Earnings over Notice Period Not Based on Average;

In Evans v Paradigm Capital ( 2016 ONSC 4286) Justice Gans determined that a 44 year old Senior Institutional Salesperson with 4.5 years service was entitled to 11 months notice.

In deciding what level of compensation that the Plaintiff was entitled to for the notice period the Plaintiff argued that it should be based on her three year backward average , which came to $621,000 per annum.

The Defendant argued that it should be based on her rate of pay as of the date of termination, which came to $149,000.

This is what Gans J. said about this issue:

55 In the first place, as the Ontario Court of Appeal observed, there is no hard and fast rule that mandates a trial judge to adopt an averaging absent compelling reasons to the contrary.23 The British Columbia Court of Appeal adopted the following statement from Harris in Wrongful Dismissal, looseleaf (Toronto: Carswell, 1989) at 4-52.9:
Whatever assessment of damages is made, the standard of salary is not to be an average of prior years, but rather should be based on the income of the employee at the date of termination. In Lawson v. Dominion Securities Corp., [1977] 2 A.C.W.S. 259, the Ontario Court of Appeal stated:
The governing principle is that damages for wrongful dismissal are “prima facie the amount that the plaintiff would have earned had the employment continued according to the contract subject to a deduction in respect of any amount accruing from any other employment which the plaintiff, in minimizing his damages, either had obtained or should reasonably have obtained”. McGregor on Damages 13th edition, para. 884 at p. 594. The judgment appealed from erred in measuring damages by the remuneration of the dismissed employee in the year or years prior to his dismissal: Findlay v. Howard (1919), 58 S.C.R. 516.
(See also Cappelli v. Promospec Specialty Advertising Ltd. (1997), 31 C.C.E.L. (2d) 202, 97 C.L.L.C. 210-026, 39 O.T.C. 328, 1997 CarswellOnt 3704 (Ont. Gen. Div.).)
On the other hand, in some cases the plaintiff’s earnings in the last year of employment may not be representative of his or her usual earnings. The court undoubtedly has jurisdiction to look at preceding years in order to determine a “representative income” for the plaintiff.24
(Emphasis added)
56 Assuming without deciding at this moment in time, whether such a method would permit me to include an amount in respect of the Shareholders’ Bonus, which is very much in issue, I am not persuaded that the use of an averaging of Total Remuneration is appropriate in the circumstances of this case. In my view, the income averaging method is more appropriate in circumstances where the size of the income pool is uncertain; when the dismissed employee is, for example, a commissioned salesperson; or when there is marked volatility in the employee’s remuneration as a result of his or her own efforts over the preceding years leading to termination.
57 In the instant case, the math is fairly straightforward — it is simply a matter of multiplying the ‘last percentage allotment’ established by the Compensation Committee against the Performance Bonus and Shareholders’ Bonus ‘pots’, both of which latter numbers are derived from the charts and appendices that were filed on consent as part of the JBDs. The computation is not dependent on what success — or otherwise — Evans might have enjoyed or suffered in the period of reasonable notice. The trickier issue is determining the appropriate percentage allotment for inclusion in the calculation.
58 While the Performance Bonus could be said to be subject to an upward adjustment had the Compensation Committee determined in any quarter that such were warranted, having regard to the fact that Evans’ client base was dramatically altered for 2009, I am at a loss to see how she might have improved upon her relative ratings during the notice period after this alteration. She had been allotted a 0.5% participation rate for seven straight quarters prior to the moment of termination as a result of point allocation generated from a reasonably static client roster. This track record, as it were, undercuts the notion that she was perhaps on an up-tick. It would not, therefore, be unreasonable to fix her Performance Bonus percentage at the number with which she ended in 2008, being 0.5%. As a corollary, I would not reduce the percentage because her relative performance might very well have declined in light of the loss of clients. In my view, Paradigm can’t have it both ways.
59 Finally, I find the decision of my colleague Wilton-Siegel J. in Chann, supra, in circumstances not too dissimilar to the instant case, to be most instructive:
First, the plaintiff suggested that a three year average of bonus payments should be used as the base rather than the level of the bonus payment in fiscal 2001. This approach may be appropriate in circumstances where bonuses fluctuate only moderately. However, it is not appropriate for the investment banking business in which significant fluctuations occur from year to year. In this industry, bonuses are adjusted yearly for all employees to address results within the most recent fiscal year and performance in prior years is discounted quickly. I see no basis for departing from this approach in the case of the plaintiff. The plaintiff also suggested his 2001 bonus was already reduced to a certain extent as a result of the defendant’s determination in that year that his origination activities were unsatisfactory. I do not see a reason, however, to use a three year average to reduce the effect of that determination which was made while the plaintiff was employed and was, therefore, not included in the plaintiff’s claim.25
60 In the result, I would hold that the plaintiff should recover the sum of $68,750 for the fixed portion of the salary for the 11-month period of notice, and $86,771.21 for her share of the Performance Bonus for the same period.26

This is often a fundamental issue in cases where the compensation is varied and complicated. This case reminds us that using a backward average is only appropriate where it is unfeasible to determine what would have happened if the Plaintiff had been given the chance to work out the notice period. Creative counsel can often put together a compelling case showing what would have actually occurred over the notice period. This can sometimes benefit the plaintiff or , as in this case, benefit the employer.

This is especially important where an employee’s compensation comes from a definable source, like a list of ongoing long term clients for whom responsibility has been transferred to another employee after dismissal. By simply tracking what sales were actually made to those same clients over the notice period, you can have a pretty good picture of what would have happened if the Plaintiff had been allowed to work out her notice period.

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