Wrongful Dismissal Notice Period Cap No More: Another Court Awards Employee 27-Month Severance Package
In a recent case called Milwid v. IBM Canada Ltd. 2023 ONSC 490, an Ontario court awarded an employee 27 months’ pay in lieu of notice in a successful wrongful dismissal claim. This is an important case that confirms the willingness of courts to provide employees with greater severance pay entitlements when warranted.
The leading decision on this legal principle was called Dawe v The Equitable Life Insurance Company of Canada, 2019 ONCA 512. In that case, the court held that determining a wrongfully dismissed employee’s severance package is a fact-specific exercise, and while there is no upper limit, employees will only be provided with a notice period greater than 24 months in “exceptional circumstances.” Unfortunately, the court did not define what this term meant or provide specific examples, which left it to subsequent cases for courts to elaborate on when employees will be entitled to higher severance compensation than the artificial cap of 24 months’ pay in lieu of notice.
What is a Severance Package?
A severance package is a collection of pay and benefits offered to employees who are terminated from their jobs “without cause” (e.g., due to downsizing or corporate restructuring), as opposed to employees who resign or are terminated “for just cause” (e.g., fired for wilful misconduct, poor performance).
The main reason employee offer an employee a financial severance package is to resolve any potential disputes caused by the employer’s decision to terminate the employee’s job, such as a wrongful dismissal lawsuit, constructive dismissal lawsuit or a discrimination claim. It does this by having the employee sign a full and final legal release, where the employee gives up (forfeits) their legal rights to start any lawsuit or legal proceeding against the employer.
The amount of a severance package an employee is entitled to depends on a few factors:
- is there an employment contract stating how much the wrongfully dismissed are entitled to?
- does the employment contract have a legally enforceable termination clause?
- is the employee entitled to common law notice of termination (or pay in lieu of notice). If so, the severance package will be based on:
- the employee’s length of employment with the employer
- the employee’s age (the higher the age, the longer the reasonable notice period, especially after age 45)
- the employee’s type of job and level of compensation (the more senior, skilled, professional, or specialized the employment, it is presumed it will be harder to replace the position and its compensation, therefore justifying a longer notice period)
- the availability of similar employment considering the employee’s experience, qualifications and economic conditions
In simple terms, the older the employee and longer the term of service, the bigger the financial severance package. Many severance packages under Ontario employment use a formula such as one month’s pay for every year of service (which is far more than the basic minimum of one week’s pay for each year of service in Ontario employment standards legislation.
Cases Awarding Severance Packages of More than 24-Month Cap
Currie v. Nylene Canada Inc., 2022 ONCA 209
The Court awarded a wrongfully dismissed employee a 26 months’ severance package, as a result of the following:
(i) the employee started working with the employer at age 18 after leaving high school to start work, and worked there for her entire career, eventual being promoted to the Chief Operator reporting to the Shift Leader;
(ii) after working for the same employer for 40 years, her employment was terminated near the end of her career at 58 years old;
(iii) she had very specialized skills making it very difficult for her to find alternative suitable employment. Additionally, at the time of termination, she had limited computer skills. She made diligent efforts to attempt to acquire basic computer skills and seek new employment, but would be unlikely to succeed in securing alternative employment;
(iv) the work landscape had dramatically evolved since she first entered the workforce in 1979 and, as her experience was limited to working for the employer in the same manufacturing environment, her skills were not easily transferable; and
(v) Based on the employee’s older age, limited education and skills set, the termination of her employment “was equivalent to a forced retirement.”
Milwid v. IBM Canada Ltd., 2023 ONSC 490
As in Currie, in the case of Milwid, the Court affirmed the general rule that absent “special circumstances,” the upper limit set in terms of wrongful dismissal damages is 24 months of reasonable notice (or pay in lieu of notice). However, in this case, the Court found the following “special circumstances” justified a 27-month notice period, as her termination amounted to a “forced retirement”
- Milwid had exclusively worked for IBM for 38 years, which represented most of his working life;
- He was terminated at the age of 62;
- the technical/skilled nature of his skills were geared towards IBM’s specialized business operations; and
- He held considerable responsibility and was entitled to a comprehensive compensation and benefits package in an uncertain economy.
Cases Not Awarding Severance Packages of More than 24-Month Cap
In Russell v. The Brick Warehouse LP 2021 ONSC 4822, the Court refused to award a wrongfully dismissed employee with a severance package of more than 24 months’ pay in lieu of notice. In fact, the court found that following circumstances did not amount to “exceptional circumstances” justifying a longer notice period (severance package):
- the employee was age 57
- he had worked for the same employer for 36 years (his entire lifetime)
- he had a “limited” high school education
- he was terminated during the COVID-19 pandemic
- the employer did not provide him with a reference letter or career outplacement services
- the employer engaged in bad behaviour post-termination which could have negatively interfered with his ability to secure and perform a new job.
Conclusion
As the above decision illustrate, the question of what constitutes “exceptional circumstances” justifying a notice period in excess of 24 months remains somewhat more defined. Specifically, it appears the courts will accentuate the typical Bardal factors in the context of older employees (typically over 60 years of age), with extraordinary years of service (35 or more years of service), and where their skills/experience stand out as either insufficient to secure new employment or highly specialized to a specific niche.
Call Employment Lawyer Toronto Today
If you were terminated from your employment with or without severance package, call today to discuss your options. As an employment law firm in Toronto, Bune Law has reviewed many severance packages and are skilled at negotiating improvements. You will review and get guidance on your severance package before you agree to sign any termination documents, and help ensure that your severance package is fair and reasonable.