News & Updates

Facing Financial Difficulties? No Discount on Termination Pay or Reasonable Notice for Employers

February 10, 2016

REASONABLE NOTICE: FOCUS ON THE EMPLOYEE AND THE FACTORS TO CONSIDER

With every New Year comes a new line of cases on reasonable notice and termination pay that both confirm existing precedent and create new exceptions to the general rules. Employment law cases, particularly wrongful dismissal cases, are very fact-specific. Courts often discuss “the factual matrix” in which the employee has been wrongfully dismissed, and this factual matrix ultimately leads to the determination of reasonable notice.

THE FACTUAL MATRIX AND EVOLVING FACTORS TO CONSIDER IN THE DETERMINATION OF REASONABLE NOTICE

Under the common law, when an employment contract does not exist (or does exist, but the termination provision is not enforceable), an employee who has been terminated without cause is entitled to reasonable notice or termination pay in lieu of such a notice. The amount of reasonable notice is determined on a case-by-case basis. There are a number of factors, known as the “Bardal factors” that a court will take into consideration when determining the appropriate notice period, these include:

• the character of employment;
• the length of service;
• the age of the employee; and
• the availability of similar employment, having regard to the experience, training, and qualifications of the employee.

In recent years, through the development of case law, this list has grown and expanded to also include:

• the time of the year of the termination (for example, longer notice may be required during vacation season when it may be more difficult to find new employment);
• the work experience of the employee with the same and different employers;
• if the employer had made false allegations about the employee which would then make it increasingly difficult for the employee to find new work;
• restrictive covenants, such as non-competition and non-solicitation covenants; and
• personal factors such as pregnancy and disability.

BUT WHAT ABOUT THE FACTUAL MATRIX OF THE EMPLOYER?

REASONABLE NOTICE: FOCUS ON THE EMPLOYER AND THE FACTORS THAT WILL NOT BE CONSIDERED

“Are an employer’s financial circumstances a relevant consideration in determining the period of reasonable notice to which a wrongfully dismissed employee is entitled?” (J.A. Huscroft)

CANADIAN COMPANIES FACE DIFFICULT ECONOMIC TIMES IN 2016.

With the recent downturn of the Canadian dollar, many employers are feeling the effects across various industries. Both for-profit and not-for-profit companies are faced with a difficult economic reality moving into 2016.

It is precisely in this type of environment that organizations look for ways to cut back. This may lead you to the conclusion that you must terminate certain employees without cause. In the event that an employment contract does not exist (or does exist, but the termination provision is not enforceable), as an employer, you are required to provide such employee with “termination pay” or notice in lieu of the termination pay in accordance with the common law.

WHAT STEPS TO TAKE WHEN YOU ARE CONSIDERING TERMINATING AN EMPLOYEE WITHOUT CAUSE.

Although there is no rule of thumb when it comes to reasonable notice, with the assistance of employment counsel, many employers are able to identify the appropriate range of reasonable notice for a given employee.

At this point, as an employer, you have done everything right so far:

• you have consulted an employment lawyer;
• you have determined the range of appropriate “termination pay” to offer the employee; and
• your employment lawyer has prepared a proper termination letter that you will provide to the employee.

I CAN’T AFFORD TO KEEP THE EMPLOYEE AND I CAN’T AFFORD THE TERMINATION PAY TO LET THE EMPLOYEE GO, CAN I REDUCE THE AMOUNT OF REASONABLE NOTICE?

But what if you cannot afford to offer the employee the amount of termination pay that has been identified? After all, the whole reason behind the termination is the need for cut backs.

The Ontario Court of Appeal has recently confirmed that the financial difficulties and circumstances of the employer will have no bearing on the “reasonable notice” determination. The Court clarifies that this is not an appropriate factor to consider when deciding what a wrongfully dismissed employee will be entitled to.

In Michela v. St. Thomas of Villanova Catholic School, the Court specifically identifies this cut-back scenario and states:

An employer’s financial circumstances may well be the reason for terminating a contract of employment – the event that gives rise to the employee’s right to reasonable notice. But an employer’s 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.[1]

In this case, the motion judge found that the plaintiffs “were wrongfully dismissed and awarded pay in lieu of the six months’ notice he found they should have received. He determined this notice period after taking into account the [defendant’s] financial circumstances, which had the effect of reducing the reasonable notice period from twelve months to six.”[2] The plaintiffs appealed and sought to collect the full twelve-month notice period.

The Ontario Court of Appeal allowed the appeal, granting the plaintiffs the full notice period. In doing so, the Court expressly provided that “it is important to emphasize…that an employer’s 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”.

WHAT DOES THIS MEAN FOR EMPLOYERS?

This decision reveals two important take-aways:

1. Although you may be facing economic difficulties and looking for ways to reduce expenses, termination pay and reasonable notice is not an area in which you can “cut corners”. The Court will not reduce an employee’s entitlement based on the employer’s financial circumstances.
2. Like many wrongful dismissal cases, this case underscores the importance of properly drafted employment contracts which would put you outside of the reasonable notice matrix developed at common law. By having an enforceable employment contract in place, employers can limit their termination obligations and liabilities.

***

Cassandra Da Re is aCorporate and Commercial Leasing Lawyerat Dale & Lessmann LLP, Toronto, Ontario, Canada, a full service business law firm. To speak to Cassandra please call 416-369-7843 or send an email message to her at cdare@dalelessmann.com

[1] para 17.

[2] para 2.

Tags: Employment