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Posts tagged: reasonable notice

Wrongful Dismissal Update: Recent Case Law Increases Legal Uncertainty

By , January 8, 2019 10:04 am

Recently, it has become increasingly difficult for employment lawyers to assess an employer’s potential legal liability in connection with an employee termination. The law is pretty straightforward but predicting how a judge will apply the law to a specific termination is riddled with legal uncertainty.

A recent case involving a 54-year-old senior executive who earned about $275 000 a year who was terminated for just cause after 11 years service is a good case in point.

The Issues

The judge in this case decided three main issues; namely: (i) did Keddco Mfg. have just cause to terminate Scott Ruston’s employment; (ii) if not, how much notice of termination should he have received; and (iii) was Mr. Ruston entitled to any punitive damages or aggravated damages because of the way Keddco treated him?

The Law

When deciding whether an employer has just cause to terminate an employee and avoid paying termination pay, a trial judge is required to apply the test set out by the Supreme Court of Canada (the “SCC”) in a well-known 2001 case, as interpreted by the Ontario Court of Appeal in another well-known 2004 case.

If an employer cannot prove just cause, then the employee is entitled to receive reasonable notice of termination (or pay in lieu of this notice) unless the employee signed an employment contract with an enforceable termination clause. The test a judge applies to determine the appropriate reasonable notice period is set out in a 1960 court case.

Since the SCC clarified the law in 2008, trial judges have had jurisdiction to award employees punitive and aggravated damages.

The Decision

  1. Just cause: It is generally very difficult for an employer to prove just cause – especially for a long service employee with no prior discipline like Mr. Ruston. Alleging just cause and then leading very little, if any, evidence at trial really annoys judges. I believe unsubstantiated allegations of just cause results in longer reasonable notice periods, aggravated damages in some cases, and a higher cost award against the employer.
  2. Reasonable notice: Although the Ontario Court of Appeal has specifically directed trial judges not to apply the “one month notice per year of service” rule of thumb when determining the reasonable notice period, this rule of thumb has been a good place to start for employees like Mr. Ruston until the last couple of years. In this case, after an 11-day trial the judge concluded Keddco should have provided an 11-year employee with 19 months’ notice of termination or about 1.7 months per year of service.
  3. Punitive damages & aggravated damages: When the SCC issued its 2008 decision on punitive damages and aggravated damages, most employment lawyers believed it closed the door on these types of damages except in extraordinary cases. Now, however, there is much uncertainty as to whether a particular set of facts will attract punitive and/or aggravated damages. In this case, the judge awarded the employee $100 000 in punitive damages for a number of reasons including the fact that Keddco intimidated Mr. Ruston in the termination meeting,  threatened to sue Mr. Ruston for fraud, and led no evidence at trial to substantiate the fraud allegations. Keddco was also ordered to pay $25 000 in moral damages because, among other things, the employer failed to be candid in the termination interview as far as the reasons for his termination were concerned, made unsubstantiated allegations of fraud, and knew the fraud allegations would be very stressful for Mr. Ruston.

To my knowledge, this case has not been appealed.

Lessons to be Learned:

  1. Every employee should be required to sign an employment contract with a legally enforceable termination clause. In this case, the notice period could have been limited to 8 weeks in a contract, decreasing legal uncertainty. Mr. Ruston’s bonus accounted for about 41% of his total annual compensation. The termination clause can also restrict (or eliminate) the amount of bonus an employee is entitled to receive during the notice period, decreasing uncertainty. This kind of clause could have saved Keddco hundreds of thousands of dollars.
  2. An employer should not allege just cause unless it plans to lead credible evidence to substantiate the allegations. If just cause had not been alleged in this case, then the wrongful dismissal damages could probably have been decided by way of a summary judgment; not an 11 day trial. My guess is that if the parties cannot agree on legal costs, Keddco will be ordered to pay Mr. Ruston at least $100 000 in legal costs – although the cost order could be much larger.

  3. An employer should act in good faith when terminating a person’s employment. This should eliminate legal uncertainty and risk that a judge will order the employer to pay any punitive and/or aggravated damages, which totalled $125 000 in this case.  

For almost 30 years, Doug MacLeod of the MacLeod Law Firm has been advising employers on all aspects of the employment relationship. If you have any questions, you can contact him directly at 416-317-9894 or at [email protected]

The material and information in this blog and this website are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this blog or its links. No person should act or refrain from acting in reliance on any information found on this website or blog. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.

Disputes Over Bonus Entitlements: Two Decisions on the “Active Employment” Requirement for Bonus Payouts

By , November 27, 2018 10:23 am

Where an employee is terminated or resigns, what is the effect of a bonus plan that requires the employee to be “actively employed” at the time the bonus is paid out in order to receive it?  The Ontario Court of Appeal released two decisions, only one year apart, that reached seemingly opposite conclusions to this question.

2016 Case – Employee Entitled to Bonus after Termination

Mr. Paquette worked for his employer for 14 years, until he was terminated without cause. In each of the 4 years prior to his termination, he received bonuses and these bonuses were an integral part of his compensation. Upon termination, Mr. Paquette brought an action for wrongful dismissal and was awarded 17 months’ pay in lieu of reasonable notice. Damages were based on his salary and benefits but excluded any amount for the loss of his bonus through the reasonable notice period. During this notice period, Mr. Paquette would have been entitled to 2 more bonus payments had he remained employed. The bonus plan that Mr. Paquette participated in required that he be “actively employed” on the date of the bonus payout. Since the lower court denied Mr. Paquette’s claim for compensation for lost bonuses, Mr. Paquette appealed.

Two Step Approach

The Court of Appeal found that the lower court erred by focusing too narrowly on whether the term “active employment” was ambiguous. Instead, this Court followed a two-step approach from a previous case. The court reiterated that the proper way to analyze an employee’s claim is:

  1. consider the employee’s common law rights to damage for breach of contract; then
  2. consider whether wording of the bonus plan unambiguously alters the employee’s common law rights.

The Court found that the the wording of Mr. Paquette’s bonus plan did not limit his right to receive compensation for his bonus during the reasonable notice period. Thus, Mr. Paquette had the contractual right to work and to be paid his salary and receive benefits throughout the entire notice period. The only reason Mr. Paquette was not “actively employed” on the bonus payout dates was because the employers breached his contract by terminating him without proper notice.

The Court found that a bonus plan requiring an employee to be actively employed when the bonus is paid is not sufficient, on its own, to limit entitlement to a bonus for an employee terminated without cause.

2017 Case – Employee Forfeited Bonus after Resignation

Mr. Bois worked for his employer for approximately 14 years, until he resigned in 2011. In both 2009 and 2010, he was awarded bonuses under his employer’s variable incentive plan (“VIP”). The VIP stated that a bonus awarded for a year was payable in equal installments over the 3 years following the calendar year for which the bonus was awarded.

The 2007 VIP stated that in the event that an employee’s “continuous Active Employment” terminates, the employee will immediately forfeit any entitlement to payments under this plan. Similar language was presented to Mr. Bois in a 2010 letter and an updated VIP in 2011. When Mr. Bois resigned, it was before the payout dates for the final installment of his 2009 bonus, and the two installments of his 2010 bonus. These future installments totalled nearly $115,000.

Parties May Contractually Agree to When Bonus was Payable

The lower court judge concluded that the VIP required an employee to be actively employed with the company on the date of a bonus installment pay-out in order to receive it. Therefore, if an employee resigned before that incentive payment date, they would not be eligible to receive payment. Further, the fact that Mr. Bois had notice of the active employment eligibility requirement on multiple occasions contributed to the conclusion that he ought to have known that he was forfeiting his entitlement to the bonus upon resignation.

On appeal, the Court upheld the lower court judge’s decision. Further, Mr. Bois unsuccessfully relied on sections 11(5) and 13(1) of the Employment Standards Act (“ESA“) to argue that he was entitled to his bonus.

The Court of Appeal agreed with the lower court as well as previous cases that it was open to the parties to agree how and when any bonus was declared, earned, accrued, and would be payable. Further, bonus payments were found not to fall under “wages” as they are not regularly scheduled wage payments in s. 13(1). Therefore, The VIP’s requirement that an employee be actively employed at the time of a future pay-out was found not to violate the ESA.

Can these Decisions be Reconciled? Maybe

These two decisions seem to reach opposite conclusions. However, the underlying question in both cases is, what would the employee have received during the common law period of reasonable notice had he continued to work through that period?

The general rule is that when an employer dismisses an employee without reasonable notice of termination, the employee is entitled to compensation for all lost pay during the appropriate notice period. However, bonus plans with language stating that employees must be “actively employed” to receive their bonus is meant to avoid having to pay out bonuses to terminated employees.

The Paquette case suggests that total compensation is generally the rule, especially where the bonus is an integral part of the employee’s compensation. Bois clarifies that the employers and employees have discretion to agree to a bonus plan which limits the employee’s common law right to have bonus awards included in their wrongful dismissal damages. There are some key differences between the two cases that may contribute to the different conclusions. For instance, Mr. Paquette was terminated without cause while Mr. Bois resigned. Further, Mr. Bois was made aware of the limiting provisions in his VIP on several occasions.

What does all this mean? Where a bonus plan exists, its terms will often be important in determining the bonus component of a wrongful dismissal damages award. For more information on whether your bonus plan effectively limits an employee’s common law right to bonus compensation in wrongful dismissal damages, you may contact an employment lawyer at MacLeod Law Firm. You can reach us at [email protected] or 647-204-8107.

The material and information in this blog and this website are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this blog or its links. No person should act or refrain from acting in reliance on any information found on this website or blog. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.

Valuing Employee Pensions in Wrongful Dismissal Cases: A Boring but Important Issue

By , November 6, 2018 10:18 am

A long service, older worker is terminated. Under the terms of the individual’s pension plan, the employer is not permitted to continue his participation in the pension plan. So the question arises: when calculating wrongful dismissal damages, how do you calculate damages for pension benefits?

A recent case considered this question.

The Facts

Imperial Oil Ltd. terminated Donald Dussault’s employment after 39 years of service when he was 63 years old. Imperial Oil immediately discontinued Mr. Dussault’s participation in its pension plan and Mr. Dussault decided to start collecting his pension benefits.

A judge concluded that Mr. Dussault was entitled to compensation in lieu of 26 months’ notice of termination. One component of his compensation was his pension.

Commuted Value of Pension

Imperial Oil called an expert witness who concluded that Mr. Dussault’s pension was worth $189,117 more than if Imperial Oil had kept him in its pension plan for the 26-month period after his termination. Mr. Dussault did not call an expert witness of his own on this issue.

Employee Claim for Damages for the Employer’s Contributions to his Pension During Notice Period is Denied

Since Mr. Dussault would have been enrolled in the pension plan if Imperial Oil had provided him with 26 months’ notice of termination, and since Imperial Oil would have made contributions to his pension during this notice period, Mr. Dussault sought damages equal to these contributions. The court concluded that the value of his pension was higher than if Imperial Oil had continued paying into his pension plan until the end of the 26-month notice period. However, the court refused to order the requested damages because Mr. Dussault could not prove any damages.

Employer Claim to Reduce Employee Damage Award by the Value of the Pension Benefits he Received During the Notice Period is Denied

Mr. Dussault collected pension benefits during the 26-month notice period. Imperial Oil asked the judge to deduct this amount from Mr. Dussault’s wrongful dismissal damages. However, the judge refused to do, concluding that pension benefits are a benefit employees have earned for their years of service and are not meant to be an indemnity for the loss of employment.

Lessons to Be Learned

  1. Every employer should require all employees to sign an employment contract with a legally enforceable termination clause. In this case, Imperial Oil could have reduced a 26-month common law reasonable notice period to as little as 8 weeks’  termination pay and 26 weeks’ severance pay. This is another case where a judge concluded that the common law notice period was more than 24 months.
  2. For long-service employees who are entitled to a lengthy common law reasonable notice period, damages for a reduced or an enhanced pension can be significant. I have represented clients who have not taken pension benefits during the notice period and the value of lost pension value (as opposed to an enhanced pension value in this case) has been significant.
  3. When valuating pension benefits, it is important to retain an expert. A slight change in actuarial assumptions can result in significant differences in a pension’s valuation.

For almost 30 years, Doug MacLeod of the MacLeod Law Firm has been advising employers on all aspects of the employment relationship. If you have any questions, you can contact him directly at 416-317-9894 or at [email protected]

The material and information in this blog and this website are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this blog or its links. No person should act or refrain from acting in reliance on any information found on this website or blog. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.

Another Example of a Senior Executive Being Awarded More Damages Than Expected

By , August 21, 2018 10:45 am

A recent case decided by the Ontario Court of Appeal demonstrates yet again that relying on informal understandings with an employee about their rights on termination is a very bad idea.

In this case, a 51-year-old President was terminated after a little more than 11 years of service.

Judge Concludes 51-year-old Employee with 11 Years Service is Entitled to 17 Months Notice of Termination

The employee did not sign an employment contract so he was entitled to reasonable notice of termination. A well drafted termination clause would have limited the employer’s exposure to 8 weeks notice of termination. Without it, the trial judge concluded he was entitled to 17 months common law notice of termination.

Court of Appeal Concludes the Employee was Entitled to a Bonus Despite the Employer’s Past Practice

The employee claimed he was entitled to a bonus during the 17-month notice period. The trial judge disagreed. However, the Court of Appeal overturned the trial judge’s decision on this issue. The Appeal Court concluded that even though the employer’s practice was not to pay a terminated employee a bonus, he was nevertheless entitled to a $166,945 bonus. In this regard, the Court restated the law as follows:

  1. Was the bonus an integral part of his compensation package, triggering a common law entitlement to damages in lieu of bonus?; and
  2. If so, is there any language in the bonus plan that would restrict his common law entitlement to damages in lieu of a bonus over the notice period?

Lessons to be Learned:

  1. All employees, but especially high paid executives, should be required to sign an employment agreement with a termination clause. Reasonable notice periods for older employees seem to be going up and often exceed one month per year of service. 
  2. All variable compensation plans should clearly set out an employee’s rights under the plan when his or her employment is terminated. There are several recent Appeal Court decisions which have strictly read contractual language against the employer. These plans should be reviewed by an employment lawyer regularly.

For over 30 years, Doug MacLeod of the MacLeod Law Firm has been advising employers on all aspects of the employment relationship. If you have any questions, you can contact him directly at 416-317-9894 or at [email protected]

The material and information in this blog and this website are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this blog or its links. No person should act or refrain from acting in reliance on any information found on this website or blog. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.

Employment Law Update: Mid-Year Report

By , June 26, 2018 3:34 pm

In this blog, as we enter the dog days of summer, I will review five current trends and developments in Ontario’s employment laws.

1.  A New Sheriff is in Town: The PC party has replaced the Liberal party as Ontario’s governing party

I anticipate this change in government will result in less government regulation of Ontario’s workplaces. During the election campaign, Doug Ford promised not to increase the minimum wage from $ 14.00 to $ 15.00 on January 1, 2019. I will let you know in a future blog whether he keeps this promise.

In the meantime, two laws the Liberal government introduced are scheduled to take effect on July 1, 2018 and January 1, 2019.

One law changes the way public holiday is calculated. Bill 148 changed the way public holiday pay was calculated, however, effective July 1, 2018, public holiday pay will once again be calculated using the formula that applied prior to the coming into force of Bill 148. In other words, the employee’s public holiday pay for a given public holiday will be equal to the total amount of regular wages earned and vacation pay payable to the employee in the four work weeks before the work week in which the public holiday occurred, divided by 20.

The second law will require an employer to provide salary information to job applicants and prohibit employers from asking job applicants about their salary history. In particular, on April 26, 2018 the  Pay Transparency Act was passed. Unless Doug Ford repeals this law, on January 1, 2019 all employers will be prohibited from either directly/ indirectly asking candidates about past compensation, they will be required to post a compensation rate or range for all publicly advertised job postings, and they will be prohibited from reprising against employees who make inquiries about compensation practices.

Last year, the Liberal government announced it was hiring 175 employees to make sure Ontario employers are complying with the Employment Standards Act. Many of these people have now been hired, and trained and are conducting inspections of Ontario’s workplaces. The government has stated it intends to inspect 1 in 10 Ontario workplaces each year.

For more information on how we help employers comply with the Employment Standards Act, click here

2.Cannabis Use Will Be Legal On October 17, 2018

The federal government has announced that cannabis use will be legal on October 17, 2018. In the meantime, the Ontario government must decide how to regulate the sale of cannabis in Ontario. Employers need to decide whether or not to introduce or amend a drug and alcohol use policy. An employee who is impaired at work can be a health and safety problem particularly if the employee is working in a safety sensitive position. Drug testing to address this issue is, however, an extremely controversial and complex legal issue. In fact, a number of drug testing cases have been appealed to the Supreme Court of Canada.

To assist employers with this issue, we can draft a drug use policy for a fixed fee.

3. It Is Increasingly Difficult To Predict Whether The Courts Will Enforce A Termination Clause

I have been writing about this issue for a number of years. Despite numerous Ontario court cases including several Court of Appeal decisions I still cannot predict with any degree of certainty whether a termination clause will be enforced. In 2017, the Court of Appeal in North v. Metaswitch Networks Corp. basically overturned its 2016 decision in Oudin v. Centre Francophone de Toronto on the same issue. In the 2018 decision in Nemeth v Hatch Ltd, the Court of Appeal  found that the following clause was enforceable:The Company’s policy with respect to termination is that employment may be terminated by either party with notice in writing. The notice period shall amount to one week per year of service with a minimum of four weeks or the notice required by the applicable labour legislation. Most employment lawyers including myself were surprised by this decision.

We will review and draft needed changes to your employment contract including the termination clause for a fixed fee. For more information on our employment contract service, click here

4. Notice Period For Older Senior Managers May Be Trending Upwards

Since 1960, Ontario judges have been applying the Bardal factors when determining the appropriate reasonable notice period in wrongful dismissal cases. The age of an employee and the employee’s position are two factors that are taken into account.

A couple of 2018 decisions suggest that Ontario judges may be increasing the notice period for older, senior, relatively short service employees. In Chambers v. Global Traffic Technologies Canada Inc a 57 year old general manager with 2.5 years service was awarded 9 months pay in lieu of reasonable notice. In Hale v. Innova Medical Ophthalmics Inc. a  59 year old President with 6 years and 8 months of service was awarded 18 months termination pay. To reduce the litigation risk associated it is a good idea to require these kinds of employees to sign an employment contract with a termination clause – if you can figure out how to draft an enforceable termination clause!

5. The Cost Of Health & Safety Violations Is Likely Going Up

The Ministry of Labour investigates most “critical injuries” as that term is defined under Ontario’s Occupational Health & Safety Act (“OHSA”) and the Ministry often charges an employer for a violation of OHSA in connection with such an accident. Fines for relatively minor injuries often exceed $ 50 000. On December 17, 2017,  the maximum fine for a breach of OHSA increased from $ 500 000 to $ 1 500 000. The Ontario Court of Appeal has stated that deterrence and the size of an employer are two factors that trial judges should take into account when determining fines under OHSA. In the future, I therefore expect the Ministry of Labour will be looking for larger fines from large profitable employers when negotiating plea bargains.

We help employers comply with OHSA. For more information on our fixed fee service, click here

For 30 years, Doug MacLeod of the MacLeod Law Firm has been advising employers on all aspects of the employment relationship. If you have any questions, you can contact him directly at 416 317-9894 or at [email protected]

The material and information in this blog and this website are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this blog or its links. No person should act or refrain from acting in reliance on any information found on this website or blog. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.

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