Employers often rely on a “rule of thumb” of one month of notice per year of service when assessing termination entitlements. The recent decision of Carroll v. Oracle Canada ULC [Carroll] demonstrates why employers cannot rely on this approach. Despite the employee’s relatively short service, the Ontario Superior Court of Justice (“ONSC”) awarded a significantly greater reasonable notice period than one month per year of service and also awarded punitive damages for the employer’s delayed payment of commissions owed during the statutory notice period.

Background

The employee held the position of Global Strategic Client Executive and had been employed for three years and seven months when his employment was terminated without cause as part of a restructuring. At the time of dismissal, he was 61 years old and was earning a base salary of $180,000 plus significant commissions.

The employee sought damages for wrongful dismissal, including damages in lieu of base salary, commissions, benefits, and RRSP contributions, as well as damages for Restricted Stock Units (“RSUs”) that would have vested during the reasonable notice period, plus punitive damages for the employer’s eight-month delay in paying commissions owed during the statutory notice period.

The Court’s Decision

Although the employee was only employed for a relatively short period, the ONSC emphasized that his role, high income, and age supported a longer notice period and awarded him 12 months’ reasonable notice. The Court fixed commissions over the notice period using a three-year average, and also awarded benefits at 10% of base salary and RRSP matching at 6% of base salary pursuant to his employment contract.

Although the employee mitigated his damages by securing alternative employment within eight months, the ONSC found the new role not yet fully comparable because it would take time to build client relationships and earn similar commissions. The Court therefore included the first few months of the new job in the 12-month notice period, while deducting the employee’s mitigation earnings.

The ONSC also found that the employer’s failure to provide the employee with a meaningful letter of recommendation supported a lengthier notice period. While the employer provided a letter confirming his position, length of service, and salary, the Court noted that the letter would not have assisted the employee in his job search and might even have been harmful, calling it “the sort of letter that an employer would write for a mediocre or problematic employee in respect of whom an employer did not want to say anything proactively negative.”

While the employee argued that he was entitled to damages related to unvested RSUs during the notice period, the ONSC held that the RSU plan unambiguously precluded any claim for damages for lost RSUs and dismissed that claim.

Lastly, the ONSC awarded $57,740.55 in punitive damages for the employer’s eight-month delay in paying commissions. The Court found that the employer had the information needed to calculate the payments but failed to do so. As a result, the ONSC held that the employer breached its duty of good faith and imposed punitive damages equal to the amount of commissions withheld.

Takeaways for Employers

• Do Not Rely on “Rules of Thumb” for Notice: While some employers assume one month of notice per year of service, this is not the law. Courts weigh all relevant factors, and when one or several factors are significant—such as age, income level, or seniority—the notice period may be much longer.
• Consider Providing Reference Letters: The ONSC in Carroll held that the employer’s failure to provide a meaningful reference letter supported a longer notice period. Employers with strict no-reference policies should recognize that, in some circumstances, declining to provide a helpful letter can lead to a higher notice award.
• Pay Statutory Entitlements Promptly and Accurately: The employer’s failure to pay commissions owed during the statutory notice period resulted in punitive damages. Employers should ensure all statutory termination entitlements are calculated correctly and paid on time.

This blog is provided as an information service and summary of workplace legal issues.

This information is not intended as legal advice.