When mulling over topics for new articles, I sometimes presume I’ve previously covered a subject area. I’ve published about a thousand articles over the years so, really, what possible employment/labour topic could I not have addressed by now?
One item I seem to have missed, however, is the tendency for courts – in wrongful dismissal cases – to award extraordinarily lengthy “reasonable working notice” periods to short-service employees. This is a rather remarkable feature of Canadian employment law jurisprudence and one which never fails to surprise employers.
The Reasonable Working Notice Entitlement – The Basics
Under the Canadian common law, most employees are entitled to either reasonable working notice of termination or a payment in lieu of notice. The payment is commonly referred to as severance pay.
The determination of the appropriate notice or severance pay is no simple matter. To master how it is determined, a few associated concepts must be understood.
Calculating The Reasonable Working Notice Entitlement
Once an employer sorts through those concepts, the question remains of how to determine the common law entitlement to working notice or severance pay. Unfortunately, there is no magic formula.
With all these factors to consider, one might wonder how any employer can be expected to arrive at the correct amount of notice or severance pay. It is a delicate recipe that, if ruined, can land even a fair-minded employer in court facing a wrongful dismissal claim.
There is a widespread perception of a “rule of thumb” of one month of notice (or pay) per year of service. The courts, however, have shown no particular loyalty to that standard. The one measure the courts have generally adhered to is a rough upper limit of 24 months of notice or severance pay.
The calculation is based, primarily, on four factors; the employee’s age, length of service, type of position, and the availability of similar employment. It can also take into account other factors, such as the employer’s manner in conducting the termination, enticement from a former position, etc.
Court decisions indicate that an employee who is older, has a longer period of service, and holds a higher-ranking position will be awarded a greater amount of severance pay. (The amount might correlate to the 1 month per year ratio, but that’s perhaps more by accident than by intention.)
Short Service, Lengthy Notice
A real twist on the “reasonable working notice” calculation is that the months-of-notice-per-year-of- service ratio tends to be much higher at the shorter end of the service spectrum. Court cases indicate that employees with only a year or two of service might be awarded as much as 6 or even 9 months of notice or pay in lieu.
As shocking as this may sound, it’s true. Employers often presume that a short-service employee can be released with only a couple of weeks of working notice or pay in lieu but, as it turns out, that presumption is wildly inaccurate.
This trend was reflected in a 2018 B.C. Supreme Court decision, (Chapple v. Big Bay Landing Ltd.) in which Chapple sued for damages for wrongful dismissal. Chapple, 61, had been employed for only 26 months, as a resort manager.
B.C.’s Supreme Court re-stated the principle that proportionately longer notice periods are appropriate for employees terminated without cause within the first three years of their employment. I’ve surmised, over time, that the basis for this principle is that, having lost his/her employment after a short period of service, the person is going to have a substantially harder time finding a new job.
The Court in that decision cited one of my own decisions, Mitchell v. Paxton Forest Products Inc., in which my client, 53 years old and employed for only 23 months as a sales manager, was also awarded 9 months’ pay in lieu of notice. The employer unsuccessfully appealed that award (the Court of Appeal referred to the damages awarded to Mitchell as being at the very high end of the range).
The Moral of the Story
Given these sorts of (some would say) exorbitant awards of pay in lieu of notice to short-service employees, what is an employer to do? The simplest answer is to ensure that your hiring practices include the imposition of an employment agreement containing a valid, binding, enforceable termination formula.
That remains the single best method for employers to control their liabilities when it comes to terminating employees without cause. It also remains, after almost a quarter century of practicing labour and employment law) my #1 piece of advice to employers.
In both the Chapple and Mitchell instances, the employer could have imposed an employment agreement containing a termination formula entitling the employee to as little as 2 weeks’ working notice or pay in lieu (in compliance with their B.C. Employment Standards Act minimum entitlement).
I imagine that would have been a very attractive alternative to paying out 9 months’ pay (after an expensive court battle).
This item is provided for general information purposes only and is not intended to be relied upon as legal advice. Informed legal advice should always be obtained about your specific circumstances.