What is fair, reasonable notice?
Long ago, the concept of reasonable notice of a termination evolved in the courts. It was held that it was unfair for employees, where there was no just cause for their termination, to lose their means of support without any notice whatsoever. If there was no egregious behaviour warranting an immediate termination of the relationship, employees should be forewarned that the plug was about to be pulled. In the 1930s, it was thought that nobody was entitled to more than six months’ notice. If you provided working notice, “Jack, you’re finished in six months”, no pay in lieu of that notice needed to be provided.
By the 1960s the law had evolved further. Notice was to be assessed primarily based on an employee’s age, level of responsibility and seniority. It eventually evolved that the maximum notice anyone could receive was 24 months.
A wrongful dismissal suit, most of the time, is simply an employee claiming that based on their age, seniority and level of responsibility they should have been given more advance notice of the loss of their income or pay in lieu of that notice.
For that reason, when an employee was walked out the door and working notice is denied, a judge will try to put an employee in the same position that they would have been in if they had received working notice. This includes damages for the loss of all taxable benefits including salary, commission, health benefits and pension entitlements.
The pension entitlements can be extremely important. Let’s take the case of Jack. After 31 years of service, at the age of 53, Jack was terminated as a result of a restructuring. Jack participated in a defined benefits pension plan. It was one of those good ones where you get a guaranteed payment every month. The problem was that Jack was 16.8 months short of the date upon which he could have retired without any reduction in his pension.
Although most defined benefit pension plans allow you to leave earlier than the full retirement date, your monthly pension cheque is reduced from what it would have been for having retired early.
The employer provided Jack his Employment Standards Act
minimums and nothing more. Jack hired an actuary who assessed that it would take $65,000, invested and providing a moderate return year by year, to compensate Jack for the fact that his pension cheque was now less than it should have been if he had been provided with working notice.
Clearly, after 31 years of service Jack was entitled to more than 17 months’ notice, especially since he happened to be in a lower management position. The court, in fact, decided that Jack was entitled to 22 months’ pay in lieu of notice, more than enough to get him past his unreduced retirement date.
Not surprisingly, the judge awarded Jack pay in lieu of notice as well as the $65,000 loss arising from the pension issue.
Although Jack’s case is a recent one, it is not new law. The Court of Appeal of Ontario long ago decided that employees had to be made whole, as if they were at work throughout the notice period to which they were entitled.
Employers contemplating terminating a senior employee have to be very careful if they have a defined benefit pension plan. They should always pause to find out when any important dates for pension entitlement are for the employee.
The fact is that it would have cost Jack’s employer far less to simply have put him on some sort of paid leave of absence or salary continuance and kept him in the pension plan for 17 months rather than the $65,000 they ended up paying. The cost of their contributions to the defined benefit pension plan over 17 months would have been far less.
For employees, if you are going to engage in the sketchy enterprise of assessing your own severance package without legal advice, at least remember to ask yourself, “Am I getting everything I would have had if they had provided me with reasonable working notice?”
Ed Canning practices labour and employment law with Ross & McBride LLP, in Hamilton, representing both employers and employees. You can email him at firstname.lastname@example.org