Impact of COVID-19 on Reasonable Notice Entitlements - Kraft v. Firepower Financial

**Written by Adele Zhang, Summer Student at Lee Workplace Law

Calculating an employee’s entitlement to reasonable notice of termination is an art, not a science. The appropriate period of notice will depend on the unique facts of each case, including the availability of comparable employment.

Since the onset of COVID-19, there has been significant speculation about how the pandemic, and the resulting downturn in the job market, will impact the calculation of reasonable notice periods. This issue was considered in Kraft v. Firepower Financial, 2021 ONSC 4962. In this recent summary judgement motion, the judge explicitly noted the impact of the pandemic on the employee’s ability to find new work when determining the reasonable notice period.


Facts:

After five and a half years of service, Mr. Kraft was terminated without cause from his employment with Firepower Financial in March 2020 at the onset of the COVID-19 pandemic.

Upon terminating him, Firepower Financial proposed to pay Mr. Kraft any commissions that arose on Mr. Kraft’s pending deals, provided the deals closed within 5 months of his dismissal. This timeframe was arbitrarily chosen. As it happens, Mr. Kraft had been working on a large deal with a company called Arzon Limited (“Arzon”) which closed 6 months after his termination. Mr. Kraft would have earned $77,559 in commissions from this transaction. However, Firepower Financial argued that he was not entitled to this commission payment.

Mr. Kraft sued for pay in lieu of notice, commissions and bonuses, and holiday and vacation pay.


Analysis:

COVID-19 and the Reasonable Notice Period

In this case, the judge used a three-step process to determine Mr. Kraft’s reasonable notice period. First, he analyzed relevant case law and found that the range for the notice period for an employee of Mr. Kraft's age, experience and length on the job was between 4 to 12 months. Then, he calculated the average of those cases, which was 9 months. Finally, he added one month to the notice period because “there was evidence that the pandemic impacted the [employees] ability to secure new employment.”

In adding an additional month to the awarded notice period, the judge focused on the fact that Mr. Kraft was terminated the same week that the Ontario government had declared a state of emergency. He found that the economy was already shutting down at the time of termination and inevitably impacted Mr. Kraft’s ability to find new work. The judge concluded that during the first six-months of the shutdown, there was evident uncertainty, if not a decline, in the job market, therefore justifying the extended reasonable notice period.

Determining Commission Payment

The judge held that Mr. Kraft was entitled to payment of commissions on deals that closed during his 10-month notice period, including the Arzon deal, as the commission formed part of his "wages".

However, the judge refused to award Mr. Kraft an amount in lieu of commission on a pending sports deal that had not quite closed. The judge noted that Mr. Kraft's notice period had come and gone, and his entitlement to wages would not last forever.


Outcome:

The Ontario Superior Court of Justice ruled in favour of Mr. Kraft. The employer was ordered to pay Mr. Kraft 10 months of his base salary, as well as his share of the bonus pool and the value of his forgone holiday and vacation pay during the notice period. He was also entitled to $77,559 in commissions from the Arzon transaction.


Conclusion:

This is one of the first decisions where a judge has specifically extended the reasonable notice period due to COVID-19. Although this judge recognized the impact of the pandemic during the first-six months of the shut-down, it remains to be seen how reasonable notice periods will be calculated for employees who were dismissed later in the pandemic.

This case also reaffirmed that, absent a contractual provision to the contrary, employees are entitled to commission payments that arise during their reasonable notice period, but not after.

The facts of individual cases matter in determining reasonable notice periods. Both employers and employees are encouraged to seek legal assistance in these disputes. Lee Workplace Law would be happy to assist.