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A recent judgement by an Ontario court serves as a reminder to employers of the importance of having employment contracts in place to limit the business’ financial exposure when terminating an employee.

Employers are likely aware that they generally cannot terminate employment without cause unless they provide the employee with notice (or provide the employee with pay in lieu of notice). Just how much notice an employee is entitled to depends on a number of factors. For example, if an employment contract exists and specifies how much notice will be given, the courts will generally (but not always) defer to the contract.

Absent a written employment contract, the courts will consider the employee’s age, compensation, length of service, the type of position held, and the surrounding job market in order to determine how much notice would be required to allow the employee to find new employment. Of course, employees must always receive notice (or pay in lieu of notice) greater than or equal to the minimum amounts provided for in Ontario’s Employment Standards Act, 2000.

Notice periods vary from case to case. Generally, the longer an employee has been with a company and the older the employee, the more notice (or payment in lieu of notice) is required. In most cases the courts are reluctant to award notice periods greater than 24 months.

However, as we have seen from a recent case, there are exceptions to this informal “cap”. For example, in Markoulakis v Snc-lavalin Inc., 2015 ONSC 1081, the 65-year-old employee had been employed for over 40 years by SNC-Lavalin Inc. when the company terminated his employment due to a shortage of work (i.e. without cause). The company provided the employee with 34 weeks’ (7.5 months’) pay in lieu of notice at the time of his termination. There does not appear to have been any employment contract in place that would have limited the employee’s ability to claim a longer notice period. As a result, the employee sued alleging that he should have received 30 months’ notice.

The Court found that the fact that SNC-Lavalin Inc. was the employee’s only employer rendered his age and length of service sufficiently “exceptional” in the circumstances to warrant a notice period in excess of the traditional 24-month cap. The Court awarded 27 months’ pay in lieu of notice.

For employers, the risk associated with extraordinarily long notice periods required for longer-service and older employees can be mitigated through properly drafted employment agreements. For questions regarding how to limit your business’ exposure through the use of employment contracts, contact Chris Sinal at [email protected] or any of the other lawyers in Siskinds’ management-side Labour & Employment Group.

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