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Howard Levitt and Rob Lilly: Supreme Court Ruling on Termination Entitlements Comes into Play in Airline Case

posted 2 years ago

A little over a year ago, our firm had the privilege to successfully argue a case before the Supreme Court of Canada that dealt with an important principle of employment law.

In Matthews vs. Ocean Nutrition Canada Ltd., the Supreme Court addressed the question of an employee’s entitlements on termination.

While litigation is never certain, Matthews confirmed that employees are presumed to be awarded everything they would have been entitled to had they actually worked throughout the period of notice (i.e. months of severance) prescribed by the court unless the employment contract or plan clearly and unambiguously states otherwise.

We recently saw that ruling in action in another case in which we acted for the plaintiff, the Ontario Superior Court case of Roland Ruel vs. Air Canada, which involved some unique elements including a rare “specific performance” remedy when it comes to assessing wrongful dismissal damages.

Roland Ruel, 52, was employed by Air Canada for much of his working life. For nearly 25 years, he worked his way up the ranks, eventually earning himself the position of director, customer experience — station operations control at Pearson International Airport earning $117,000 annually. As part of his retirement, Ruel looked forward to a sizable pension, post-retirement health benefits and travelling business class on passes with his wife anywhere Air Canada travelled for the rest of their married lives.

In Justice A.P. Ramsay’s ruling, Her Honour noted that as a result of the pandemic, Air Canada was facing “the worst financial crisis in its 80-year history.” The airline took measures to stem its losses including cutting its workforce, with Ruel finding himself among those terminated. Ruel’s only experience was in the airline industry. At the time of his termination, he was just under six months away from lifetime post-retirement health benefits and flight passes, which are granted to certain Air Canada employees with 25 years of service.

Ruel sought damages for 24-months’ reasonable notice in full compensation (i.e.: salary, bonus, pension, stocks, spousal survival benefit, group benefits and flight privileges). Air Canada argued that Ruel was entitled to 16 to 17 months’ salary and group benefits, less 2.5 months for not looking for work, plus out-of-pocket health-care expenses.

The Court decided a common preliminary issue regarding whether the action was suitable for a summary judgment motion. Employers frequently argue that trials are required — to assess witness credibility or make complex factual determinations — as opposed to summary judgment motions. The latter is a faster, cost-effective method decided on affidavit evidence and cross-examinations outside of court. They can be completed in one day often. Trials are typically years away, are numerous days or even weeks in length and cost exponentially more. The tactical advantages of an employer making this argument are obvious. If successful, the motion may be dismissed entirely, and the employee could be subject to a crippling cost award. In Ruel’s case, the Court deemed the motion could proceed without a trial.

Justice Ramsay summarized the law relying heavily on Matthews before scrutinizing the plans and ruling that none of them vitiated Ruel’s entitlement to those benefits. Her ruling shows how exceedingly high the Matthews threshold is to take away an employee’s presumed right to full compensation over the notice period.

Ruel was ultimately awarded 24-months’ full compensation and 10 per cent of his salary in lieu of benefits over the notice period.

The Court refused to penalize Ruel for an alleged failure to apply to jobs for 2.5 months in the middle of his job search. The Court noted the onus on employers to prove the employee is not adequately looking for work is “by no means a light one.” In light of her remarks, to bolster such a failure to mitigate argument, employers would be well advised to adduce some evidence of comparable job postings the employee ought to have applied for but didn’t. Or use expert evidence, preferably both.

Ruel was also awarded approximately $66,850 in lieu of retiree health benefits. As for the flight passes, the Court ordered Air Canada to reinstate Ruel into the retiree flight privilege program. Such is a unique aspect of this case because this remedy (called specific performance) is rarely awarded and only when money would not adequately compensate a party. Both parties agreed, however, that if the Court decided Ruel was entitled to participate in the flight privilege program, reinstatement into the program was the best option.

Finally, following Matthews, the Court determined that Ruel would have been eligible for the COVID bonuses Air Canada paid executives and management and, therefore, his damages should reflect this loss of opportunity.

Matthews’ sweeping path can be significant to employers (as well as to the employees impacted). Many companies assume that they do not have to pay bonuses, LTIPs, stock options or other entitlements because of contracts saying that they need not do so if that remuneration would have arisen following the employee’s dismissal. Mathews suggests that is not the case when the employee is wrongfully dismissed, and that such a right cannot be extinguished without language in the relevant employment contracts, which few employers have. Like in Matthews, where his LTIP was worth more than $1 million, these unexpected payouts can be far more than the employer ever envisaged.

Ruel was ultimately awarded over $550,000 (about four times the amount Air Canada alleged he was entitled to) plus bonuses, interest, costs and retirement flights — a benefit with significant value on its own — for as long as the program continues.

BY HOWARD LEVITT AND ROB LILLY

Howard Levitt is senior partner of Levitt Sheikh, employment and labour lawyers with offices in Toronto and Hamilton. He practices employment law in eight provinces. He is the author of six books including the Law of Dismissal in Canada. Rob Lilly is a partner with Levitt Sheikh.

THIS ARTICLE ORIGINALLY APPEARED HERE: https://financialpost.com/fp-work/howard-levitt-and-rob-lilly-supreme-court-ruling-on-termination-entitlements-comes-into-play-in-airline-case

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