Decision shows courts’ leeriness of rule-of-thumb approach, The Law Times (February 4, 2013)

Decision shows courts’ leeriness of rule-of-thumb approach, The Law Times (February 4, 2013)

By Nikolay Y. Chsherbinin

The concept of reasonable notice is like a living tree capable of growth and expansion within its natural limits. The expansion begins with necessity and is customarily informed by a series of prudential and pragmatic considerations designed to test those natural limits. It’s common knowledge that there’s no single measure of a scientifically correct determination of reasonable notice, but on occasion the courts are asked to apply a formulaic approach in calculating its quantum. An employment matter on point is Abrahim v. Sliwin, a recent case in which the court refused to apply the purported rule-of-thumb formula of one month for every year worked for calculating the reasonable notice period. This decision is peculiar in the sense that the court’s rejection of the rule of thumb appears to be purely academic, thereby rendering it inexorable.

Abrahim concerned a group of 33 non-managerial employees, each of whom was dismissed by virtue of being laid off and not recalled. The employees brought a motion for default judgment through which their counsel sought to recover damages based on one month’s pay for each year of service subject to a cap of 24 months. Under the pen of Superior Court Justice Douglas Gray, the court rejected the proposed formula as untenable at law. In support of its decision, the court adopted the Ontario Court of Appeal’s view as expressed in Minott v. O’Shanter Development Co. Ltd. In that case, the court found the rule-of-thumb approach suffers from two deficiencies: it risks overemphasizing the length-of-service factor and it risks undermining the flexibility that’s the virtue of the test for assessing reasonable notice propounded in Bardal v. Globe & Mail Ltd., and recently reaffirmed by the Supreme Court of Canada in Honda Canada Inc. v. Keays.

Gray found it to be interesting that notwithstanding the rejection of the rule of thumb, the Court of Appeal nevertheless upheld the award of wrongful-dismissal damages based on what essentially amounted to one month for every year worked. Consequently, Gray followed the Court of Appeal’s lead in Abrahim. On the one hand, Gray disagreed with the approach of calculating damages according to a formula; but on the other hand, he ultimately applied it as he found that damages in the amount of one month’s pay for each year of service were reasonable in the circumstances.

As a result, the decisions in Minott and Abrahim demonstrate that the courts’ refusal to adopt the rule-of-thumb formula is really distinction without a difference because the substance of that approach appears to prevail.

Nevertheless, at least in theory, the courts’ rejection of the rule-of-thumb approach is good news for employers. In practical terms, though, the consistency with which the courts arguably apply the formula is equally good news for employees.

In discussing the employees’ proposal of a cap of 24 months’ notice, Gray offered an alarming observation: “I might have decided to award more than 24 months’ pay had such a request been made.”

This observation, coupled with a recent award of 26 months’ notice in Hussain v. Suzuki Canada Ltd., is a cause for concern for employers and their advisers. It allows employees, especially in cases of older and long-serving ones, to plead any notice period with a view to potentially stretching the natural limits of the reasonable-notice doctrine.

Gray’s observation, then, may serve to support a disturbing proposition as some may take it as questioning whether there should be any limit on the reasonable notice recoverable by dismissed employees.

Abrahim serves as a good reminder that in order to substantially reduce their liability for damages, prudent employers should consider drafting and properly implementing employment contracts. Carefully crafted severance clauses may shield employers from increased damages for wrongful dismissal.

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