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How Much Does it Cost to Fire An Employee Who is Approaching Retirement? For One Employee, the Court said at Least Three Years’ Pay

by Safina Lakhani

Although assessing the length of reasonable notice of termination is one of the most common issues in employment law, judicial determinations of reasonable notice are often unpredictable. In awarding the 30 months’ notice sought by the plaintiff, and commenting that a minimum of 36 months’ notice was warranted, the recent Ontario Superior Court of Justice decision in Dawe v Equitable Life Insurance Company, 2018 ONSC 3130 (“Dawe”) has taken employers, employees and employment lawyers alike by surprise. The court in Dawe departed from a previous Ontario Court of Appeal decision which found that there was a notional ceiling of 24 months’ notice, absent exceptional circumstances. Dawe documents the continued evolution of the calculation of reasonable notice for employees in the twilight of their careers.

Calculating Reasonable Notice for Employees Approaching Retirement

In principle, reasonable notice estimates the length of time that it should reasonably take for an employee to secure comparable employment following the termination of employment without cause. Reasonable notice is calculated by balancing a non-exclusive list of factors, many of which were set out in the 1960 decision of Bardal v The Globe and Mail Ltd., 1960 CanLII 294 (ONSC). The classic Bardal factors are: the character of employment, length of service, age and availability of similar employment, having regard to his experience, training and qualifications (the “Bardal Factors”). The Bardal Factors are to be balanced based on the circumstances of each case in order to arrive at the appropriate length of reasonable notice of termination.

Despite the fact that the Bardal Factors have formed the basis for the calculation of reasonable notice of termination for decades, the manner in which the courts have applied the Bardal Factors has changed over time. Dawe is an example of this evolution with respect to the impact of the age of the employee on the reasonable notice analysis.

Application to Dawe

In Dawe, the court addresses an apparent gap in the reasonable notice analysis with respect to employees approaching retirement. It answered the following question: How is reasonable notice of termination to be calculated where an employee is approaching retirement and is unlikely to secure alternate employment?

The facts of the Dawe case are as follows. Dawe’s employment was terminated on a without cause basis when he was 62 years of age. The court found that Mr. Dawe was likely to have voluntarily retired at the age of 65. The court awarded Dawe the 30 months’ notice he claimed, but commented that a minimum of 36 months’ notice was warranted. 36 months’ notice roughly bridges the time between the termination of Dawe’s employment and the court’s finding that Dawe would have voluntarily retired at the age of 65.

The court’s suggested minimum period of 36 months’ notice hinges on the implicit conclusion that where an employee is approaching retirement and there is no comparable employment available, the length of reasonable notice is calculated to bridge the gap between the date when an employee’s employment was terminated and the date when he or she would have chosen to retire. The court commented that terminating Dawe’s employment at the age of 62, when he was unlikely to secure alternate employment, is ‘tantamount to forced retirement.’

The court in Dawe appears not to apply the principle that the period of reasonable notice mirrors the length of time it should take an employee to find comparable employment. Rather, it appears to simply credit the employee with notice equal to the time between the termination of employment and the estimated date of voluntary retirement. The decision in Dawe is at odds with the Ontario Court of Appeal’s guidance in Lowndes v Summit Ford Sales Ltd., 2006 CanLII 14 (ONCA) which found that there is a ceiling of 24 months’ notice of termination, absent exceptional circumstances. Terminating the employment of an employee who is approaching retirement is not an ‘exceptional circumstance’, particularly in light of Ontario’s aging workforce and the absence of mandatory retirement in this jurisdiction.

Implications

The trend toward longer notice periods for employees approaching retirement is important for employers and employees alike. In order to manage the uncertainty associated with notice periods, employers should be aware of the trend toward longer notice periods and plan accordingly. Employers could do so by increasing the accruals for termination pay or by entering into agreements designed to limit the termination pay upon termination without cause. Employees should also be aware of this increasing trend and bear it in mind in agreeing to an early retirement package or a negotiated settlement with respect to termination pay.

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