A Caution About Exposure to "Reasonable Notice of Termination"09-Aug-11
Many employers are surprised to hear our estimates of what “reasonable notice of termination of employment” is for employees. Other employers are shocked by judgment against them. A recent Ontario case awarded a cabinet-maker with 24 years of service a judgment based on 22 months’ notice. In June, the Ontario Court of Appeal rejected the idea of a hard-cap on clerical and unskilled workers’ notice periods and upheld a judgment based on 22 months for a mechanic employed for 33 years. Lengthy notice periods are no longer limited to employees in higher paying positions.
As the economy worsens, mitigation is becoming more difficult as dismissed employees are unemployed for longer periods. It therefore becomes more important to take steps to limit potential liability. Employers can contract with employees to limit or define the required notice of termination. That agreement is enforceable as long as the entitlement is not inconsistent with any of the minimum notice of termination categories in the Employment Standards Code and the agreement is made either as part of the hiring or there is some other “consideration” for the agreement.
A decision of the Alberta Court of Appeal last year addressed a termination clause in an employment contract that said that the contract could be terminated
"“by the employer at its sole discretion for any reason, without cause, upon providing the employee one month's notice of termination for each completed year of service (or at the employer's option pay in lieu of notice) plus all payments or entitlements to which the employee is entitled pursuant to the Alberta Employment Standards Code, including notice of termination (or at the employer's option, pay in lieu of notice) and employee benefits.”
The Court concluded that this was clear and unambiguous and, considering that the employee was employed for less than a year, his entitlement was limited to the one week notice of termination required by the Employment Standards Code. The employee did not like that interpretation but a few months ago failed to obtain leave to appeal to the Supreme Court of Canada. The authority of the decision is therefore left in no doubt.
Employers should consider having carefully worded standard contracts, which could be in the form of hiring letters, that define employer rights of termination. Employers could in that way close the door on unpredictable and potentially large claims based on “reasonable notice”.