When an employer decides to end an employment relationship without cause, one of the first questions is often: How much notice or pay in lieu of notice do we owe?

A common assumption is that the answer is simple: one month for every year of service.

It is not.

Determining an employee’s entitlement on termination can be complex. Depending on whether there is an employment agreement providing direction on termination and, if not,  having regard to all of the circumstances at hand, the common law may govern meaning that the reasonable notice can range from months to two years (and in certain unique cases possibly even more).

Understanding how that notice period is determined can help employers assess and mitigate potential costs and risks before making a termination decision.

Start with the employment agreement

Employers can generally terminate an employee's employment without cause, provided the termination does not violate applicable human rights or other legal protections (including statutory protected leaves) and the employee receives the required notice, pay in lieu of notice, or a combination of both.

Employment standards legislation establishes the minimum notice requirements, and that notice (or pay in lieu) must be given in every instance.  The statutory minimums, however, are not the end of the analysis unless a termination provision in an employment agreement is carefully drafted.

That is, an employee may be entitled to common law reasonable notice in circumstances where a termination provision in an employment agreement is not properly drafted, rendering it unenforceable or failing to limit an employee's entitlement.

As a result, where employers wish to limit notice or pay in lieu of termination, the employment agreement can be a vital tool provided its terms are enforceable. Similarly, before deciding on a termination package, employers should always refer to the termination provisions in the applicable employment agreement to assess what may (and what may not) be owed.

There is no simple formula for reasonable notice

When an employee is entitled to common law reasonable notice, determining the appropriate notice period is more of an art than a science.

Canadian courts generally look to factors that originated from the 1960 Ontario Superior Court decision in Bardal v. Globe & Mail Ltd. These have become known as the Bardal factors.

They include:

• The character of the employment
• The employee’s length of service
• The employee’s age
• The availability of similar employment, having regard to the employee’s experience, training and qualifications

Courts assess these factors together. No single factor determines the answer, and the weight given to each can change depending on the circumstances.

Other facts may also affect the reasonable notice period assessment. For example, a court may consider whether the employee was recruited away from secure employment to join the employer or whether circumstances known to the employer could make it more difficult for the employee to find comparable work, both of which then tend to result in a longer notice period being assessed. 

This is why two employees with similar years of service may have very different notice entitlements.

Why “one month per year” can be misleading

Employers sometimes use one month of notice for every year of service as a quick way to estimate potential liability.

The problem with this approach is that it is not a formula that courts will, necessarily, apply and, in certain circumstances, it could result in an employer underpaying or overpaying severance, as the case may be.

While years of service matter, courts consider the broader circumstances and the applicable Bardal factors. An employee’s age, role and prospects of finding comparable employment can materially impact the assessment.

A short-service employee, for example, is not necessarily limited to only a short notice period. Conversely, years of service should not automatically be converted into an equivalent number of months of notice.

The better approach is always to assess the individual circumstances using the Bardal  factors in each case.

Court decisions are a guide, not a guarantee

Previous court decisions can be useful when estimating reasonable notice, however employers should be careful about treating a seemingly similar case as a guarantee of an outcome.

There is an important difference between assessing reasonable notice at the time of termination and a court deciding the issue months or years later.

By the time a case reaches trial, the court will know how long it actually took the former employee to find comparable work (if re-employed) and what steps the employee took to look for another job.

An employer making a termination decision does not have the benefit of the same hindsight.

Past cases can therefore help establish a reasonable range for the notice or pay in lieu to be given on termination, but they should not be treated as a guide instead of what is certain to be assessed.

Compensation and mitigation also matter

The length of the notice period is only part of the analysis.

Subject to the terms of an employment agreement stating otherwise, an employee’s entitlement during the notice period will typically be assessed based on the total compensation (including benefits) they would have received during the notice period had their employment not been terminated and is not limited to salary alone.

Employees also generally have a duty to mitigate their losses by making reasonable efforts to find comparable employment. Earnings from new employment during the applicable notice period may affect and be deducted from the damages ultimately recoverable.

These issues can significantly affect an employer’s potential exposure and should be considered when structuring a termination package.

Assess the risk before making the offer

Without-cause terminations rarely come down to a single variable calculation.

The employment agreement, statutory requirements, common law principles, compensation structure and individual circumstances can all affect what an employee may be owed.

For employers, the practical lesson is straightforward: do not rely on a one-size-fits-all formula.

Before presenting a termination package, assess the employee’s contractual and potential common law entitlements, consider the range of possible outcomes and understand where the key risks lie.

Such preparation can help employers make a more informed decision, tailor a package that is reasonable and fair, and reduce the likelihood of an avoidable dispute.

If you are considering a termination or reviewing your employment agreements, Suzanne Porteous and BD&P’s Employment & Labour team can help you assess your obligations and determine a practical path forward.