Ontario Court of Appeal upholds two lengthy notice periods and weighs in on the “Exceptional Circumstances” test

By: Jessica Donen

Recently, the Ontario Court of Appeal affirmed two awards of reasonable notice above 24 months. The decisions are important because, historically, courts have held that reasonable notice is generally limited to 24 months, absent “exceptional circumstances”.[1]

Background

Absent an enforceable employment agreement that limits an employee’s rights on termination, employees are entitled to reasonable notice when they are terminated without cause. The reasonable notice period is supposed to represent the amount of time it will take an employee to find comparable employment. Factors such as an employee’s length of service, age, seniority, and availability of similar work elsewhere (commonly referred to as the “Bardal factors”) are commonly considered in assessing an employee’s predicted length of unemployment.[2]

So, what constitutes exceptional circumstances? Typically, the “Bardal factors” are not considered “exceptional” for the purposes of justifying awards above 24 months.[3] With that said, few examples of exceptional circumstances have been provided by the courts. As a result, the exceptional circumstances framework is not always clear or consistently applied.

The cases

First, in Lynch v Avaya Canada Corporation[4], the Court of Appeal affirmed a 30-month notice period to a 64-year-old employee with almost 39 years of service. On appeal, the defendant argued that the motion judge did not specify any factors that were “exceptional” to warrant a notice period of more than 24 months. The Ontario Court of Appeal disagreed and found that although judges should specifically identify factors that establish exceptional circumstances, it was nevertheless able to determine those factors from her decision. The Court of Appeal summarized the motion judge’s list of “exceptional circumstances” as:

• The uniqueness and specialization of the plaintiff’s position
• The fact that the plaintiff developed one or two patents each year for his employer
• The fact that the defendant considered the plaintiff a “key performer” in one of his last performance reviews and,
• The scarcity of available jobs in Belleville, where the plaintiff resided.

Second, in Milwid v IBM Canada Ltd.[5], the Court of Appeal affirmed a 27-month notice period to a 62-year-old employee with 38 years of service. On summary judgement, the motion judge awarded a 26-month notice period after applying the Bardal factors and awarded an additional month of notice in recognition of the impact the COVID-19 pandemic had on re-employment.

On appeal, the defendant argued that the motion judge erred in only considering the plaintiff’s Bardal factors in fixing a notice period in excess of 24 months. The Court of Appeal held that a judge could consider the Bardal factors in awarding a notice period over 24 months, so long as other exceptional circumstances were also contemplated. The Court of Appeal found that the motion judge’s reference to a lack of transferrable skills constituted an exceptional circumstance that varied from the traditional Bardal factors.

Key considerations

Both decisions are interesting because they raise questions about the future of notice period awards and the exceptional circumstances test.

Milwid suggests that the exceptional circumstances test will be satisfied as long as at least one factor outside of the Bardal factors is considered. The issue with this approach is that the Supreme Court of Canada has clarified that the Bardal factors are not an exhaustive list.[6] Other factors can also be relevant in determining the reasonable notice period including compensation, special circumstances surrounding an employee’s hiring, an employee’s education, and timing of termination. Although the Court of Appeal in Milwid held that “a lack of transferrable skills” constituted an exceptional circumstance, arguably it is just an extension of the Bardal factors.

Lynch runs into the opposite issue. In Lynch, the motion judge considered factors that are unrelated to an employee’s employability in applying the exceptional circumstances test. An employee’s performance or their contributions during their employment are irrelevant in the determination of notice. The fact that the judge considered those factors not only to award a notice period of 24 months, but also to justify a notice period above 24 months is notable.

Unfortunately, neither decision provides clarity on the application of the exceptional circumstances test. What is clear, however, is that notice periods above 24 months are becoming more common, and it may be easier for former employees to argue that exceptional circumstances apply. For employees, these decisions provide support for larger notice period demands upon termination. For employers, these decisions underscore the importance of drafting enforceable employment agreements to limit an employee’s rights to reasonable notice on termination.

[1] Lowndes v Summit Ford Sales Ltd., 2006 CanLII 14 (ONCA) at para 11.

[2] Bardal v The Globe & Mail Ltd., 1960 CanLII 294 (ONSC)

[3] Dawe v The Equitable Life Insurance Company of Canada, 2019 ONCA 512 at para 42

[4] 2023 ONCA 696

[5] 2023 ONCA 702

[6] Wallace v United Grain Growers Ltd., 1997 CanLII 322 (SCC) at para 82