During economic uncertainty, difficult decisions must be made, and terminations may become more commonplace. Even senior, high-level employees may be terminated despite long years of service with their employer. Generally, there would be a longer notice period for these types of employees. While there is no upper limit to the notice period, generally, a notice period longer than 24 months would only be appropriate in cases with exceptional circumstances. Some cases have increased the notice period to around 30 months of pay in lieu of reasonable notice.
In this post, we will discuss when a court may find that the reasonable notice period of an employee should extend beyond 24 months. In particular, we will examine a recent case, Milwid v. IBM Canada Ltd., 2023 ONSC 490, to illustrate how the court balances the factors in finding whether a case is exceptional to warrant a notice period longer than 24 months. The purpose of this post is to provide important takeaways for both employees and employers when it comes to determining a reasonable notice period after termination.
What are the factors for determining an employee’s reasonable notice period upon termination?
When an employee is terminated, they are entitled to reasonable notice or pay in lieu of notice. The length of the reasonable notice period varies on a case-by-case basis. For all employees, the court must consider the following factors for determining a reasonable notice period:
- The character of employment;
- The employee’s length of service;
- The employee’s age;
- The availability of similar employment, given the employee’s experience, training, and qualifications.
Longer reasonable notice periods in exceptional cases
There are further considerations to determine if the case is exceptional to warrant a longer notice period beyond 24 months.
The court can look into what would be considered similar employment for the terminated employee. The court can consider if the employee had a substantial annual compensation and if there was the possibility of receiving equity in their employer’s company. If these circumstances exist, then the court may extend the reasonable notice period, as it would be more difficult to find similar employment with the same compensation or possibility of receiving equity in the company.
The court can also look at whether or not the termination was essentially a forced retirement, given the age and circumstances of the employee. For example, if an employee is nearing the age of 60 and over and they worked for the employer for 20 to 30 or more years, then the court may find that a longer notice period is appropriate. The length of service of an employee is considered to affect their employability, especially if they have worked exclusively for their employer for a long time.
The character of employment is also a critical factor for determining whether or not a longer notice period is appropriate. Generally, a reasonable notice period longer than 24 months may apply in cases where the employee was an executive or had significant managerial duties.
Pandemic as a factor for length of reasonable notice period
The court can also consider economic circumstances when determining an employee’s reasonable notice period. In particular, a longer notice period may be appropriate if it is shown that there is an economic downturn generally or in a particular industry that would affect the employee’s ability to find similar employment. In other words, an economic downturn may mean that it takes longer for the employee to find similar employment, so the reasonable notice period would be extended to reflect this circumstance.
The court will look at the timing of the termination in relation to the pandemic as well. For instance, the courts have recognized that the pandemic, especially at the beginning stages of government shutdowns with great economic uncertainty, can affect the employee’s ability to find similar employment. However, in some cases where an employee was terminated right at the beginning of the pandemic (i.e. March 2020), the court found that it was not yet clear at that time of termination how the pandemic would affect the economy.
Senior management employee granted reasonable notice period of 26 months for pandemic layoff
The Milwid case can help illustrate how the factors apply in a particular scenario. In this case, the employee was granted 26 months of reasonable notice. While there is no upper limit to an employee’s reasonable notice period, cases beyond a 24-month notice period are considered exceptional cases.
In the Milwid case, the employee worked for the employer for 38 years after immigrating to Canada from South Africa. In South Africa, he also worked for the same company. He worked in a high-level managerial role for one of the company’s technical units for software and cloud solutions.
His annual salary was approximately $169,000, and his compensation included RSUs and a discretionary bonus. He was terminated in May 2020, near the pandemic’s start, and a portion of his RSUs would vest in November 2020. He was 62 at the time of termination.
The court found that a lengthier period of reasonable notice was appropriate. In particular, the court noted that the employee worked for the company for 38 years, most of his working life. Also, the company was his only employer since he immigrated to Canada. The court found that in situations such as this, the employee’s length of service would impact the employee’s employability, as a future employer may view that employee as set in their ways and not adaptable to change, making it more difficult for the employee to find a similar position. A longer notice period was therefore necessary. Also, given that the employee was 62 at the time of termination, this amounted to a forced retirement warranting a longer notice period.
Also, due to the employee’s specialized skills, a longer notice period was appropriate. The court found that the employee in this case had significant responsibilities in a specialized industry. His role was just below an executive, and he led a business unit. He also had significant responsibilities in developing and supporting the marketing department, including overseeing several managers.
An additional month was included in the reasonable notice period to recognize the impact of the pandemic on the ability to find similar employment, given the economic uncertainty in May 2020 when the employee was terminated.
Contact Toronto Employment Lawyer Paultte Haynes for Advice on Termination and Wrongful Dismissal Claims
Our experienced employment lawyer, Paulette Hanyes, at Haynes Law Firm in Toronto, can assist you with issues that arise from termination. For employees, our goal is to ensure that they understand their rights and receive maximum compensation in wrongful dismissal cases. Haynes Law Firm also assists employers in avoiding liabilities that may arise from terminations not permitted by the legislation. We are dedicated to finding the best resolution for you.
To book a consultation, please contact us online or by phone at 416-593-2731.