Ontario Court of Appeal affirms lengthy notice periods in “exceptional circumstances”

The Ontario Court of Appeal recently affirmed reasonable notice periods in excess of 24 months for two long-service employees. 

Such lengthy notice periods are supposed to arise only in “exceptional circumstances.” Lynch v. Avaya Canada Corporation, 2023 ONCA 696 and Milwid v. IBM Canada Ltd., 2023 ONCA 702 highlight factors that might push a notice period beyond 24 months. Employers should consider the potential for such lengthy notice awards in assessing termination risks associated with long-service employees.

Background

At common law, an employee is entitled to “reasonable notice of termination” unless an employment contract otherwise defines the notice owed. There is no exact formula for calculating the length of a notice period. It is meant to represent a reasonable period for the employee to find comparable employment. The traditional factors in the assessment (called the Bardal factors) are:

• The character of the employment. A more specialized or senior position may justify a longer notice period.
• Length of service. Greater service length typically leads to a longer notice period.
• Age of the employee. In general, older employees receive longer notice periods.
• Availability of similar employment. A favourable job market might decrease notice periods. An unfavourable market might increase notice periods.

Many years ago, the Ontario Court of Appeal held that while there is no upper limit or cap on reasonable notice periods, only exceptional circumstances will support a notice period in excess of 24 months.¹ 

In Lynch and Milwid, the Court of Appeal put a spotlight on what might be considered exceptional circumstances.

Lynch v Avaya Canada Corporation

Mr. Lynch, an engineer with 39 years’ service, was dismissed without notice and brought a wrongful dismissal claim. On summary judgment, the motion judge awarded a 30-month notice period after considering the Bardal factors as a whole. She did not identify which factors constituted exceptional circumstances.

On appeal, the Court of Appeal declined to interfere with this award. The Court of Appeal stated that a judge should specifically identify factors that constitute exceptional circumstances, but in this case it was possible to discern those factors:

• Mr. Lynch specialized in the software unique to the employer’s hardware manufacturing;
• His skills were tailored to his specific workplace experience; 
• He developed patents for the employer each year;
• He was identified as a “key performer” in one of his last performance reviews; and 
• Similar jobs would be scarce where he lived throughout his employment.

Milwid v IBM Canada Ltd.

A managerial employee with 38 years’ service, was dismissed without notice and brought a wrongful dismissal claim. On summary judgment the motion judge awarded a 26-month notice period after considering the Bardal factors, and expressly noting:

• The level of the employee’s compensation in an uncertain economy.
• The technical nature of the employee’s skills geared towards the employer’s business. 

The motion judge further awarded an extra month of notice in recognition of the circumstances caused by the COVID-19 pandemic, which occurred at the time the employee was dismissed.

On appeal, the Court of Appeal noted there is nothing impermissible about relying on the Bardal factors along with other exceptional circumstances, to award a lengthy notice period. The Court of Appeal noted in particular that the employee’s skills were non-transferable because they related almost exclusively to the employer’s products.

Key takeaways

In Lynch and Milwid we see the Ontario Court of Appeal declining to interfere with awards as high as 30 months, well in excess of the 24-month limit expected in most reasonable notice claims. In both cases the “exceptional” facts were essentially:

• The employees had long service.
• They had specialized skills sets.
• Their available job market was uncertain.

These facts are simply the extreme end of the Bardal factors. That they support notice periods of up to 30 months indicates exceptional circumstances might arise on common considerations. While long-service, specialized employees are a small fraction of the workforce, they are not rare. Employers should take note that the ceiling on reasonable notice periods for such employees may not be 24 months – it may be higher.  

Given the prospect of a 30-month notice period, employers should revisit employment contracts to ensure every employee has an enforceable termination clause that limits entitlements upon termination. If long-service employees do not have such a termination clause in their contracts, a new one may be negotiated in exchange for valuable consideration.