In Love v. Acuity Investment Management Inc., the Ontario Court of Appeal elaborated on the principles that apply to the determination of an appropriate severance package when a high-level executive is dismissed without cause.
The plaintiff Paul Love is a chartered accountant. He resigned his position as a partner in a major accounting firm in 2002 in order to seek employment in the investment management field. His goal was to work for a company in which he could acquire an equity interest.
Mr. Love became one of two senior vice-presidents with the defendant Acuity Investment Management Inc. He reported directly to the founder and chief executive officer. Although the company had about 90 employees, Mr. Love did not supervise others. At the time of his dismissal he had sole responsibility for managing the investments of Acuity’s institutional clients.
The position did enable Mr. Love to achieve his goal of equity ownership. As of the dismissal date, he was one of nine shareholders, and held 2% of the issued shares in the defendant corporation. He acquired his ownership stake in August of 2004, paying approximately $360,000.
Acuity dismissed the plaintiff without cause some 10 months after he had established his equity position. He was then 50 years old, with just over two and half years of service with the defendant. His average annual compensation during the period of his employment was in excess of $600,000, including salary, commissions, profit distribution, and the value of shares allotted to him.
The trial judge awarded the plaintiff five months pay in lieu of notice. Mr. Justice Goudge, delivering reasons for the Court of Appeal, substituted a notice period of nine months.
The trial judge had observed that “relatively speaking Mr. Love was a short service employee”. The judge took note of the fact that this was not a case where the employee was lured away from secure employment. He also emphasized that although the plaintiff was a senior vice president, his position involved primarily sales responsibilities, and he did not manage or supervise other employees.
Goudge, J.A. said that the trial judge’s determination of reasonable notice was based on three errors in principle. First, too much emphasis was placed by the trial judge on the plaintiff’s relatively short length of service. The determination of appropriate notice requires the court to balance a number of different factors, only one of which is length of service. Mr. Justice Goudge observed that there is a risk of placing too much weight on length of service, since this is the one factor that can be determined with mathematical precision, and therefore lends itself to comparison with the results in other cases. According to Mr. Justice Goudge, “Dissimilar cases may be treated as requiring similar notice periods just because the lengths of the service are similar. The risk is that length of service will take on a disproportionate weight.”
The trial judge also committed an error in principle in failing to accord appropriate weight to the character of the plaintiff’s employment. He was one of only two senior vice-presidents. He reported directly to the CEO, and was responsible for an important aspect of Acuity’s business. He received significant annual compensation, and was one of the owners of the company. He was a high level executive, and this favours a longer notice period.
Finally, Mr Justice Goudge noted that the trial judge had failed to give any consideration at all to one of the factors that is applied to determine reasonable notice: the availability of comparable employment. The rather high average annual compensation for Mr. Love’s position, together with the availability of equity ownership, were both factors suggesting that it would be difficult to obtain similar employment. This was another factor clearly pointing to a longer period of notice.
The appellate court concluded that Mr. Love was entitled to nine months notice of termination, an award which is in excess of three years severance for each year of service.
Link: Love v. Acuity Investment Management Inc., 2011 ONCA 130
Brief informational summaries about commercial litigation matters in the courts of Ontario and other developments are periodically published on this website. They are intended to be a general comment or general discussion, not legal advice and should not be relied upon as legal advice. Should you require legal advice, please contact info@heydary.com or 416 972 9001.