Wrongful Dismissal and Reasonable Notice

Introduction

Employees that are terminated from their employment without cause are entitled, broadly speaking, to payment of their remuneration (typically in a lump sum) to cover a reasonable period of time so that they can find replacement employment (and this is referred to as the “notice period”). What is a “reasonable period of time” is based on a number of factors, but is generally focused on how long it will take that particular person, considering all of their qualifications, experience, and other personal factors, to find similar employment with similar remuneration. Generally, the more difficult it will be for someone to find sufficiently similar replacement employment the greater the notice period they are entitled to. Each case is highly fact-dependent and so there can be no blanket entitlement applied across dismissal cases. While the mantra “one month per year of service” gets repeated by the public quite often, that is not the test that courts apply. There are many reasons that an employee may be entitled to more, or less, notice than one month per year of service.

Notice Periods

Prior to the recent Saskatchewan Court of Queen’s Bench decision in Swidrovich, the common law maximum in Saskatchewan on notice periods in cases of wrongful dismissal was effectively 18 months.[1] The only exceptions to this maximum were two outliers: Boros v Bodnar, Wanhella & Courtney, [1988] 6 WWR 645, 70 Sask R 36 (Sask QB) (WL); and Wawro v Westfair Foods Ltd. (1996), 148 Sask R 221, 23 CCEL (2d) 247 (Sask CA) (WL). In both of these outlier cases the dismissed employee was awarded only slightly more than the max: 20 months. Other than these two cases, and prior to Swidrovich, the reasonable notice periods in Saskatchewan ranged from as low as 0.5 months to as high as 18 months. In Swidrovich, the Saskatchewan Court of Queen’s Bench awarded Mr. Swidrovich 20 months’ pay in lieu of notice and Mr. Antonishyn, the plaintiff in the companion case, 24 months’ pay in lieu of notice.

Determining what period of notice is reasonable in the circumstances is not an exact science. Judges examine many factors, including: the length of service of the employee, the character of employment, the age of the employee, and the availability of similar employment.[2] This list is not exhaustive. The particular circumstances of each case may be considered by the presiding judge and those circumstances may affect what is found to be a reasonable notice period.[3] For example, if job availability is being negatively impacted due to a recession, or a similar kind of force, the notice period may be extended to reflect that fact. Further, while rare, job search expenses can be compensable, to some degree, in the right circumstances (such as where there is sufficient urgency in obtaining new employment).[4] Generally, the longer the term of employment, the higher the level of employment within the organization, and the more specialized the employee’s expertise is, the greater the notice period that will be awarded.

Quantification of Damages

General

Once a period of notice has been determined, quantification of the monetary award is required. There are many different forms of remuneration that employees can receive in compensation for their labour. While it may be that an employee’s salary during the notice period is the most obvious kind of entitlement to damages, employees are actually entitled to many other aspects of their remuneration as well. Simply put, damages in lieu of reasonable notice should place an employee in the same financial position as if that employee had worked until the end of the notice period.[5] Compensation for salary/wages is at the core of a wrongful dismissal case.

The damages owed to an employee are subject to the concept of “mitigation”. In the employment context, mitigation refers to the earnings that an employee has received from replacement employment that they found during the notice period. If an employee is found to be entitled to a 12 month notice period, and their remuneration package with their previous employer was equal to $100,000, but that employee finds replacement employment at 6 months at the same remuneration, then that employee will only be owed $50,000 by the previous employer (because their new employer will effectively have paid them for half of the notice period). If the employee finds replacement employment in that same situation (i.e., at 6 months) but the remuneration is half of what their previous employment was, then they would be entitled to full compensation for 6 months and half compensation for the remaining 6 months.

Employers may, at times, offer an amount for settlement that is somewhat less than what an employee’s entitlement is at law. The employee should always consider their prospects for re-employment during the notice period because sometimes a lower settlement up front may end up as an effectively greater benefit if the employee can find replacement employment quickly. The reason for this is that early settlements are not always subject to mitigation and so, if the settlement is not subject to mitigation, the employee may be able to accept a settlement for a notice period of, say, 6 months but find replacement employment after 3 months with the same remuneration which would result in an effective double payment during 3 of the months agreed upon as the notice period. Employees should be warned, though, that if their new job doesn’t work out and they are dismissed during the probationary period this strategy may not work to their benefit in the long run. A cost/benefit analysis should be performed with experienced legal counsel to determine whether such an approach is worthwhile in the circumstances.

Medical, Dental, and Group Insurance Coverage

Courts have used different formulas from time to when calculating damages for the loss of insurance and medical plans. Some have held that the plaintiff should be paid the company’s contribution to the cost of the benefits plan over the notice period.[6] Others have awarded the plaintiff the actual cost to purchase the plan on their own.[7] Still others have held that if the plaintiff does not take steps to replace their coverage and does not suffer any harm that would have been covered had they retained their insurance during the notice period, then they are not entitled to damages because they have not suffered any.[8] The implication in such cases is that the plaintiff would be entitled to the cost of their new, personal plan or the cost of the services they paid for out of pocket while not covered. Consider the decision of our Court of Queen’s Bench in Henderson where the plaintiff was terminated, did not acquire a new insurance plan, and incurred the full amount of costs for prescription drugs, chiropractics, and tai chi lessons (as the employer covered some recreational costs). The Court awarded the plaintiff 90% of the cost of each as that is what the plan would have covered had she still had access to it.[9] These methods are all based upon easily identifiable numbers based on the plans used and actual value paid. To determine what it would cost to get a similar plan for the employee on their own one simply needs to get a quote from an insurance agency.

Bonuses

The standard approach for determining the quantum of bonuses that would have been received during the applicable notice period but for the termination is for Courts to select a period of time prior to the termination date, average the bonuses paid over that period, and pro-rate it according to the notice period. In situations where the bonus is based on the success of the business, however, a Court may take such a factor into account when assessing the quantum of the bonus.[10]

How to quantify the value of a bonus depends on the particular facts of each case. The objective is generally to emulate the system used to quantify the bonus while the individual was employed. In a recent Ontario case, Singer, which has been subsequently followed several times, the Ontario Court of Appeal ruled that the plaintiff was entitled to an amount equal to the average of his last 2 years of bonuses pro- rated to the 17-month notice period he was awarded.[11] In another Ontario Court of Appeal case that cited Singer, the Court found that the plaintiff’s damages relating to her bonus during the notice period should be based off of an average of her last 5 years of bonuses received immediately prior to her termination and pro-rated accordingly.[12] In a recent case out of British Columbia, the Court found that a three to five year average was appropriate but, since he had the four year average data in front of him, he decided on a four year average.[13]

Sometimes, employers offer incentive schemes either in addition to, or in lieu of, the more typical “bonus” scheme. While the blanket approach is generally to average the amount of the bonus or incentive over the previous years, that is not a particularly accurate approach where there is a defined system for identifying the amount to be paid under an incentive scheme. Consider the approach used in Manastersky where the dismissed employee was provided with a profit-sharing compensation scheme based upon the profitability of the business. The profitability of the business, and therefore his earnings under this scheme, ranged widely, from $11,000 to $1.4 million. Instead of averaging the most recent years prior to termination, which were some of the highest yet, the Court saw fit to average the entirety of each 4-year investment fund period (8 years total) to account for dramatic fluctuations over the years. The Court also averaged his last 3 years of bonuses and pro-rated that average to the dismissal period of 18 months.[14] The important thing to take away is that it is the employment contract paired with the process for calculating compensation over the years that will be crucial for quantifying damages.

Pension, RRSP, Savings and Other Matching Schemes

Pensions, RRSP matching, and Savings Account matching are all also compensable aspects of remuneration in dismissal cases. In the most simple sense, if your employer paid 5% of your income into an RRSP each paycheque then they will be responsible for paying for an additional 5% of your salary during the notice period, in addition to the salary you would be compensated for, in order to compensate you for the loss of those RRSP contributions during the notice period.

Compensation for pension losses can be somewhat more complex because the terms of the pension factor into what the realistic amount of loss will be. This is particularly complex with respect to Defined Benefit Pensions (which guarantee certain payout amounts upon retirement) and therefore the use of an actuary to calculate the loss may be necessary. Historically, courts have used the “commuted value methodology” which, briefly summarized, involves calculating what the pension would be at the end of the notice period had the pension contributions been continued and subtracting the value of the pension at the time of dismissal to get the total loss. This methodology at least accounts for the growth of the invested monies during the notice period. However, Defined Benefit Pensions guarantee a certain payout at retirement and for the rest of the plan holder’s life. While these kinds of pensions are rare in the modern day, some people with long service records with a business or the government may have retained such a pension. Because Defined Benefit Pensions guarantee a certain amount of payment in the future, the loss of such a valuable retirement asset could reasonably be expected to attract a greater amount of damages. If you have been terminated and you held a Defined Benefit Pension, you should speak with a lawyer and a financial advisor to determine how best to proceed.

Closing

When an employee is terminated, they are entitled to all damages necessary to put that employee in the same financial position they would have been in but for the dismissal. Determination of the notice period to which an employee is entitled is highly fact-based and so employees should always seek experienced legal counsel so that an appropriate notice period can be determined. Often employers will offer payment of salary only during the notice period but employees should be aware that they are entitled to compensation for all aspects of the remuneration that they lost upon dismissal. Determining what is a reasonable amount of damages for the purposes of settlement, and when it is worth taking a case to court, requires a complex assessment of many factors. It is highly recommended that, at minimum, dismissed employees consult with an experienced employment lawyer to assess the fairness of their severance package offer. You may think it looks like a lot of money, but an employer’s first offer is rarely a high one.