Superior Court of Justice Increases Reasonable Notice Assessment Due to COVID-19

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From the outset of the COVID-19 pandemic, there has been significant uncertainty in the legal community as to the potential impact of the resulting global economic shutdown on damages awards in employment litigation. In the recent decision of Kraft v. Firepower Financial Corp., the Ontario Superior Court of Justice provided insight into the issue specifically as it pertains to the calculation of the reasonable notice period that helps determine the amount of damages an employee might be entitled to on termination of their employment.

 

Facts

In October of 2014, the plaintiff was hired by the defendant, Firepower Financial Corp. (“Firepower”) as a research assistant. At the time of the termination of his employment, however, he had moved into the role of a specialized commissioned salesperson working in the investment banking field. In this position, he received an annual base salary of $70,000, plus commission, incentive payments, vacation and health benefits. During his employment, the plaintiff’s entitlement to commission was based on his sourcing and presenting to his employer any opportunities that resulted in fees payable to it, whereas his entitlement to incentive payments was based on his participation in what was known as the Bonus Pool’s fee-generating activities.

In March of 2020, the plaintiff’s employment with Firepower was terminated without cause. At the time of the termination of his employment, the plaintiff was expecting to receive two pending commission payments:

  • In 2017, the plaintiff had identified a potential deal that, at the time of his termination, was nearing completion and for which payment was expected to be forthcoming imminently (the “Arzon Deal”). The Arzon Deal was expected to generate a commission payment to the plaintiff in the amount of $77,559.
  • Similarly, the plaintiff had identified another potential deal that, at the time of his termination, had not yet closed and had an uncertain closing date (the “Schure Sports Deal”). The plaintiff’s work on the deal, though, was complete. The Schure Sports Deal was expected to generate a commission payment to the plaintiff in the range of $10,000 to $30,000.

Firepower proposed to make the pending commission payments to the plaintiff as long as the deals closed within 5 months of the termination date. The Arzon Deal only ended up closing 6 months after the plaintiff’s termination and the Schure Sports Deal had still not yet closed as of the date of the motion hearing.  Firepower took the position that the commissions associated with both deals were not owed to the plaintiff.

Dissatisfied, the plaintiff ultimately elected to sue Firepower, seeking, amongst other things, pay-in-lieu of a reasonable notice period of 10 months’ salary, as well as commission on both the Arzon Deal and the Schure Sports Deal. He then brought a motion for summary judgment, wherein he was asking the Court to render a judgment without the need of a trial.

 

Decision

Finding that the matter was appropriate for summary judgment, Justice Morgan of the Ontario Superior Court of Justice rendered his decision regarding the appropriate reasonable notice period in this case.

In doing so, the Court considered the parties’ arguments in respect of the appropriate notice period, including as it pertained to the impact, if any, that the COVID-19 pandemic and resulting economic shutdown should have on the Court’s assessment of reasonable notice. Relying on the evidence of his lengthy job search, the plaintiff argued that the COVID-19 pandemic had seriously impacted his ability to find new employment and that this should accordingly be a consideration in the Court’s reasonable notice assessment. Conversely, Firepower took the position that the Court should reject any consideration of the economic shutdown caused by the COVID-19 pandemic because the plaintiff’s employment had been terminated prior to the provincial government’s official enactment of a state of emergency.  The Court rejected Firepower’s position on the issue, stating as follows:

At issue here is the job market and the impact of COVID on that market. The reason that the pandemic was not taken into account in determining the reasonable notice period in Yee is that the employee in that case was terminated in August 2019 – i.e. more than a half year prior to the COVID pandemic – and there was no evidence that the pandemic impacted his job search.

Here, by contrast, the Plaintiff was terminated during the second week of March 2020, the very same week and just days before the Ontario government declared an emergency. Whatever policy considerations drove the provincial government to implement its emergency orders on one particular day that week and not another are not relevant to the analysis; the point is that the economy was already shutting down and remained closed during the Plaintiff’s inevitably prolonged job search. A global pandemic does not just emerge on the day of the government’s emergency decree.

Especially during the first half-year of the shutdown in response to the pandemic, there was uncertainty in the economy and the job market and fewer employers were looking to fill positions. I agree with cases that warn against the danger of applying hindsight to the reasonable notice analysis: Iriotakis v. Peninsula Employment Services Limited, 2021 ONSC 998, at para. 19. But as a number of my colleagues have commented, “[t]his degree of uncertainty, which existed on February 19, 2020, is one of the many factors that I consider in assessing the reasonable period of notice applicable to the circumstances of this case”: Lamontagne v. J.L. Richards & Associates Limited, 2021 ONSC 2133, at para. 64.

Turning then to the assessment of the appropriate notice period in light of other relevant factors, the Court considered the fact that the plaintiff had worked for Firepower for 5.5 years, was mid-career at the time of the termination, and had held a position which required some specialized knowledge of the investment banking field. Case law in which the plaintiffs were of a similar age, experience and time on the job supported a reasonable notice period of between 4 and 12 months, with the average notice period being in the range of 9 months. In this particular case, the Court awarded 10 months for the notice period, deciding that the plaintiff deserved “one month more than the average for his circumstances during non-pandemic times” in order to account for the impact of the COVID-19 pandemic on his ability to secure new employment following his termination.

Finally, on the issue of the pending commission payments, the Court accepted the plaintiff’s arguments that any commission payable during the reasonable notice period was owed to him, as indicated by the Supreme Court of Canada’s decision in the Matthew v. Ocean Nutrition Canada Ltd. matter. That said, it did not agree with his argument that any commission due for sales effected but not yet closed prior to termination would be owed to him, even if these became payable by Firepower following the end of the reasonable notice period. In the result, the Court awarded the plaintiff commission in the amount of $77,559 on account of the Arzon Deal, which closed during what should have been the plaintiff’s reasonable notice period. Likewise, it awarded the plaintiff the percentage share of the Bonus Pool that would have been paid to him had he continued working for Firepower during his reasonable notice period. It did not, however, award any commission on the yet-to-close Shure Sports Deal, concluding that the plaintiff’s entitlement to wages, including commission or other incentive payments, was not without end:

The notice period defines the time frame after which both the employee and the employer must put the employee’s wages flowing from his termination behind them. Otherwise, an employer and employee would be tied to each other indefinitely. I am of the view that a judgment in a case like this should bring finality to the issues between the parties.

 

In Our View

Although this is not the only court decision addressing the impact of the COVID-19 pandemic on damages awards in employment litigation to date, it is certainly one that employers should take note of when considering terminating employees while the global economy continues its gradual recovery.

Though the Court extended this employee’s reasonable notice period, it is notable that it only did so by one month and, at that, kept the overall notice period within the range noted from previously decided cases. This is particularly important given that the employee’s reasonable notice period ran during the height of the pandemic, from March of 2020. With this is mind, and though employers do need to be cognizant of the potential for extended reasonable notice periods, it is also positive that Justice Morgan did not, for example, rely on the pandemic to extend the reasonable notice period by four or six months.

Further, it is also our view that the extent to which a situation is amenable to an extended notice period will depend on the industry in which the employee worked and the specific employee’s skill sets. Though the pandemic, particularly in the early days, caused a general economic slow down, it is also the case that this slow down did not affect all industries and employees equally. For example, there is anecdotal evidence that the pandemic caused a surge in demand for employees with certain skill sets, such as those with skills relevant to the operation of IT departments and the like. In these situations, employers may have a good basis upon which to argue that no pandemic-related extension of the reasonable notice period is warranted – perhaps even the opposite.

For more information on your rights and obligations as an employer, including when terminating an employee, please contact Jennifer Birrell at 613-940-2740 or Kyle Shimon at 613-563-7660 ext. 269.