Many believe that common law notice is calculated based on 1 month for each completed year of service. While some employees are awarded notice that appears to follow that calculation, sometimes employees are entitled to more. This proved to be true for a long term employee in O’Reilly v. IMAX Corp.,  O.J. No 393 (“O’Reilly”).
In O’Reilly, a 53 year old employee was awarded 24 months’ notice following his termination without cause after 22 years of service from IMAX Corp (“IMAX”). Mr. O’Reilly held the position of President, Institutional and Strategic Sales at the time of termination and was earning a base salary of $335,000.00 plus commissions and bonuses. Mr. O’Reilly also held Restricted Stock Units (RSUs), stock options, participated in the employer’s pension plan and received benefits. When IMAX terminated Mr. O’Reilly and provided him with a combination of 12 weeks working notice followed by salary continuance for up to an additional 13 weeks based on some, but not all, aspects of his annual compensation, Mr. O’Reilly commenced a legal action for wrongful dismissal.
On a Motion for Summary Judgment, Mr. O’Reilly sought 30 months’ notice calculated based on his total compensation at termination. Justice Faieta determined that 24 months’ notice was reasonable given Mr. O’Reilly’s age, years of service, senior position, limited availability of similar employment – and despite the fact that it took Mr. O’Reilly 25 months to obtain new employment. In determining what should be included over the notice period, Justice Faieta cited Paquette v. TeraGo Networks Inc., 2016 ONCA 618, 352 O.A.C. 1, at paragraph 17, “The basic principle in awarding damages for wrongful dismissal is that the terminated employee is entitled to compensation for all losses arising from the employer’s breach of contract in failing to give proper notice.”
In keeping with this principle, Justice Faieta determined that Mr. O’Reilly’s 24 months of notice should be calculated based on his total compensation and associated losses arising from the termination. This meant that the notice was based on Mr. O’Reilly’s annual salary, lost commissions based on his earned commissions in the last completed year prior to termination (rather than an averaging of the last 3 years of commissions), damages for the lost RSUs and stock options that would have vested over the notice period, damages for the loss of IMAX’s contributions to the pension plan over the notice period, car allowance and lost benefits. IMAX was unable to rely on a prior commission plan signed by Mr. O’Reilly during his employment to limit Mr. O’Reilly’s entitlements to commissions because the agreement would only have limited the payment of commissions in the event of Mr. O’Reilly’s resignation. As Mr. O’Reilly was terminated by IMAX without cause, IMAX could not rely on the commission plan to limit the payment of commissions over the 24 month notice period.
Lessons for Employees
Notice is calculated based on a number of factors and can result in an award of more than 1 month of notice for each completed year of service in some circumstances. When handed a termination package, it is important to analyze 2 key aspects of the package: (1) the length of the notice period provided, and, (2) what is being continued (or is not being continued) over the notice period. To ensure there is no wrongful dismissal arising from a without cause termination, the termination package must be reasonable in terms of the length of the notice period and should include all aspects of the employee’s compensation at termination or provide for losses incurred over that timeframe. It is recommended that terminated employees have their termination packages carefully reviewed by an experienced Employment Lawyer to ensure they are adequate in the circumstances and to assist with negotiations if required.
Lessons for Employers
This case is a reminder for employers of the importance of drafting clear and well thought out employment agreements and compensation plans. If employers do not implement properly drafted employment agreements and compensation plans, their common law notice obligations to long service employees can be very significant. In some situations employees may be entitled to more than 1 month of notice per each completed year of service, with the notice being calculated on the employee’s total compensation at termination. It is important for employers to obtain legal advice when hiring employees, and throughout the employment relationship, to ensure that legal obligations are being met and where permitted, being limited. This will ensure that businesses are able to run efficiently and to minimize the risk of costly litigation.
Minken Employment Lawyers is your source for expert advice and advocacy on today’s employment law issues. Whether you are an employer or an employee, we can help. Contact us for more information.
Minken Employment Lawyers is your source for expert advice and advocacy on today’s employment law issues. Whether you are an employer or an employee, we can help. Contact us to see how.
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