The Ontario Court of Appeal has reiterated that, barring exceptional circumstances, reasonable notice for dismissal without cause will not exceed 24 months. The Court partially overturned the lower court’s decision in Dawe v The Equitable Life Insurance Company of Canada, which also ruled on the enforceability of unilateral changes to the employer’s bonus plan.
Generally speaking, employers can anticipate that 24 months represents the “high end” of reasonable notice, even for employees at the senior executive level who are close to retirement. However, each case needs to be assessed individually since the particular circumstances could entail a longer notice entitlement.
Further, if the employer seeks to make changes to its bonus plan, or other key terms of employment, the employer must bring the changes to the employee’s attention. It is not sufficient to simply provide the employee with a copy of the new bonus plan (or other new terms). As a best practice, employers should do the following:
- provide a clear communication which outlines the key changes in the bonus plan (or other employment terms);
- provide opportunity for employees to ask questions or obtain more information;
- allow sufficient time for employees to consider the new plan;
- encourage employees to obtain independent legal and/or financial advice; and
- ask employees to indicate, in writing, whether they acknowledge and accept the new plan.
Employers should also keep in mind that valid consideration must be given for new contractual terms to be enforceable. Apart from enforceability issues, employers should proceed with caution when contemplating changes to bonus plans since such changes can constitute constructive dismissal. Legal advice should be sought to mitigate risk in this area.
Superior Court of Justice decision
Earlier this year, the Superior Court of Justice ruled that Mr. Dawe, a 62 year-old Senior Vice President with 37 years of service was entitled to 30 months of reasonable notice – see our post here. The Court also found that Mr. Dawe’s bonus, amounting to $380,000 in the year preceding his dismissal, formed an integral part of his compensation. Further, the Court found that Mr. Dawe had not accepted the unilateral changes that the employer made to its bonus plan in 2006, a number of years prior to his dismissal:
I am not persuaded simply providing a copy of the plan document meets this standard. In essence, providing only a copy of the document transfers the onus to the employee of finding any negative terms of employment. These are complex documents, drafted by lawyers, and most difficult to read and understand. In my view, an employer has a duty to inform the employee of all expected terms of employment. That is particularly the case here as Equitable Life had changed the method of establishing bonus plans and was attempting to introduce a forfeiture clause that was not part of the prior system.
Finally, the Court held that the provisions in the 2006 bonus plan designed to limit bonus entitlement upon the termination of employment were ambiguous and unenforceable.
Court of Appeal decision
The Court of Appeal partially overturned the lower court’s findings.
The Court reiterated that 24 months represents the “high end” of reasonable notice which will only be exceeded in exceptional circumstances. The Court stated that this period already reflects and rewards Mr. Dawe’s lengthy and loyal service. No circumstances warranted going beyond this upper threshold in Dawe. While the Court reaffirmed the “soft cap” that it commented on in other cases, it did not provide guidance as to what circumstances would warrant a notice period in excess of the cap. Accordingly, employers can expect that employees will continue to seek notice in excess of 24 months on the basis that exceptional circumstances apply in their situation.
The Court agreed that Mr. Dawe was entitled to his bonus but it did not fully accept the lower court’s reasons. The Court found that the terms of the bonus plan were sufficiently clear to exclude Mr. Dawe’s bonus entitlement. However, the Court agreed with the lower court that the employer could not enforce the terms of the 2006 bonus plan because it had not brought them to Mr. Dawe’s attention.
The Court noted that “A pre-condition to acceptance is knowledge of the changes.” The Court stated that while Mr. Dawe could have known about the unfavourable changes because of his role in the termination of employment of other employees, this does not mean he had actual knowledge of the change in his own employment contract. The employer’s failure to highlight this change to Mr. Dawe meant that he could not be deprived of his bonus entitlement.
- Many thanks to Jan Nato for his assistance with this article.