on the presence of exceptional circumstances. Instead, it was based on his perception of broader social factors.

The motion judge was aware of this court’s jurisprudence on damages for wrongful dismissal and referred to the leading decision of Lowndes v. Summit Ford Sales Ltd. Writing for the court, Justice Eleanore Cronk observed in Lowndes that the determination of what constitutes reasonable notice is “case-specific” and, while there is “no absolute upper limit or ‘cap’ on what constitutes reasonable notice, generally only exceptional circumstances will support a base notice period in excess of 24 months.”

In Dawe, The motion judge considered Dawe “had made no decision as to when retirement would occur,” adding that he was committed to working at Equitable Life until “at least age 65” and “it was more likely he would have worked there to a later age than an earlier one.”

In finding that Dawe was entitled to 30 months’ notice, the motion judge ensured that Dawe would be fully compensated just beyond his 65th birthday.

The motion judge’s approach to reasonable notice was in error. First, he should have applied the Lowndes line of authority instead of relying on his own perceptions of the “change in society’s attitude regarding retirement.” There was no basis in the record for making such sweeping statements.

Furthermore, recent authorities from the court have not altered the approach to determining reasonable notice that does not include a consideration of the end of mandatory retirement in Ontario. Ontario courts have noted that absent a fixed term contract and/or liquidated-damages clause providing for the same, an employer does not guarantee employment to retirement. The motion judge’s reasons suggest that he viewed this case as being “tantamount to forced retirement”. However, the record was clear that Dawe initiated the process of his own exodus from Equitable Life. He requested an “exit strategy.” The Court of Appeal found this factor ought to have weighed against a finding of “exceptional circumstances.”

It is unclear if this decision will have any material impact on those seeking awards above 24 months or whether the problem simply stemmed from the manner the lawsuit was framed and drafted, individual circumstances or the manner the appeal was argued and the motions judge’s decision written.

It is fair to assume that there exists an informal presumptive cap of 24 months absent exceptional circumstances. That said, senior employees with hefty compensation packages still represent a significant cohort that will continue to test the waters and likely exceed 24 months if litigated through summary hearings or trials. In addition, even if capped, the exposure is still significant and employers may have no incentive to litigate these cases when costs are largely set in stone at a minimum of 24 months compensation plus legal costs.

This case reflects that retirement considerations and related social realities do not represent exceptional circumstances in the manner they were framed in this case.

Michael Stitz is an employment and labour litigation lawyer and owner of Stitz Litigation Professional Corporation, a Toronto-based law firm.

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