TERMINATING DUE TO BAD FINANCIAL TIMES – SORRY, EMPLOYEES STILL ENTITLED TO FULL PAYMENT
When assessing pay in lieu of reasonable notice in an employment termination case, Courts generally consider the employees position and responsibilities, length of service, age and the availability of other employment generally.
Ontarios Court of Appeal has recently clarified the law in Ontario an employers financial circumstances are not relevant to determining an employees entitlement to reasonable notice on termination Michela v. St. Thomas of Villanova Catholic School (2015, Ontario Court of Appeal).
While it is often the employers poor financial circumstances that have created the need to terminate the employment relationship, it is important for employers to remember that the amount of notice an employee is entitled to is not affected by the amount the employer can afford. Employers should be cautious not to consider their own financial circumstances when estimating the reasonable notice entitlements of their employees. That said, employers are able to avoid significant court-ordered payments if employees accept severance packages that represent a reasonable and mutually beneficial compromise.
The Court clarified that the character of employment factor is concerned with the circumstances of the employee who was dismissed, not with the circumstances of the employer. The Court explained:
 An employers financial circumstances may well be the reason for terminating a contract of employment the event that gives rise to the employees right to reasonable notice. But an employers financial circumstances are not relevant to the determination of reasonable notice in a particular case: they justify neither a reduction in the notice period in bad times nor an increase when times are good. 
It is important to emphasize, then, that an employers poor economic circumstances do not justify a reduction of the notice period to which an employee is otherwise entitled having regard to the Bardal factors. 
While employers have argued economic downturns as justification for termination, Courts have historically disregarded this argument and, in fact, in some cases given more reasonable notice when employers have taken this position.
This new case brings more certainty to this area of law. Before this case, there are, that I know of, only two cases in Canada in which the Court has considered this position by an employer and given some credit for it.
Gristey v. Emke Schaab Climatecare Inc. (Ontario) – The Court discounted the reasonable notice period by one-third to reflect the economic condition at the time and the employers precarious financial circumstances at the time; and
Lederhouse v. Vermilion Energy Inc. (Alberta) The Court gave some credit to the employer when the termination took place before the depression in the oil and gas industry in Alberta (but noted that, if the termination had taken place during the recession, no credit would have been given).
So, while there was some, limited authority in Canada for employers to try to reduce pay in lieu of notice due to economic conditions, the Court of Appeal has now confirmed this is no longer accepted in Ontario.
As usual, the best strategy for employers is to ensure there is a written employment in effect, at the outset of the employment, containing properly-constructed provisions limiting pay in lieu of notice on termination.
This WARDS PC BLAWG is for general information only. It is not legal advice, or intended to be. Specific or more information may be necessary before advice could be provided for your circumstances.
December 22nd, 2015
Posted in Labour & Employment