Employers should be aware that significant notice periods can be awarded when older, long-term employees are dismissed without cause
Exclusive to Canadian HR Reporter from Rudner Law.
Suppose that your company dismisses a long-term employee who does not have an employment contract. The employee then retains a lawyer, and seeks a 24-month notice period from the company. Is this an overreach?
While the length of reasonable notice will depend on the circumstances of the case, the recent court decision of Maximenko v. Zim demonstrates that the courts will not be shy in awarding a 24-month notice period where the circumstances justify it.
In that case, the employee was 58 years old and had worked for the company for just under 21 years when she was dismissed.
Reasonable notice of termination
Dismissing a long-term employee without cause can result in significant liability to the employer. Absent a legally enforceable termination clause contained in an employment agreement, a dismissed employee will be entitled to reasonable notice of termination pursuant to common law.
Although there is no official limit to the length of such a notice period, the Court of Appeal for Ontario has indicated that a notice period over 24 months should only be awarded in exceptional circumstances. Therefore, 24 months is somewhat of an unofficial maximum length for reasonable notice periods.
Despite being an unofficial maximum, 24-month notice awards are not limited to only the clearest cases. Employers should be aware that significant notice periods can be awarded when older, long-term employees are dismissed without cause.
This does not mean that the full notice period needs to be immediately paid as a lump sum. When the dismissed employee finds new employment during the notice period, they will have mitigated their damages in whole or in part, which reduces the amount they are entitled to receive from their former employer.
This makes sense given the purpose of reasonable notice: it is to tide the employee until they have found new work, rather than providing the employee with a windfall.
Therefore, employers can choose to structure a severance offer as salary and benefit continuation, which could end when the employee obtains new employment. It is fairly common to discontinue salary and benefits when the employee starts new work and pay a percentage of the remaining amounts, so as to incentivize them to look for a new job.
Factors in Maximenko v. Zim
In the case of Maximenko v. Zim, Maximenko worked for her employer Zim for 20 years and 10 months, and was just shy of her 59th birthday when she was dismissed. As Maximenko did not have any written employment agreement, Zim acknowledged that it owed her pay in lieu of notice, but argued that 24 months would be excessive.
Zim also argued that Maximenko made insufficient efforts to mitigate her damages, and that the notice period should be reduced as a result.
The court found that Maximenko was entitled to 24 months of notice, and cited the following factors:
- the length of her service (just under 21 years)
- her age (58 years old)
- the seniority of her position (an upper management position for most of her tenure)
- the “nuanced”, if not niche, nature of the industry (the ocean freight industry)
- her lack of other experience in Canada.
Mitigating damages in termination decision
The remaining issue was whether the notice period should be reduced as a result of alleged insufficient efforts by Maximenko to mitigate her damages. Although the court found that her evidence about mitigation contained inconsistencies and overstatements, it was satisfied that she applied for 70 positions and took reasonable steps to look for new work.
Although the court found that Maximenko’s mitigation efforts “may not reach the standard of perfection,” such efforts were found to be reasonable. Accordingly, the court declined to reduce the 24-month notice period.
In calculating Maximenko’s damages, the court awarded not only her base salary for the 24-month period, but also continuation of her benefits, bonus, car allowance and pension contributions for the entire period.
The Maximenko case should serve as a reminder to employers that they could face significant liability in terminating a long-term employee without cause. This liability could be significantly reduced if the company has in place a legally enforceable termination clause that limits employees’ entitlements upon dismissal.
We recommend speaking with a lawyer to see what can be done to limit your company’s exposure in the future.
Alex Minkin is an associate lawyer at Rudner Law in Toronto. He can be reached at (416) 864-8500 or [email protected].
