Ceiling? What ceiling?

The courts, particularly in Ontario, have shown an unending thirst for fixing what they think is broken: evening the playing field in the contractual relations between employers and employees. The idea of two parties contracting equally has become a myth. Judicial decisions have made it clear that when it comes to an assessment of common law notice and the enforceability of negotiated termination provisions in employment agreements, they will insert their view for what is right and have turned into “courts of equity,” where any technicality or benefit of the doubt should be interpreted in favour of the employee.

The most recent example: the Ontario Court of Appeal’s decision in Lynch v. Avaya Corp., 2023 ONCA 696, which effectively eradicated the 24-month presumptive “ceiling” of common law reasonable notice.

First, some context. As many employers and HR professionals understand all too well, in the absence of an enforceable termination provision, dismissed employees are entitled to common law reasonable notice or pay in lieu thereof. The common law is judge-made law. It reflects what the courts - not legislatures or statutes - have determined the amount of time (or “notice”) an employee will need to find comparable employment based on a number of factors, including the employee’s age, length of service, character of employment and, often, availability of similar employment when taking into account the employee’s experience, training and qualifications. This analysis was set out in the seminal decision of Bardal v. Globe & Mail Ltd., 1960 CanLII 294, which became the touchpoint for determining whether the employee received sufficient (or “reasonable”) notice of termination. If the notice, pay in lieu, or a combination of both, didn’t align with the “Bardal factors,” then the courts characterized the termination as wrongful, referring not to the reason for termination, but the amount of severance or notice provided.

A 24-month ceiling?

For many years, the courts recognized a 24-month ceiling for common law reasonable notice. Decisions in excess of 24 months were rare, with notice periods of 26 or 27 months awarded only exceptionally and where the employee was older (a relative term) and with very long service. This changed with the decision in Dawe v. Equitable Life Insurance Co. of Canada, 2019 ONCA 512.

In Dawe, the plaintiff was a 67-year-old employee with 37 years of service. He was also an executive, which favoured a lengthy notice period under Bardal. The motion judge awarded a 30-month notice period. The surprise and concern for employers was the motion judge’s decision which stated a 36-month notice period was appropriate. However, only 30 months had been claimed and therefore only the damages actually sought were awarded.

The Ontario Court of Appeal intervened and allowed the appeal, lowering the notice period from 30 months to 24 months. The Court of Appeal noted that while there is “no absolute upper limit or ‘cap’ on what constitutes reasonable notice, generally only exceptional circumstances will support a base notice period in excess of 24 months.” The motion judge did not identify such exceptional circumstances, and finding that the plaintiff had effectively been forced into retirement was not sufficient.

What is exceptional?

Since the 2019 decision in Dawe, employers could generally rely on the 24-month ceiling and, more importantly, courts appeared to respect its reasoning: absent exceptional circumstances, 24 months is presumptively appropriate. However, the recent decision in Lynch has drawn attention because, arguably, it is not particularly “exceptional.”

Lynch was a 63-year-old employee with 38 years of service who, following the termination of his employment on a without cause basis, brought a motion for summary judgement and was awarded a common law period of reasonable notice of 30 months. What is interesting about this case, is that the motion judge’s reasoning did not specifically identify what factors were “exceptional.”

On appeal, the Ontario Court of Appeal stated that the motion judge’s decision was entitled to deference and did not represent “palpable and overriding error.” Hardly a ringing endorsement. What the Court of Appeal did not challenge were the factors it relied upon to justify an award in excess of 24 months. The Court of Appeal summarized those factors as follows:

• He specialized in the design of software to control unique hardware manufactured by Avaya.
• His job and skills were tailored to and limited by his very specific workplace experience in Belleville, Ont.
• During his 38.5 years of service, he developed one or two patents each year for Avaya.
• He was identified by Avaya as a “key performer” in one of his last performance reviews.
• Although similar and comparable employment would be available in cities such as Ottawa or Toronto, such jobs would be scarce in Belleville where Lynch - who was approaching his 64th birthday - had lived throughout his employment.

Many of the factors above suggest securing comparable employment would prove especially difficult. This is often true in technical roles that are idiosyncratic to one employer. The employee may be highly skilled, but those skills are not transferable to a new employer.

The problem with the reasoning of both the motion judge and Court of Appeal is that they both recognized but did not support the conclusion that finding re-employment would prove exceptionally difficult. In fact, the employee’s status as a “key performer,” who had developed numerous patents suggested that he had quite a bit to offer a new employer. Wouldn’t this support a lesser notice period, not a greater one?

More importantly, performance is not a Bardal factor. Being a “key performer” under normal circumstances should not influence the common law reasonable notice period. Why would it influence a finding of exceptional circumstances?

What’s next?

What’s next is already occurring - plaintiff counsel are leveraging the Lynch decision to demand notice periods in excess of 24 months, and for long service employees 30 months, regardless as to whether truly exceptional circumstances apply or not.

The assumption that an older worker is automatically entitled to more protection at common law (absent any discriminatory reason for a termination) is outdated and out of touch. Older workers are not “older” as we have traditionally applied “age” to employment. They are on average living longer and healthier, extending their careers and putting off retirement. They often have robust work skills coupled with significant experience which make their ability to re-employ much less of an issue that it has traditionally been.

The Lynch decision is very much a case of the courts citing their own stringent test, then taking liberties in applying it to the facts. Although they did not find the motion judge had engaged in “palpable and overriding error,” the Court of Appeal did note: “Appellate courts should not be left to guess which factors, taken alone or in combination, move a case into one that displays “exceptional circumstances.”

Employers shouldn’t have to guess, either. But the only certainty for employers that the Lynch decision provides is that the court, which has the final say, will determine the period of notice warranted, whether exceptional circumstances exist or not.

Lorenzo Lisi is leader of the Workplace Law Group at Aird and Berlis in Toronto. Alex Kagan is a partner and member of the Workplace Law Group at Aird and Berlis in Toronto.