Assessing short-service notice periods
The length of service of an employee is often over-emphasized in assessing reasonable notice periods. The Ontario Court of Appeal recently noted the importance of the character of employment and a consideration of the availability of similar employment in awarding a lengthier notice period to a short-service employee.
In Love v. Acuity Investment Management Inc., [2011] O.J. No. 771, the employee, Love, was a chartered accountant who sought employment in the investment management field because he wanted an opportunity to acquire an equity interest. He began working for Acuity in October 2002 and became a senior vicepresident. He reported directly to the CEO, did not supervise employees and managed the firm's institutional clients. In August 2004, he purchased a two per cent ownership share in the company.
Love was dismissed without cause on May 3, 2005. At the time, he had 2.53 years of service and was 50 years of age. His average annual compensation was $633,548.
In assessing Love's reasonable notice period, the trial judge focused immediately on the short length of service. The trial judge stated that while Love was 50 years of age, he really held a senior level sales position and did not manage or supervise employees. He concluded that in the circumstances of this case, the reasonable notice period was five months.
On appeal, the Court of Appeal concluded that the trial judge made three errors in principle that justified overturning the five months notice period.
First, the trial judge overemphasized the appellant’s short service. The trial judge was wrong to focus on two decisions with short-service employees as guidance. The court stated that while short service is a factor tending to reduce the appropriate length of notice, reference to case law regarding length of service must be done carefully.
The risk is that while lengths of service are easily compared, dissimilar cases could be treated as requiring similar notice periods just because the lengths of the service are similar. This would cause length of service to take on a disproportionate weight. In Love, the trial judge drew guidance from two cases that, apart from the short length of service, were different from Love's circumstances. Focusing on the length of service in these cases was therefore an error.
The second error in principle was that the trial judge underemphasized the character of employment. The Court of Appeal found that the trial judge wrongly placed emphasis on the sales nature of the position and the fact that Love did not supervise employees. It stated that even though Love did not have direct reports, he was still a very senior employee. He reported directly to the CEO, was responsible for a significant part of the business, earned a significant level of remuneration and was a shareholder. The court noted that being a high-level employee favours a longer notice period.
Finally, the trial judge gave no consideration to the availability of similar employment. Love’s substantial annual earnings and equity participation with his employer were important aspects of his employment and are relevant in assessing similar employment opportunities. Both his high earnings and equity ownership suggested it would be harder to find similar employment and favoured a longer notice period.
The Court of Appeal concluded that based on these errors, the trial judge's assessment of five months was an error in principle. As a result of the character of Love's employment and the challenge of finding similar employment, his age and short service, the Court of Appeal substituted a period of nine months.
This decision requires counsel to properly assess the character of employment and the job market when assessing the appropriate length of a notice period and not focus too slavishly on length of service for short-tenured employees. The decision is a good reminder that the notice period needs to be based on all the relevant factors, rather than overemphasizing one factor over others.
Steve Levitt practises employment law with Nelligan O'Brien Payne LLP, a full service law firm, in Ottawa.
[This article is reprinted with permission and first appeared in the May 2011 issue of The Lawyers Weekly.]