You’re about to terminate an employee’s employment without cause. He’s been with you for 30 years, earns $100,000, has a middle management position, and is 69 years old. He could retire with a full pension. Surely you don’t have to provide him with a severance package? Absolutely, say Canadian courts.
When an employee is terminated without cause, the employer must provide the employee with reasonable notice of termination or pay in lieu of reasonable notice. The calculation of the notice period is based on a number of factors including, for example, the employee’s age and length of service.
Although there is no legal cap on the length of notice periods, generally, notice periods do not exceed 24 months. However, the Ontario Superior Court of Justice in Filiatrault v Tri-County Welding Supplies Ltd., suggests that with the abolishment of mandatory retirement, employers should expect notice periods to be longer than they were in the past.
In 1967, Paul Filiatrault founded a company called Tri-County Welding Supplies Ltd. He entered into a distributorship agreement with Liquid Air Canada, a supplier of gases and welding supplies. Under this agreement, Tri-County became an authorized distributor for Liquid Air. Paul and his wife, Shirley, held executive positions with Tri-County.
In 1996, the couple and their sons, who also worked for Tri-County, entered into a new distributorship agreement with Liquid Air. Under terms of the new agreement, Liquid Air was required to purchase Tri-County’s shares once the couple decided to sell Tri-County.
The agreement required that the employment of the sons be continued but was silent on whether the couple would continue to be employed with Tri-County following the share acquisition. The agreement also did not address severance and termination in relation to the Filiatraults.
Once the share purchase was completed, the Filiatraults, who were in their 80s, were immediately terminated without cause. In their termination letters, Liquid Air claimed that the 1996 agreement did not require the company to negotiate an employment agreement with them. The couple filed a lawsuit against both Tri-County and Liquid Air for wrongful dismissal. They limited their claim to 18 months’ pay in lieu of notice.
The Ontario Superior Court of Justice concluded that the Filiatraults were wrongfully dismissed. The court determined that they were “dependent contractors”—an intermediate category of people who are treated much like traditional employees. Based on this finding, the court concluded that a term of reasonable notice was implied in the 1996 agreement. As such, Tri-County and Liquid Air were held jointly and severally liable for 18 months’ damages in lieu of notice—a total of over $1 million.
While the Filiatraults limited their claim to 18 months’ notice, the judge acknowledged that had they not done so, they would have been entitled to larger severance payments given their lengthy 42 years of employment in executive positions with Tri-County. The court stated:
There are few, if any, cases where the courts have awarded notice periods of more than 24 months. The higher notice periods have normally been awarded to persons of senior age, usually persons in their 60s and less often in their 70s, not normally to persons in their 80s. The durations of employment that have attracted higher notice periods have rarely if at all been as great as 40 years. This will likely be an increasing trend with the statutory end to retirement at age 65 […]. There is no suggestion here with the current reality of employees working to more senior ages that the upper limit on notice periods should be infinite. However, the fact of the matter is courts will have to increasingly grapple with adjusting what a reasonable notice period is in this new reality.
Takeaway for employers
This case suggests that notice periods greater than 24 months may no longer be a rarity given the end of mandatory retirement and the likely increased prevalence of older workers with long periods of service.
The end of mandatory retirement means that Canadian employers are at increased risk of having to make larger payments upon terminating older employees. Employers who wish to avoid the risk of indeterminate notice periods should negotiate and draft employment contracts that clearly stipulate the rights and obligations of the parties upon termination.