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What is Appropriate Termination Notice?

The phrase, “one month per year” is one of the most popular misconceptions in employment law.  Many seasoned employers are under the belief that “one month per year” of notice or one month’s pay in lieu of notice per year of service is appropriate when terminating an employee. This is a line that has come through for decades now. It also happens to be largely incorrect.

There is no legal statute that dictates that employees are automatically owed ‘one month per year,’ and no case that states this as an outright legal threshold. Instead, employees who are owed reasonable notice, rather than just their statutory notice entitlements, are paid based on a variety of individual factors. This includes their age at the time of dismissal, their years of service, the nature of their work, and the job market that they will soon face in trying to find comparable employment. No one factor trumps the other, or determines an employee’s pay alone. 

Yet the ‘one month per year’ measure may not be that far off base. For a mid-level employee who has worked with the same employer for a decade, with no extenuating circumstances, 10 months’ pay in lieu of notice may be reasonable. 

However, when it comes to older employees with very long service, how much notice is too much notice?

A Historical Perspective

The case that set out the determining factors for the appropriate amount of notice goes back to 1960 and is known as Bardal v. Globe & Mail Ltd.,1960 CanLii 294 (“Bardel”).  At that time, the Court in Bardal had reviewed a previous precedent, which stated that “In this Province, however, it seems to be well established that six months is the maximum notice required to terminate a contract of indefinite hiring.” In deciding differently, the Court in Bardel broke that mould noting that 1 year’s severance would be more appropriate.

For years after, 12 months’ pay in lieu of notice seemed like an artificial cap. Yet as times changed, and courts began to lean more towards defending employees’ rights, there was an implied recognition that 12 months’ pay is insufficient to recognize an older employee, with decades of service, who will be hard-pressed to find something new. By the new millennium, courts slowly began awarding 24 months’ notice periods in some of these cases.

Then, as time progressed, courts realized that even 24 months’ may not be sufficient for some employees. The Court of Appeal recently weighed in in two separate cases.

The Court of Appeal’s Recent Decisions

In Milwid v. IBM Canada Ltd., 2023 ONCA 702, the Court of Appeal dismissed the appeal of a judgment that awarded the employee 26 months’ pay in lieu of notice. The employee, who was 62 at the time of his termination, had worked for IBM for 38 years – 22 years in Canada, and 16 years for the company in South Africa prior to that time. He was at a managerial level, with a base salary of nearly $170,000 along with a pension, group insurance benefits, a bonus, and investments in the stock plan.

The Court of Appeal agreed with the lower court’s findings. The Court noted that, along with the Bardal factors, “an award over 24 months was found to be warranted because there were exceptional circumstances.” Here there were two at play. The first was that the employee’s managerial work related entirely to the company’s products and was not transferable to another employer.

The second was the COVID-19 pandemic. The Court took note of the fact that the pandemic created an exceptionally difficult job market, and one which made it nearly impossible to find new work. The Court of Appeal ruled, “the pandemic was truly an exceptional circumstance, and the respondent lost his position right at the time the global economy was shutting down. There is no basis to interfere with the motion judge’s decision in this regard.” 

In Lynch v. Avaya Canada Corporation, 2023 ONCA 696, the employer was appealing an award from the lower court of 30 months’ pay in lieu of notice. This employee had also worked nearly 40 years, from 1982 through to 2021, and while he was not a manager, there were several unique facets to his work. He had designed software unique to the company, developed dozens of patents for the company through his tenure, and was noted in performance reviews to be a “key performer.” 

The employee was nearly 64 at the time of his termination, and with non-transferrable expertise his chances of re-employment are almost non-existent. The Court recognized the lower court’s ruling that these were exceptional circumstances which warranted a greater notice period, and the Court of Appeal saw no reason to interfere in that decision. 

The Best Solution to Limit Notice

While the amounts may be high, they’re also entirely avoidable. A well-drafted and routinely updated employment contract can offer your employees a set period of notice that is either limited to their statutory entitlements or slightly higher than their legal minimums. In either case, an employer can take steps to significantly lessen these ever-increasing notice periods. 

Employment contracts must be crafted carefully, and need to be regularly reviewed to make sure that any restrictive language is in line with the current legal standards. At Pavey Law, that’s just part of our job. Our employment lawyers routinely help employers throughout the Cambridge, Kitchener, and Waterloo region draft and implement employment contracts for all levels of employees. Contact us today to set up a consultation.