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Can an Employer’s Financial Circumstances Impact the Reasonable Notice Period?
Employment Law

Can an Employer’s Financial Circumstances Impact the Reasonable Notice Period?

When an employee is terminated without just cause, he or she is generally entitled to common law reasonable notice or pay in lieu thereof. In Ontario, courts determine the amount of notice that is “reasonable” in a given case by considering the Bardal factors, which include character of employment, length of service, age, and availability of similar employment having regard to the experience, training and qualifications of the employee. However, other considerations may be taken into account in some circumstances.

Case Law

On several occasions, employers have tried to argue that one such consideration should be the financial circumstances of the business. Initially, confusion arose as to whether an employer’s financial state was a factor following the Ontario Superior Court’s decision in Bohemier v. Storwal International Inc. (1982), 40 O.R. (2d) 264 (H.C.). In that case, the Court held that “when employment is unavailable due to general economic conditions, there has to be some limit on the period of notice to be given to discharged employees even if they are unable to secure similar employment within the notice period.”

Some misinterpreted the above statement as meaning that poor economic conditions could result in a shorter reasonable notice period. Such was the motion judge’s interpretation of the decision in Michela v. St. Thomas of Villanova Catholic School, 2015 ONSC 15. However, in Michela v. St. Thomas of Villanova Catholic School, 2015 ONCA 801 [Michela], the Court of Appeal for Ontario proceeded to clarify the law and overturn the motion judge’s decision to reduce the employee’s common law reasonable notice entitlements based on the employer’s economic circumstances.

The motion judge had reduced the employees’ notice entitlements from twelve (12) months to six (6) because their former employer, a Catholic school, was expecting lower enrollment in the upcoming academic year. The motion judge cited the decision in Bohemier in support and included the employer’s financial conditions as an aspect of “character of employment” – one of the Bardal factors.

The Court of Appeal clarified that the Court in Bohemier did not hold that an employer’s financial difficulties justify a reduction in the notice period. Rather, it held that a former employee’s difficulties with finding new employment, including when caused by poor economic conditions, should not have the effect of unreasonably increasing the notice period. The Court also confirmed that “character of employment” refers to the nature of the employee’s position, not the employer’s situation, as the Bardal factors are focused on the circumstances of the employee.

Moreover, it seems that the non-relevance of the employer’s financial circumstances applies to

situations in which an employee is aware that he or she is likely to be terminated or the employer is likely to shut down prior to the actual termination date. In Nielsen v Sheridan Chevrolet Cadillac Ltd., 2016 ONSC 1843, the employer, a Saab dealership, argued that there was widespread knowledge in the media of General Motors dealership closures in Canada at the time. As Saab was owned by GM, this was likely to impact the employer. The employer also presented evidence that its employees were aware of intended closures and were well aware of the potential risks of not finding alternate employment.

The employer argued that such considerations should result in a reduction in the length of the reasonable notice period, presumably because the employee would have been aware of his likely impending termination given the circumstances.

The Ontario Superior Court rejected this argument and applied the Court of Appeal’s decision in Michela in doing so.

Takeaways

Employers having financial difficulties should be aware that they will not be let off the hook for providing reasonable notice of termination to their employees. That an employee ought to be aware of their likely termination due to economic factors does not supplement actual notice, and Ontario courts will not be more lenient on employers to ease their financial struggles.

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