February 2023 - Stacey R. Ball

Notice Award Greater than 24 Months

by Stacey R. Ball| February 23, 2023August 14, 2023 | Cause For Dismissal| | Wrongful Dismissal

When an employee is terminated without cause, they are offered a severance package. While many people believe that common law notice is generally one month per every year of service, this is not entirely accurate.

In determining what the common law notice period is, a court will use, but is not necessarily limited to, the following factors:

Character of the employment
Length of service
Age
Availability of similar employment, having regard to the experience, training and qualifications of the employee
Economic factors (downturn in the economy or in a particular industry or sector of the economy)

None of the factors are to be more heavily weighted than the others. They should all be considered equally when determining what reasonable notice is in the circumstances. This method of determining reasonable notice has been used since the Bardal v. Globe & Mail Ltd. decision in 1960.

Notwithstanding the existence of a legal termination provision in the employment agreement which limits severance to the minimums set out in the Employment Standards Act (ESA), common law notice is generally limited to 24 months. However, there are exceptions in which notice awards given to employees are greater than 24 months. In early 2023, the Milwid v. IBM Canada decision was released. Here, the Plaintiff received an award for reasonable notice above the soft cap of 24 months. He received 27 months based on a number of factors.

Milwid v. IBM Canada Ltd., 2023 ONSC 490:

In awarding a notice period greater than 24 months, the court needed to provide reasons which show why the circumstances in this case were exceptional.

Firstly, the COVID-19 Pandemic was a relevant factor. While it is not sufficient on its own to bring an award past the 24 month threshold, it is significant enough to be considered in the determination.

Secondly, the court considered the typical Bardal factors:

Character of Employment

The Character of Employment Bardal factor is an exception to the rule. Over time, it is considered to be of declining relative importance. This is particularly true if an employer attempts to use the character of employment to say an unskilled employee deserves less notice because they may have an easier time finding new employment. Here, the Employer argued that the non-executive status of the Plaintiff was a reason for finding a lesser notice period award. The court disagreed based on the reasoning above.

Compensation

The Plaintiff was well compensated in his position with the Employer. This includes a substantial average annual compensation as well as possible equity participation in the Defendant’s company. These factors are relevant in determining notice. Having a compensation package such as this will likely be difficult to find in future employment. Thus, the court weighed this factor in favour of a longer notice period.

Age

The Plaintiff was nearly 63 years of age when he was dismissed from his position. The older an employee is, the more difficulty that person will have in finding comparable employment. The court found the Plaintiff’s age to be a relevant factor which weighed in favour of a longer notice award.

Length of Service

An employee’s length of service is a relevant factor as well. In this case, the Plaintiff spent most of his adult life working with the Defendant. Overall, he had 38 years of service. This again weighed in favour of a longer notice period.

Main Takeaway: No Upper Limit in Reasonable Notice Awards

As established in the case law, there is no absolute upper limit on reasonable notice awards. Therefore, based on all the relevant factors including service length, job, salary, age, and the additional factor of the Pandemic, the “soft cap” limit of 24 months was surpassed and the court felt that his 38 years of service, advanced age, substantial compensation package and the lockdowns during the Pandemic all provided enough reason to award 27 months’ notice.

This case shows both employees and employers that when the factors predominantly weigh towards a lengthier notice period, an award over 24 months is certainly possible.

Notice Summary:

Notice Awarded	Service Length	Job	Salary	Age	Additional Factors
27 Months	38 years	Band 10 Offering Manager	$169,695.00 per annum	62	Plaintiff was terminated immediately before the COVID-19 Pandemic

Is CERB Deductible from Wrongful Dismissal Damages?

To help millions of Canadians, the Federal Government started the Canadian Emergency Response Benefit (CERB) program, which provided recipients with funding while they were unable to go back to or find new work.

A portion of the CERB recipients was also terminated. When an employee is terminated and provided a severance package, there can be an obligation to find new work and deduct the new income from what is owed by the former employer. This is known as the duty to mitigate damages.

With employees who collected CERB being terminated, employers were claiming that their CERB payments should be deducted from their damages because it replaced their employment income. As this is a novel issue, there was no case law that could guide the courts on how to react to these claims.

However, in late 2022, the British Columbia Court of Appeal (BCCA) delivered a powerful answer. Then, in January of 2023, the Alberta Court of Appeal (ABCA) followed suit with a decision which agreed with the BCCA.

**The British Columbia Decision: Yates v. Langley Motor Sport Centre Ltd., 2022 BCCA 398**

The BCCA held that CERB payments received by terminated employees are not deductible from wrongful dismissal damages. The windfall should be for the benefit of the employee, not the employer.

The court reasoned that CERB payments are similar to unemployment insurance benefits. However, the difference is unemployment insurance is made possible as a consequence of the contributions from the employer throughout the employment relationship. CERB does not have to do with the employer or the employment relationship.

Whether the recipient had to pay back CERB or not is not a concern of the employer. CERB is a matter between the recipients and the authorities administering the emergency measure scheme.

The appeal court further stated that:

“CERB was an emergency measure delivering financial aid during the early weeks and months of an unprecedented global pandemic. The program’s goal was to mitigate harm to individuals in a moment of great uncertainty. CERB payments notwithstanding, many people lost their livelihoods as a result of the pandemic. It strikes me as out of step with that reality to conclude that the combination of CERB and damages awards leaves individuals “better off” after their employment was terminated than before.”

In other words, the court decided, for social policy reasons, that it was unfair to assume individuals who collected CERB and damages for wrongful dismissal were better off compared to before their termination.

**The Alberta Decision: Oostlander v Cervus Equipment Corporation, 2023 ABCA 13**

The ABCA was the second appellate court in Canada to deal with the matter of CERB deductibility. The court here followed the reasoning of the BCCA, holding that the CERB payments were not to be deducted from the wrongful dismissal damages award. It agreed with the broader policy considerations that militate against the deductibility of CERB.

Much like the BCCA, the ABCA moved away from the approach of determining how likely it was that the employee would ultimately have to pay back the CERB payments. This is considered a fruitless exercise. Instead, the court here similarly focused on the social policy and the fact that CERB is not an employer/employee relationship issue but rather a matter between the recipient and the authorities administering the scheme.

Main Takeaway:

Both wrongful dismissal cases dealing with the issue of CERB deductibility that has reached an appellate court in Canada have decided in favour of not deducting CERB from awards. This is a significant development. Lower courts in both provinces will have to follow those rulings, and it will be persuasive to courts in other provinces dealing with the same issue.

When a Non-Competition Clause is Disguised as a Non-Solicitation Clause

It is a commonplace for employers to include restrictive covenants in employment contracts in order to try and protect their business from future competition should the employee. Restrictive covenants are non-competition and non-solicitation clauses. These types of provisions are meant to set limitations on an employee’s ability to compete unfairly with the previous employer.

What are Non-Competition and Non-Solicitation Clauses?

A non-compete clause is used by an employer to stop an employee from working with its competitors after the employment relationship has been terminated by either party. A non-solicitation clause prevents former employees from reaching out to their former employer’s clients and trying to conduct business with them.

Both types of clauses are actually considered unenforceable for being too restrictive and anti-competition. However, both can be enforced if they can protect the employer while infringing as little as possible on an employee’s rights. Of the two, non-solicitation clauses are more likely to be considered reasonably limited in its restrictiveness if drafted properly. For this reason, non-solicitation clauses are preferable to employers.

Employers may word non-compete clauses as non-solicitation clauses (intentionally or unintentionally). The provision may be under the heading of non-solicitation in an employment contract, yet the language of the clause could prohibit competition too generally. Thus, it would be considered a non-compete clause and is highly unlikely to be enforceable.

Court of Appeal Decision: ***Donaldson Travel Inc. v. Murphy*, 2016 ONCA 649**

The employee in this decision left her travel agency (former employer) for a new travel agency (new employer). These travel agencies were competitors. The employment contract with the former employer stated:

“[The Employee] agrees that in the event of termination or resignation that she will not solicit or accept business from any corporate accounts or customers that are serviced by [the Employer], directly or indirectly.”

The former employer claimed that the employee was in breach of the employment contract’s non-solicitation clause.

While at first glance, this may seem like a non-solicitation clause, the trial judge held the provision to be unreasonable and unenforceable. The judge found it to effectively be a non-compete clause which was not warranted to protect the former employer’s proprietary interests reasonably. Moreover, there was no temporal limitation in the restrictive covenant’s language, nor was it narrow in scope.

The employee was not just barred from soliciting clients from the former employer but also could not accept business with the clients regardless of what type of business was involved or if the employee even had any contact or involvement with them at their previous job. Essentially, the non-compete (masquerading as a non-solicitation clause) was not allowing the employee to deal with any of the clients, even if it was completely unrelated to the former employer’s business.

The Court of Appeal agreed with the trial judge’s decision. There was no error made with regard to the finding that the restrictive covenant was an unenforceable, non-competition clause.

What does this Mean for You?

Employers and employees should understand that the restrictive covenants included in employment agreements are considered unenforceable unless they can show it is reasonably restrictive.

If a non-compete or non-solicitation clause is in the contract, the employer should ensure it is as narrow in scope as possible, which may allow for a court to decide it is sufficiently restrictive to protect the employer’s proprietary interests without infringing on an employee’s rights excessively. However, employers should also understand that the most well-drafted non-competition clauses are still only enforceable in limited circumstances. If an employer then tries to hide a non-compete as a non-solicitation provision, that is highly likely to be considered unenforceable by the courts.

Can an Employer Change an Employment Agreement Without Consent?

When someone is hired, there is an agreement between the employer and the employee. This agreement sets out the terms and conditions of employment. In simple terms, it outlines the services the employee will provide the employer, and the compensation the employee will receive for providing those services.

The general rule for employers changing the employment contract is if there is a unilateral amendment made, there must be new consideration offered to the employee. This means the employer must give an additional benefit (ex. more money) to the employee for the change.

If an employer changes a fundamental aspect of the employee’s job without the consent of the employee, this can constitute a constructive dismissal. A constructive dismissal entitles an employee to their termination rights, including notice pay.

An employer cannot change the employment duties without the employee having a right to a constructive dismissal claim if:

The changes were significant;
Changes not agreed upon by the employee;
The employer knew the changes would push the employee to quit their job;
There were no valid business reasons for the change in role; or
The changes were not explained to the employee.

When an employee faces a situation like the above, they have the following options:

The employee can consent to the changes explicitly or implicitly by continuing in the role;
The employee can reject the changes by leaving, and file a constructive dismissal claim; or
The employee can reject the changes and continue in their current role but risk termination if the changes were mandatory for the business.

What if the Employment Contract Allows for the Employer to Make a Unilateral Change?

In the Farber Supreme Court of Canada (SCC) decision, the court dealt with the issue of whether the employer can make a unilateral change to terms of employment if the employment contract language allows for it. Employment contracts are presumed to be between parties with unequal bargaining power. Highly unreasonable contractual terms may be unenforceable as a result. However, the SCC decided that unilateral changes to the terms of employment will not be a change to the contract itself, but rather an application of the contract. The extent of what the employer can change without the employee’s consent will depend on the language of the provision in the employment contract.

In both the Bond and Churchill cases, the court ruled in favour of the employer unilaterally changing the commission structure because the employment agreement permitted adjustments to the employee’s compensation. However, an employer cannot always rely on the language of the employment contract to make fundamental changes to the terms of employment. In the Belton decision, the Ontario Court of Appeal decided on the basis of policy reasons that the employer could not unilaterally change the terms of employment despite the existence of explicit language allowing for it. The court reasoned that the bargaining power between the employee and employer is inherently imbalanced, unlike a commercial agreement, for example.

Main Takeaway

Unless the employment contract states otherwise, an employer cannot unilaterally change the employee’s terms of employment without providing fresh consideration (ex. compensation, reduced hours, new benefits, etc.). If the employee does not accept the unilateral changes, a constructive dismissal claim is possible.

Even if the employment agreement does explicitly provide the employer with the power to unilaterally change the terms of employment, a court may find the clause to be unenforceable if it is too broad in scope. The narrower the clause is, the more likely it is a court will enforce it. The court will consider the nature of the employment relationship, the specific language in the contract, and the significance of the unilateral change in deciding whether the provision is enforceable.