Do Courts Award Increases To Base Salary During Notice Period?
02, March 02, 2017 - Filed in: Court Cases
A recent Ontario Superior Court of Justice court decision did. In Chen v. Purdue Pharma (2015 ONSC 1967), a summary judgment decision, the court said yes, where the employee believed that actual salary increases would occur, those increases should be reflected in the notice period. We always encourage our readers to read the full-text of a decision to have an understanding of the context and circumstances.
The plaintiff was employed for 22½ years. He was terminated without cause in October 2013. Four issues were considered at a summary judgment hearing of the matter. They were:
- the period of reasonable notice;
- whether the employee was entitled to increases to his base salary during the notice period;
- the calculation of bonus for the notice period; and
- the approach to be taken to earnings, if any, during the post-judgement balance of the notice period.
Here's what the Court said
(a) Reasonable notice
The plaintiff was 56 years old when he was terminated from the position of "Director of Business Development". In this job, there were only two people above him. Based upon his age, length of service, importance of his role and the limited availability of similar employment, reasonable notice was assessed at 24 months.
(b) Increases to base salary during notice period
The employee received salary increases of between 2.5% and 5% between 2009 and 2013. He stated in his affidavit that he believed that others holding comparable positions obtained 2014 salary increases between 2% and 3% and that he believed he would have received a comparable increase had his employment not been terminated. The court found he would have received an increase of at least 2%.
(c) Calculation of bonus for the notice period
The employee claimed a bonus for the notice period based on an average of those he received in 2011 and 2012. The employer argued that the notice period bonus should be based on the average of bonuses paid to the employee for the years 2010, 2011 and 2012. The employer did not disclose the bonuses paid to other employee in 2013 or provide evidence as to how Chen's bonus would have been calculated had his employment not been terminated. For these reasons, the court favoured the employee's claim based on his average in 2011 and 2012.
(d) Earnings, if any, during post-judgement balance of notice period
The employer argued that damages awarded beyond the date of judgment should be discounted to account for the possibility that the employee would be re-employed during the balance of the notice period. Alternatively, the employer argued that an amount representing damages referable to the post-judgment period should be held in trust by the employee's lawyers, and in the event that he became re-employed before expiry of the notice period, that an appropriate refund be made to the employer.
The Court concluded that any employment income received by the plaintiff during the post-judgment notice period be held by the plaintiff in trust and paid to the defendant when the notice period expired.
What are the takeaways?
- Not surprisingly, the factors to be considered in assessing reasonable notice include, but are not limited to: age of the employee; length of service; character of the employment; and the availability of similar employment, having regard to the experience, training and qualifications of the employee. In this case, these factors added up to what is generally viewed as the maximum award of reasonable notice – 24 months.
- Where an employee shows that he or she believes there will be a salary increase consistent with previous years, the court may award a salary increase.
- Where there is a "paucity" of evidence on some key components of a bonus formula, the court may calculate a bonus for the notice period based on its view as to the appropriate method for calculation of bonus.
- Employment income received by a plaintiff during the post-judgment notice period can be held by the plaintiff in trust and paid over to the defendant on the expiry of the notice period.
Note: This a reprint of an article by Lisa Gallivan and Alison Strachan of Stewart McKelvey.