Applying the Concept of Rolling Limitation Periods to Severance Payments

Written on behalf of Peter McSherry

Limitation periods are critical deadlines in which someone must bring an action in a civil or criminal matter. In terms of employment law, such as disputes over severance packages, employees will typically have a two-year limitation period during which time they must file a statement of claim if they wish to commence an action against their employer. However, there can be exceptions to this rule. 

In a recent decision from the Ontario Court of Appeal, an employee found out that his post-retirement compensation, which was triggered upon his termination, was less than he was supposed to receive. Unfortunately, the employee waited for three years before he brought an action before the courts, claiming that since his compensation was issued on an ongoing basis, he should be subject to a rolling limitation period. 

Employee’s termination triggers retirement compensation

In Karkhanechi v. Connor, Clark & Lunn Financial Group Ltd., the employee began working for the employer’s asset management business in 2014. The employment relationship did not last long and the employee was terminated at the end of 2016. The termination triggered what was described as a “compulsory retirement provision” in his partnership agreement with the employer. 

The employee received his first payment on February 28, 2017 but quickly noticed that the payments were for an amount less than the employer had originally agreed to pay him. His payments were tied to equity he had with the employer and with each payment, his equity was reduced. He emailed the employer indicating that he believed his compensation payments were being calculated incorrectly but took no further action for two years before bringing the action before the courts.

Court refers to Limitations Act

The motion judge who heard the matter referenced the Limitations Act (the “Act”), which states that unless the Act provides otherwise, a proceeding cannot commence more than two years after the day the claim was discovered. The Act sets out four events which will trigger the commencement of the limitation period calculation:

“(a) the day on which the person with the claim first knew,

(i) that the injury, loss or damage had occurred,

(ii) that the injury, loss or damage was caused by or contributed to by an act or omission,

(iii) that the act or omission was that of the person against whom the claim is made, and

(iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and

(b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).”

In this case, the motion judge found that the two-year limitation period began on March 27, 2017, when the employee discovered that his compensation payments were not what he expected.

The employee appealed the motion judge’s decision, claiming that the court should have applied a rolling limitation period. 

What is a rolling limitation period?

A rolling limitation period can be used when the beginning of a new limitation period is triggered due to an ongoing obligation. For instance, rolling limitation periods can be recognized when there is a failure to make recurring payments. However, these only apply to certain situations. 

The employee referred to the decision in Pickering Square Inc. v. Trillium College Inc.

 which laid out three types of failures to abide by the terms of a contract:

1. A single “once-and-for-all” breach of contract with continuing consequences;
2. A failure to perform an obligation scheduled to be performed periodically; or 
3.  A breach of a continuing obligation under a contract.

The employee took the position that if a contract falls into the second or third category, then a rolling limitation period should be applicable. The employee claimed that his circumstances fell under the second category, however, the motion judge determined that it actually fell under the first.

Court of Appeal deems rolling limitation period not appropriate

The Court of Appeal took a different position. An initial analysis of what caused the contractual breach was required first, as a breach which falls into the second or third category requires a subsequent breach of contract to occur.  The court quoted from the case of York Condominium Corporation No. 382 v. Jay-M Holdings Limited, citing a portion which addressed periodic payments and whether they qualify for rolling limitation periods,

“A rolling limitation period may apply to claims for periodic payments, in cases where the issue is whether certain payments to which the plaintiff is entitled have been made (e.g. payments of rent), as opposed to cases where the issue is whether the plaintiff was entitled to the periodic payments in the first place [the “Richards distinction”].”

The Court found that in the case at hand, the limitation period began when the cause of action arose, even though the damage from that cause had yet to occur. The Court stated that it was important to look at the substance of the claim, rather than the form. One of the key factors the Court relied on in arriving at this conclusion was that the employee was aware of the information which related to his claim in March 2017. There was nothing new that arose when he commenced the claim that he did not know throughout the two years prior. Therefore, the appeal was dismissed.  

Contact Experienced Employment Lawyer Peter A McSherry in Guelph for Advice on Limitation Periods

At Peter A McSherry employment lawyers, we understand that the loss of a job can create financial and emotional difficulties. In the event of a dispute regarding a severance package following termination, it is important to be aware of deadlines and procedures and act fast when bringing a claim. Our employment team will work with you to identify critical dates important to your unique circumstances. To speak with a member of our team and find out how we can assist you, contact us online or call us at 519-821-5465.