In late 2023, the Court of Appeal for Ontario confirmed the lower court decisions in two separate wrongful dismissal matters in which the plaintiffs were each awarded significant notice periods. These decisions confirm that although there has traditionally been a 24-month “cap” on common law reasonable notice damages in wrongful dismissal matters, there may very well be exceptional circumstances where the court is willing to exceed that base notice period at significant potential cost to the employer.
Milwid v. IBM Canada Inc.
Regular Focus Alert readers will recall our previous article on this case.
Briefly, however, the plaintiff was a long-term employee of IBM, having worked for the company for approximately 38 years. In May 2020, he was terminated without cause amid the COVID-19 pandemic. Although IBM offered the plaintiff a separation package, he rejected it and commenced an action against his former employer for wrongful dismissal.
In the context of a motion for summary judgment, the plaintiff argued that the unprecedented shutdown of the economy that occurred due to the COVID-19 pandemic could be considered an exceptional circumstance warranting a departure from the so-called cap on reasonable notice damages or, alternatively, a factor in justifying a notice period in excess of 24 months.
Although the motion judge was not convinced that the case law referenced by the plaintiff in support of his argument stood for the proposition that the COVID-19 pandemic constituted an exceptional circumstance, she did acknowledge that a body of jurisprudence had developed in which the court had taken judicial notice of the pandemic in the context of wrongful dismissal matters and that in some cases, the court has accordingly extended the reasonable notice period beyond the “non-pandemic” notice period.
Ultimately, the motion judge found in favour of the plaintiff, awarding 27 months’ reasonable notice damages – with 26 months warranted due to exceptional circumstances, plus one additional month to account for the COVID-19 pandemic – as well as damages for lost pension benefits during the notice period and for the value of any Restricted Stock Units (or “RSUs”) under IBM’s Long Term Performance Plan that would have vested during the notice period.
IBM subsequently appealed the summary judgment order and presented two grounds in support of its appeal.
First, IBM argued that the motion judge erred in finding that there were exceptional circumstances justifying a notice period greater than 24 months. More specifically, IBM argued that the motion judge erred in basing her finding that there were exceptional circumstances on what are commonly known as the “Bardal factors”, which are the usual factors used to determine the reasonable notice period in wrongful dismissal matters. In addition, IBM argued that the motion judge erred in finding that an additional month’s notice was appropriate to account for the COVID-19 pandemic.
In determining that an initial award of 26 months’ notice was warranted in the circumstances, the Court of Appeal found that the motion judge had seemingly relied on the plaintiff’s (now respondent’s) age, his length of service with the same employer, his managerial position, and his compensation in an uncertain economy, as well as the technical and skilled nature of his work. Bearing this in mind, it rejected IBM’s argument, concluding that there was “nothing impermissible in relying on the constellation of Bardal factors, along with other exceptional circumstances, to find that a notice period exceeds 24 months”. It highlighted the motion judge’s consideration of evidence establishing that the respondent’s skills were not transferable because they were so specifically geared towards IBM’s business, which it described as “an exceptional circumstance not covered by the Bardal factors”. Moreover, with respect to the award of an additional month’s notice, the Court of Appeal held that the motion judge’s finding was entitled to deference and was well supported by the evidence before her. Accordingly, it elected not to interfere with either of the contested aspects of the motion judge’s decision pertaining to the reasonable notice period.
IBM also argued separately that the motion judge erred in finding that the respondent was entitled to damages related to the value of the RSUs that would have vested during the notice period. However, the Court of Appeal rejected this argument as well, agreeing instead with the motion judge’s finding that the “Termination of Employment” provision in the respondent’s Equity Award Agreement was ambiguous and could therefore not be relied on by IBM to exclude him from participating in the Equity Award.
In the end, the Court of Appeal dismissed IBM’s appeal with costs.
Lynch v. Avaya Canada Corporation
In this case, the plaintiff was a long-term employee of Avaya, having worked for the company and for the predecessor owner of the business for approximately 39 years. In March 2021, he was terminated without cause during a company restructuring exercise. Although the parties tried to negotiate a termination settlement, their efforts were unsuccessful, and the plaintiff eventually commenced an action against his former employer for wrongful dismissal.
In the context of a motion for summary judgment, the plaintiff was awarded 30 months’ reasonable notice damages. Despite Avaya’s request, the motion judge refused to reduce the notice period awarded, as she was not persuaded that the plaintiff had failed to properly mitigate his damages as alleged.
Avaya subsequently appealed the summary judgment order and presented three grounds in support of its appeal.
First, Avaya argued that the motion judge erred by awarding a notice period in excess of that sought by Mr. Lynch. Avaya pointed to the fact that in his Statement of Claim, the respondent had only claimed damages for wrongful dismissal equivalent to 26 months’ notice. However, the Court of Appeal swiftly dismissed this argument, noting that at the hearing of the summary judgment motion, the respondent had explicitly sought an award of damages equivalent to 36 months’ notice. Avaya conceded that it had suffered no prejudice as a result of the motion proceeding on that basis, and acknowledged that had the respondent sought permission from the motion judge to amend his claim, he likely would have received it. As a result, the Court of Appeal elected to give no effect to Avaya’s first ground of appeal.
Second, Avaya argued that the motion judge erred by misapplying the Bardal factors in determining the reasonable notice period. More specifically, Avaya argued that the motion judge had wrongly held that the circumstances of the case included exceptional circumstances potentially justifying a notice period greater than 24 months. The Court of Appeal was not persuaded, though, that the motion judge had made such an error.
In her decision, the motion judge concluded that the respondent’s circumstances were exceptional and listed all of the factors that led her to conclude that the appropriate notice period was 30 months holistically. The Court of Appeal acknowledged that a judge’s written reasons in any wrongful dismissal case that includes an award of reasonable notice damages greater than 24 months should clearly identify the factor(s) that led to the conclusion of the presence of exceptional circumstances justifying such an award. It did not, however, agree with Avaya that the motion judge’s failure to identify the Bardal factors and the exceptional circumstances she had relied on separately had tainted her analysis. Rather, it indicated that it could discern the exceptional circumstances she had considered by comparing her listed factors with those that the court had previously identified as justifying a notice period in excess of 24 months. In the absence of the error alleged by Avaya, the Court of Appeal also declined to intervene on the basis of Avaya’s second ground of appeal.
Finally, Avaya argued that the motion judge erred by concluding that the plaintiff took reasonable steps to mitigate his damages. However, the Court of Appeal dismissed this argument as well, stating that the motion judge had properly summarized the law relevant to mitigation of damages in wrongful dismissal cases, and that her factual findings related to the issue were entitled to deference.
The Court of Appeal concluded by dismissing the appeal with costs.
In Our View
As previously noted, these decisions confirm that although there has traditionally been a 24-month cap on common law reasonable notice damages in wrongful dismissal matters, there can in fact be exceptional circumstances where the court is willing to exceed that base notice period.
Employers who are considering terminating the employment of an individual who might fall into the category of cases involving exceptional circumstances – such as where the employee is long service or their skill set is highly specialized, for example – should be mindful of these decisions when considering potential termination settlement offers and related litigation. Even more importantly, however, employers should review their employment agreements and ensure that any provisions attempting to limit an employee’s entitlements on termination are enforceable as a proactive risk mitigation measure.