THE EMPLOYERS' EDGE
Two Points from Ontario’s top court: 1) Short service does not mean short notice; and 2) Employment “ends” when active service ceases
A recent Ontario Court of Appeal decision provides a useful reminder to employers that short service does not necessarily mean short notice. In addition, the decision establishes that when an employee is dismissed without notice, his or her employment is considered terminated at the point of actual dismissal, not the end of the notice period that should have otherwise been provided. This finding is particularly important in employment relationships that confer stock options as part of the remuneration package.
In Love v Acuity Investments a senior vice president was dismissed without cause after only 2.5 years of employment. The trial judge assessed the plaintiff's notice entitlement at 5 months, having regard to his relatively short tenure with the employer. The Court of Appeal substituted a 9 month notice period, reasoning that the trial judge allowed length of service to take on disproportionate weight to the exclusion of other relevant factors in the assessment of reasonable notice. In particular, the fact that the plaintiff was one of only two senior vice presidents, reported directly to the CEO and would have difficulty finding similar alternative employment required a longer period of notice. The decision is a reminder that the assessment of reasonable notice is a holistic analysis and that no one factor, including length of service, should be given disproportionate consideration. The decision certainly appears to undermine length of service as a factor to lessen the period of notice in relation to executive level employment.
The issue concerning whether a wrongfully dismissed person’s employment is deemed terminated at the point of dismissal or the end of the period of reasonable notice arose in the context of the employer’s entitlement to buy back the plaintiff’s shares in the company within sixty (60) days from the date that the plaintiff “ceased” to be an employee of the employer. If the plaintiff “ceases” to be an employee of the defendant at the end of the period of reasonable notice that should have otherwise been provided to him, then the Plaintiff would benefit by demanding an increased share price due to the longer period of share valuation.
Overturning the trial judge, the Court of Appeal found that when the employee ceases to be an employee is a question of fact. Consequently, it was clear to the court on the facts of this case, that while the Plaintiff was dismissed without cause, the date of termination was the date that employment actually ceased, not the end of point of the five (5) month notice period assessed by the trial judge, or the nine (9) month notice period substituted by the Court of Appeal. According to the Court, “the end of his notice period represents the end point of his entitlement to compensation in lieu of notice, not the end of point of his employment”.
The Court’s finding in respect of when employment ends is applicable to equity compensation plans which specify the cessation of employment as the trigger point for quantifying the value of shares. However, in light of previous Court of Appeal authorities which arguably contradict the decision in Love, we would caution employers to ensure that their stock option plans are clear and unequivocal in specifying that the date that employment ceases is the date that active services cease, not the end of any notice of termination period that the employee may be entitled to. The lawyers at CCP can assist employers in drafting appropriate language in stock option agreements and in determining the appropriate period of common law notice for an employee about to be dismissed without cause.
Please Note: This blog has been prepared as an informational service for our clients and other interested parties. It is not intended to constitute legal advice, a complete statement of the law or opinion on any subject. Although we endeavour to ensure the accuracy of the content, no one should act upon the information provided without a thorough examination of the law after the facts of a specific situation are fully considered.