'The court didn't have much trouble finding a 24-month notice was appropriate': lawyer
“In most long-notice-period cases, employers need to make sure that they're updating employment agreements regularly, having those agreements reviewed, and considering using termination clauses to limit their obligations [upon termination].”
So says Joel Smith, a partner at Williams HR Law in the Greater Toronto Area, after an Ontario court ordered an employer to pay $1.3 million in severance pay and bonuses to a long-term senior employee who was let go in a restructuring.
The worker, 63, came to Canada from England in 1994 and joined PRGX Canada, a global audit and advisory firm, to work in its Mississauga, Ont., office. He was one of the first few employees at PRGX, which served a “highly specialized and niche market.”
The worker stayed with PRGX for nearly three decades, becoming the firm’s vice-president of North America operations and global audit innovation in 2019.
In his role, the worker didn’t report directly to the CEO but he was at a high level, overseeing the retail operations of Canada and the US, the markets that accounted for about 45 per cent of PRGX’s revenue.
Salary, bonus, equity
The worker’s compensation included an annual salary, a substantial nondiscretionary annual incentive bonus, and taxable benefits. The bonus ranged from 50 per cent of his base salary up to 100 per cent, depending on whether performance targets for both his own business unit and PRGX overall were reached. He also received discretionary grants of equity in the firm, which were given out to “key employees.”
When the worker was promoted to the vice-president position, PRGX gave him a new offer of employment letter that set out the bonus plan. It stated that, to be eligible for the bonus, an employee had to be in a regular full-time position before Sept. 30 of the plan year and employed when the bonus was scheduled to be paid.
On July 28, 2022, PRGX terminated the worker’s employment as part of a restructuring. The firm provided 34 weeks’ severance pay, the minimum amount required by employment standards legislation.
The worker sued for wrongful dismissal, claiming damages for 24 months’ notice. PRGX countered that the worker was not a senior employee and was only entitled to 16 to 18 months’ notice. The firm also argued that the worker didn’t reasonably mitigate his damages by looking for alternate employment within the industry in which he had worked for 29 years, which should further reduce the notice period to eight months - only slightly more than the statutory minimum that it had already paid the worker.
PRGX also argued that the worker wasn’t entitled to damages for his bonus during the notice period, as the employment letter stated that eligibility ended with the end of employment.
Reasonable notice
The Ontario Superior Court of Justice noted that “reasonable notice is intended to reflect an adequate period of time for the dismissed employee to find other comparable employment” with various factors such as age, character of employment, and the ability to find similar employment coming into play.
Although PRGX argued that the worker wasn’t a senior employee because he didn’t report directly to the CEO, the court found that the worker’s responsibilities and compensation reflected a senior executive role. He oversaw Canadian and US retail operations and received a significant annual bonus that senior executives received. His salary was high and he received equity, solidifying his place as a senior executive, said the court.
The court also found that the worker’s advanced age and 29 years of service were significant factors in his ability to find new and similar employment. Someone who has been with the same employer for so long would develop specialized skills for that company that might not translate elsewhere, and many employers would not be looking to hire someone in their sixties, said the court, adding that the specialized and niche industry would have limited opportunities.
The court considered case law dealing with dismissed employees in similar circumstances and agreed with the worker that 24 months was an appropriate notice period.
The worker’s age, period of service, and his role with PRGX were the key factors pointing toward a notice period in the upper range, according to Smith.
“I would imagine the court didn't have much trouble finding a 24-month notice was appropriate,” he says. “And we've been seeing more and more cases recently going over 24 months, although the Court of Appeal a few years ago suggested that there should be a cap of 24 months except in extraordinary circumstances - I wonder if more might have been awarded if the [worker] pleaded for more.”
Bonus entitlement during notice period
As for the worker’s bonus, the court noted that a dismissed employee is entitled to any bonuses they would have otherwise earned during the reasonable notice period, unless the employment contract unambiguously removes that entitlement. PRGX’s requirement that the worker be actively and full-time employed to receive the bonus was not clear and unambiguous, as the worker would have been actively employed had he received proper notice of dismissal, said the court, adding that the worker is treated as employed during the notice period for purposes of compensation.
In addition, the bonus was not discretionary and was part of the worker’s compensation package, the court said in finding that the worker was entitled to damages for the bonuses paid out during the notice period.
“From my position, it looks like the courts are always looking for a way to award something to employees and provide the maximum damages that that are supportable at law, so it's an uphill battle for employers in the first place,” says Smith. “This is a good example that the courts are going to make it really difficult for employers to argue that bonus compensation shouldn't be paid during a common law notice period, and that fits well with the general idea that, unless there's a clear contracting out of the entitlements or common law notice period, the employee is entitled to all aspects of compensation - and that's going to include nondiscretionary bonuses that form a key part of that compensation.”
The court disagreed with PRGX’s claim that the worker didn’t adequately mitigate his damages. He worked in a specialized, niche market with few competitors, meaning that there were few to no comparable positions, said the court. In addition, the worker provided evidence that, although he didn’t begin his search in the industry, he made “a sustained effort to seek senior level employment” in other industries and PRGX did not provide a reference letter or make any effort to assist the worker in his search. As a result, regardless of whether the worker acted reasonably at the start of his job search, PRGX did not establish that the worker would have found comparable employment if he did, the court said.
Uphill battle to prove lack of mitigation
The bar for employers in proving that a dismissed employee failed to mitigate their losses seems to be getting higher, according to Smith.
“The court said that regardless of whether the worker acted reasonably or not at the outset of his search, [PRGX] failed to establish that he could have obtained a comparable job, and that to me is fundamental for the way the courts are looking at these cases,” he says. “The court seems to be acknowledging, perhaps this employee didn't act reasonably yet but because of the test that's been established over the years, the employer didn't do enough to show that the worker didn't act reasonably.”
Although the court called out PRGX for not making any effort to help the worker’s job search, it’s not always easy, says Smith.
“Often when an employee is being let go, there's some sort of concern about the employee's performance or conduct and the employer may not want to leverage its reputation and brand in the industry,” he says. “But certainly in legitimate restructuring situations where the employee is not at fault, the employer leveraging their network in that way can be really valuable.”
PRGX was ordered to pay the worker damages equalling 24 months’ salary, benefits, and bonuses, minus the 34 weeks’ severance already paid, for a total of more than $1.3 million.
