April 22, 2014

Beware of Using One Month Per Year of Service “Rule of Thumb”

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One of the questions at the forefront of many employers’ minds when they are considering terminating an employee without cause is how much it is going to cost. Unless there is a written employment contract with an express termination clause, an employer’s obligation is to provide reasonable notice of termination. Since there is no set formula for determining the appropriate length of the reasonable notice period, employers (or their legal counsel) must estimate what they think the notice period could be, having regard to the employee’s age, length of service, character of employment, the availability of similar employment, and the employee’s skills and training. Often, employers and their legal counsel will use a rough rule of thumb of one month notice per year of service (although the courts have denied that such a rule of thumb exists).

Every so often a case comes along that reminds employers and their legal counsel that while the “one month notice per year of service rule of thumb” may be helpful in some circumstances, it certainly is not applicable in every case. The Ontario Superior Court’s decision in Dimmer v. MMV Financial Inc., 2012 ONSC 7257 is a good reminder that the determination of an appropriate notice period is very contextual and, depending on the facts of a case, an employee could be awarded significantly more than one month notice per year of service.

Dimmer was the Senior Vice President of a financial services company for four years. He was dismissed without cause when the Company decided to significantly curtail its operations. His former employer agreed that he was entitled to damages for pay in lieu of notice, but the parties disagreed on the length of the appropriate notice period.

The Court found that although Dimmer only had 4 years of service, he was entitled to a 12 month notice period for the following reasons:

  • Dimmer was dismissed in June, 2011 amidst unfavourable market conditions;
  • Dimmer was a senior executive in the company and case law has recognized that senior managers are entitled to a longer notice period due to the nature of their employment;
  • Dimmer was bound by a non-competition agreement in his employment contract which effectively eliminated any opportunity to obtain similar employment for 12 months;
  • While the company did not target Dimmer for hire, it did use a corporate search agency to locate him and it offered him employment knowing that he was working for another company; and
  • Dimmer was 50 years of age at the time of dismissal.
This case serves as a good reminder to employers that the appropriate notice period turns on the facts of each case and that adherence to the “one month per year of service rule of thumb” will not always satisfy their obligations when terminating an employee without cause. Employers would be well advised to seek legal advice on the appropriate notice period because the circumstances (and analogous cases) may indicate that the employee is entitled to significantly more notice period than the employer may have initially thought.

For more information, please contact Alison Bird at coxandpalmer.com.

Cox & Palmer publications are intended to provide information of a general nature only and not legal advice. The information presented is current to the date of publication and may be subject to change following the publication date.