Losing a job unexpectedly is never easy news to deal with. However, when someone loses a job and does not receive the payment in lieu of notice they expected to receive, there can be added financial stress to what is already a difficult time. In a recent decision issued by the Ontario Superior Court of Justice, the court looked at whether an employee terminated without cause received enough payment in lieu of notice, and whether his bonus should have been included in that pay.

Terminated from job after eight years

The employee was a Senior Vice-President for the employer, which operated a shipping company, from May 2014 until February 2018. His termination came as the result of a corporate restructuring. He had signed an employment contract prior to starting the job that stipulated he would only be paid a maximum of one month’s pay in lieu of notice in the event he was terminated without cause.

Upon his termination, the employee challenged the termination clause in the contract because it contracted him out of his rights under the Canada Labour Code, was contrary to his rights under common law, and because his one month’s pay also left out any pro-rated payment of his annual bonus.

The employer took the position that the termination clause was enforceable and that it provided the employee with more than he would have received under the CLC. In the alternative, the employer argued that if the termination clause was not enforceable, the employee was only entitled to four or five months’ pay in lieu of notice at common law.

Is the termination clause enforceable?

The court stated that while there is a common law presumption that reasonable notice must be given, employment contracts can rebut that presumption if they clearly provide some other period of notice. Again, the employer stated that the one month’s pay under the contract was the most the employee could have expected to receive under the CLC. However, the court noted that the Employment Standards Act also has to be considered, and that the employee’s length of employment may have qualified him to more than he received under the contract, and it therefore did not displace the presumption that he is entitled to reasonable notice at common law.

Calculating the appropriate period of notice

The employee asked the court to order that he be paid eight months’ pay in lieu of notice. The employer took the position that the employee was only entitled to five months’ of pay.

In order to determine the appropriate period of notice, the court considered a number of factors, including the employee’s salary ($168,000 USD), the level of responsibility he had, his age, the difficulty he may have in finding a comparable job, and his attempts to mitigate the damages by trying to find a new job.

The court found that the employee held a senior position with the employer and due to his age, he may have a difficult time finding a new job. The court awarded him eight months’ pay.

Is the employee entitled to a bonus during the notice period?

The employment contract stated the employer could offer a bonus at its discretion based on the employee’s performance and the company’s profitability. The employer argued that the bonus was entirely within the discretion of the company, and while the employee was eligible for a bonus, he was not entitled to it.

However, the court noted that the employee had received a substantial bonus for each year of his employment, sometimes worth more than 15% of his salary. The court found the bonus was an integral part of the employee’s compensation and should be prorated and included in the notice period.
The knowledgeable and experienced employment lawyer at NULaw in Toronto assists clients with navigating the risks and obligations in employment relationships, including litigation arising out of termination. Contact us online or at 416-481-5604 to book a consultation today.

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