In its recent decision in Allstate du Canada c. Daunais, the Court of Appeal of Québec overturned a judgment of the Superior Court of Québec and confirmed the exceptional nature of awarding 24 months’ notice of termination and the obligation of employees to mitigate damages resulting from termination of employment.
In this case, the employee, who was 52 years old at the time of termination, had progressed through the company’s ranks to become the director of an insurance agency. In 2012, after 32 years of service, the employer decided to terminate her employment without cause.
Period of reasonable notice
The employer offered to pay the employee the equivalent of 18 months’ salary and commissions in lieu of notice and to maintain most of her employee benefits during such period.
The Superior Court found that a notice period equal to 24 months was required. Moreover, it awarded the employee moral damages of $20,000 for loss of enjoyment of life related to the manner of termination of her employment, which the court found was "casual and inconsiderate."
The Court of Appeal found the 24-month notice period granted by the Superior Court to be excessive and reduced the notice period to 18 months. The Court of Appeal noted that 24 months’ notice of termination should only be awarded in exceptional cases. In this case, there were no exceptional circumstances justifying such a long notice period.
The Court of Appeal reiterated the right of employers to terminate indefinite term employment relationships provided they abide by the legal and contractual obligations owed to their employees. In this instance, the Court of Appeal found that 18 months’ pay in lieu of notice was reasonable, given the employee’s age and years of service as well as the type of position she held.
Employee's obligation to mitigate damages
The Court of Appeal also found that the trial judge committed an error of law in awarding the employee six additional months of notice. The court stated that the purpose of the pay in lieu of notice is strictly compensatory and is offered by employers to replace income loss that results from an employee’s job loss. Moreover, employees have an obligation to mitigate the damages resulting from their loss of employment.
In this case, the Court of Appeal held that the additional months of notice awarded by the trial judge were essentially months during which the employee had already begun working for a new employer. The Court of Appeal was of the opinion that the employer was not required to compensate the employee for that period since she did not suffer any damages.
Absence of reasons to justify awarding moral damages
Lastly, the Court of Appeal stated that there was no evidence that the employer’s manner of termination was such that awarding moral damages was justified. Accordingly, the court set aside the trial judge’s order requiring the employer to pay the employee moral damages of $20,000.
In so doing, the Court of Appeal confirmed that an employer is entitled to terminate indefinite term employment and that there are no grounds for awarding moral damages to the employee in the absence of reprehensible conduct on the part of the employer, since the disadvantages resulting from the loss of employment are already offset by the notice of termination or the payment in lieu of such notice.
Although the judgment of the Court of Appeal in Allstate du Canada c. Daunais is rather short, it nevertheless highlights some well-established principles of law: first, notices of termination must be reasonable and second, employees have an obligation to mitigate their damages in the event of a job loss.
When determining the notice required to terminate employment without cause, employers must consider the type of position the employee held, the circumstances in which the employment was carried on, as well as the employee’s age and years of service. Moreover, in Quebec a 24-month notice period reserved for is exceptional cases, such as those involving senior executives with many years of service with their employer.
The obligation to mitigate damages means that an employee must make diligent efforts to find new employment during the notice period and must not refuse reasonable offers of employment. It should be noted that this obligation relates only to efforts that an employee must expend following his termination and does not create an obligation to successfully secure an offer of employment during his notice period. Nonetheless, an employer should remain mindful of employees’ obligation to mitigate damages in the event that it faces a dispute with an employee regarding termination pay.
For more information see:
• Daunais c. Allstate du Canada, 2014 CarswellQue 2349 (C.A. Que.).
Sophie Tremblay is an associate practicing civil litigation and commercial law with Blake, Cassels & Graydon LLP in Montreal. She can be reached at (514) 982-4038 or firstname.lastname@example.org.