July 22, 2014

Terminations without Cause – An Assessment of Reasonable Notice

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In Ostrow v. Abacus Management Corp. Mergers and Acquisitions, 2014 BCSC 938 (May 29, 2014), the British Columbia Court Supreme Court assessed the appropriate notice period for a nine-month employee.

The employee, Ostrow, was 42 years old and had been employed by the Defendant Company as a Senior Manager in the Structured Financial Solutions group.  The employment contract was negotiated over a period of three weeks.  It stated that upon termination of the contract by the company, Ostrow would be entitled to reasonable notice or pay in lieu of reasonable notice in accordance with the law. 

For operational reasons, Ostrow was terminated without cause approximately nine months into the employment contract.

In order to determine the applicable notice period, the British Columbia Supreme Court looked at the factors set out in Bardal v. Globe and Mail Ltd. (1960), 24 D.L.R. (2d) 140 (Ont. H.C.):  “the character of the employment, the length of service of the servant, the age of the servant and the availability of similar employment, having regard to the experience, training and qualifications of the servant.”  The Court also stated that it must look at recent precedents to determine an appropriate range.

The Court considered Saalfeld v. Absolute Software Corporation, 2009 BCCA 18, which provided that two to three months’ notice would be appropriate for an employee of nine months “[a]bsent inducement, evidence of a specialized or otherwise difficult employment market, bad faith conduct or some other reason for extending the notice period.”

The Court acknowledged that Ostrow held a senior position, weighing in favour of increasing the standard notice period.  Although he did not have any supervisory responsibilities, the Court found that his significant remuneration reflected a high level of responsibility and that he was a specialized professional. 

The Court also considered a number of additional factors including inducement, assurances of job security, employee vulnerability, and the presence of a non-competition clause:

While inducement can increase the standard notice period, the Court found that there was no inducement in this case as his employment with his previous employer was short-term and Ostrow’s employment with the Company was of equal interest to both him and the Company. 

The evidence showed that the Company repeatedly assured Ostrow of his job security before and after the employment contract was signed.  This warranted an increase in the amount of notice.

Employee vulnerability can also act to increase the notice period, but the Court found that this was not applicable in the case at hand.  The Company was not liable for financial stress caused by a gap in employment prior to Ostrow’s employment with the Company, and although they were aware that Ostrow had an illness, he rarely showed signs of suffering during his employment. Ostrow did not provide medical evidence that he was vulnerable on termination due to a medical condition.

The presence of a non-competition clause applicable for six months following termination was viewed by the court as requiring an increased notice period.  Although the Company did not seek to enforce it, they gave Ostrow a formal letter on his termination reminding him of the non-competition clause and also verbally reminded him of same, rendering it reasonable for him to believe that he was bound by it. 

Based on the above-mentioned considerations, the Court assessed the length of reasonable notice to be six months.  Ostrow was entitled to all salary, benefits and bonuses that he would have received if he had continued to be employed by the Company during the notice period, including lost CPP contributions and the amount of money paid by Ostrow to replace lost benefits.

Lessons for Employers:

Although non-competition clauses can act to protect employers from competition by former employees, this case appears to indicate that such clauses can also increase the reasonable notice period owing to employees upon termination without cause.

To avoid the common law notice period and to create greater certainty, an employment contract can expressly limit the notice period to a specific duration that is greater or equal to the minimum notice period as contained in the applicable employment standards legislation. 

A complete copy of the British Columbia Supreme Court decision may be found at the following link:
Ostrow v. Abacus Management Corporation Mergers and Acquisitions, 2014 BCSC 938 (CanLII)

For more information, please contact Terri Higdon 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.