Dismissed Employees: What’s Fair?
The rule of thumb for how much compensation an employee should be given upon termination is a myth that does not hold up in the courts.
From the May 2015 print issue, page 42.
Law is full of its share of misconceptions. For instance, many people talk about a “rule of thumb” that provides that a terminated employee is entitled to one month of pay in lieu of notice per year of employment. The rule of thumb is often advanced in termination proceedings, either during arbitration or before a court, as a convenient and formulaic way to determine reasonable notice.
Despite this common understanding, courts across Canada have emphatically rejected the notion that there is rule of thumb for determining appropriate notice periods for employees.
The starting point for determining what constitutes reasonable notice is the landmark decision over 50 years ago of Bardal v Globe and Mail Ltd., (1960), 24 D.L.R. (2d) 140 (Ont. H.C.). It suggested that the factors to be considered include, but are not limited to: character of employment, length of service, age of the employee, and the availability of similar employment in light of the employee’s expertise, training and qualifications.
Each factor can increase or reduce the reasonable notice period, depending on the facts of each case. For instance, a highly skilled employee who holds a position of responsibility within the organization would generally be entitled to a longer notice period than a lower skilled employee with no such responsibility. All things being equal, an employee who is older, has worked for the employer for a long period, holds a high position with the employer, and has skills and qualifications suited for a limited job market, will generally need more time to find new and similar employment.
Canadian courts have noted that no one factor should be given disproportionate weight, but each situationshould be considered as a whole to determine the reasonable notice period of a terminated employee.
One of the most emphatic rejections of the rule of thumb was by Justice Laskin in the Ontario Court of Appeal case Minott v O’Shanter Development Company Ltd.,  OJ No 5. He found the rule of thumb suffers from several deficiencies. Most unfavourable was that it overemphasized length of service and reduced the importance of the remaining Bardal factors. Thus, Justice Laskin notes, “in my opinion the rule of thumb approach is not warranted in principle, nor is it supported by authority.”
The Saskatchewan Court of Appeal in Capital Pontiac Buick Cadillac GMC Ltd v Coppola, 2013 SKCA 80, was equally dismissive. Justice Caldwell warned employers of the dangers of relying on the rule of thumb, stating: “Practically-speaking then, while employers may wish to use the ‘one month’s notice per year of service’ rule of thumb as a guideline in their day-to-day decision-making given its apparent facility, they do so at their own peril because the rule is not supported by the jurisprudence and is inconsistent with Bardal.”
Alberta courts have also rejected the formula. The court in Milsom v Corporate Computers Inc., 2003 ABQB 296, noted: “It is clear from the case law that Courts cannot apply rules of thumb to set the length of notice required in an individual case: each contest between an employer and an employee deserves individual assessment in the circumstances of the specific case and in light of then current social policy demands.”
More recently, the Alberta Court of Queen’s Bench in Lovely v Prestige Travel Ltd., 2013 ABQB 467, reiterated its position on the rule of thumb, stating that “[t]here is no law that an employee is entitled to one month’s notice for every year of employment.”
Employers and employees are free to determine in advance what reasonable notice will be, by including a provision in an employment contract. Provided the employment contract is otherwise enforceable, a court will uphold a notice period in an employment agreement as long as it meets or exceeds the minimum standards set out in the relevant employment standards legislation.
So, while legal myths like this will continue to fester, it is important to remember that each case must be viewed on an individual basis, taking into account all relevant factors, not just length of service. cce
Cole L. Lefebvre is a labour and employment lawyer with Miller Thomson, LLP in Calgary.