Wrongful Dismissal: The Cost of Terminating a Senior Citizen

Jun 20, 2014

In 2008, mandatory retirement was eliminated in Ontario. Since then the courts are starting to see more wrongful dismissal cases involving senior citizens.

Many employers are concerned that judges will start finding very lengthy reasonable notice periods for older workers. The unofficial maximum reasonable notice period is generally considered to be 24 months.

70 year old Employee Terminated After 20 Years Service

A recent case considered a 70 year old employee who was terminated without just cause after 20 years service.

Notice Period reduced from 24.5 months to 18 Months

The employer took the position that the reasonable notice period should be 13 months because that is what another court had awarded a 62 year old employee with 16 years service at the same organization.

The trial judge disagreed and concluded the employee should have received 24.5 months notice of termination; almost double the trial judge’s award.

The Ontario Court of Appeal (OCA) reduced the reasonable notice period to 18 months. In coming to this conclusion the court stated the employee had “no realistic possibility of obtaining similar employment” although the decision does not provide any reasons for reaching this conclusion.

The OCA also concluded: “In our view, the notice period in this case, totalling 24 and one-half months, is excessive and there are no exceptional circumstances that would justify this award.” The court did not however indicate why 24.5 months was considered excessive.

Unresolved Issues

Based on this employee’s age and length of service, I suspect most employment lawyers would tell their clients that reasonable notice would be in the 18 to 21 month range. Although 24.5 months is high I am surprised the OCA interfered with the lower court decision.

In the future, we hope the OCA will provide employment lawyers with more guidance in terms of the facts that the parties and a judge should consider when assessing reasonable notice in a case involving an older worker.

In particular, we hope for guidance in connection with an older employee’s duty to mitigate. Normally an employee has an obligation to make reasonable efforts to look for alternative employment. Given the OCA’s observation that the employee had no chance of finding alternative work, is there a lesser duty to mitigate imposed on senior citizens?

Lesson to be learned

This kind of court case can be avoided by requiring all employees to sign an employment contract with a termination clause. If the employer’s payroll was less than $ 2.5 M then the employer could have limited its liability to 8 weeks termination pay as opposed to 78 weeks. In addition, the employer would have saved considerable legal costs and management time.

An employment contract can limit the amount of termination pay an employer is required to pay a senior citizen. However, the contract cannot prevent an employee from commencing a human rights proceeding under the Ontario Human Rights Code. Accordingly, an employer should make sure the senior citizen’s age is not taken into consideration when the decision to terminate is made.

For the past 25 years, Doug MacLeod of the MacLeod Law Firm has been advising and representing employers in connection with employee terminations. If you have any questions, you can contact him at 416 317-9894 or at [email protected]

There are many ways to attack the termination clause in an employment contract. 

I am now surprised if employee counsel does not claim that their client’s  termination clause is not legally enforceable - usually because the termination clause does not allegedly comply with the Employment Standards Act.

This blog considers a case, McKercher v Stantec Architecture Ltd., 2019 SKQB 100, where an employee successfully attacked the termination clause in his contract because he did not explicitly agree to it after being promoted. 

The Facts

In 2006, Mr. McKercher commenced employment as a staff architect. The termination clause in his employment contract stated: 

Termination other than for cause will be with notice or pay in lieu of notice, based on your length of service. If the Employer terminates your employment for other than just cause you will receive the greater of:

  1. a)   Two weeks notice or pay in lieu of notice during the first two years of employment increasing by one week for each additional completed year of employment to a maximum of three months notice or pay in lieu of notice.

      or

  1. b)   The minimum notice of termination (or pay in lieu of notice) required by applicable statutes.

Eleven years later, when Mr. McKercher was employed as a Business Centre Sector Leader, his employment was terminated. The employer paid him the three months termination pay he was owed under his employment contract.

 

Another way to attack a termination clause: What is the changed substratum doctrine?

An Ontario judge in a 2012 case, MacGregor v National Home Services, 2012 ONSC 2042 (CanLII), described this legal doctrine as follows: "The changed substratum doctrine … provides that if an employee enters into an employment contract that specifies the notice period for a dismissal, the contractual notice period is not enforceable if over the course of employment, the important terms of the agreement concerning the employee’s responsibilities and status has significantly changed."

 

The rationale for this doctrine has been described by one judge, Schmidt v AMEC Earth & Environmental Ltd., 2004 BSCS 2012 (CanLII), as follows: "In my view, it was incumbent on the defendants to advise Mr. Schmidt that they intended to continue to rely upon the termination provision set out in the Agreement when substantial changes in his employment occurred. This would have allowed him to consider the matter and to negotiate for other terms. If the defendants wished to continue to rely on the termination provisions there ought to have been a ratification of the provisions as the nature of Mr. Schmidt’s employment changed."

 

Decision

The judge hearing this case relied on the following factors when deciding not to enforce the termination clause in the employment contract: ”...there is no evidence that (the employer) made it clear to the (employee) that the notice of termination provisions were intended to apply to the positions to which he was promoted. The employment agreement contains no express wording to this effect, nor does it contain any wording to support the inference of such an intent. Further, and in keeping with the analysis in Schmidt, the Court received no evidence that, as it promoted the plaintiff, SAL reasserted its understanding and expectation that the notice of termination limit would remain in effect.”

 

Lesson to be learned:

An employer should make it clear that the termination clause in an employment contract applies when an employee is promoted. This expression of this intent should be in writing and should be clear and unambiguous. I recommend that an organization’s employment be reviewed by an employment lawyer every year or two. If your employment contract does not address this issue then think about doing so the next time it is reviewed.

 

For 30 years, Doug MacLeod of   the MacLeod Law Firm has been advising employers on all aspects of the employment relationship. If you have any questions, you can contact him at 416 317-9894 or at [email protected]

The material and information in this blog and this website are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this blog or its links. No person should act or refrain from acting in reliance on any information found on this website or blog. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.

 

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