Notwithstanding the best wishes of employers, there are times
when employees have to be let go for purely financial reasons. In
particularly dire circumstances, these dismissals can often be an
important part of cost cutting to ensure that a company remains a
viable ongoing concern. However, a recent matter heard by the
Ontario Court of Appeal clarified that an employer's financial
circumstances do not alter the reasonable notice to which an
employee is due.
The Trial Decision
Michela v St. Thomas of Villanova Catholic
School was a wrongful dismissal case involving three plaintiff
employees, all of whom had formerly been teachers at the defendant
private school. Due to economic conditions, all three had been
informed prior to the beginning of a new school year that their
term contracts were not being renewed.
The plaintiffs had been employed for 8, 11 and 13 years
respectively at the time of their terminations. As a result,
notwithstanding that the contracts purported to be for a fixed
annual term, the trial judge concluded that their employment had,
in fact, been one of indefinite duration. As a result, the
plaintiffs were entitled to reasonable notice. The defendant did
not appeal this aspect of the decision.
The plaintiffs had each requested twelve (12) months'
notice. While the trial judge agreed that this was the appropriate
starting point for the determination, the trial judge also pointed
to the financial difficulty of the employer as being a relevant
factor. The trial judge found that the effect of the long notice
period would be to defeat the ability of the defendant to reduce
its prospective deficit, in essence negating the cost savings of
the terminations for the employer. In addition, the trial judge
found that the employees ought to have been aware of the need for
the employer to reduce its cost, and that this knowledge was part
of the circumstances of their employment.
As a result of these considerations, the trial judge reduced the
notice period by half, awarding each employee six (6) months'
The plaintiffs appealed the trial judge's decision to reduce
the reasonable notice to which they were entitled, arguing that the
financial circumstances of the employer were an irrelevant factor
in determining the reasonable notice to which they were
The Court of Appeal agreed.
The Court of Appeal held that it has never been true that an
employer's economic circumstances justify a reduction in the
notice period. In fact, what is important is the circumstances of
the employee, and that an employer's perspective is immaterial
to the determination of reasonable notice.
The Court of Appeal rejected the trial judge's finding that
the "character of the employment," an important factor in
determining the appropriate quantum of notice, included an
understanding that the jobs of the plaintiffs were not as secure as
other employment may have been. The Court of Appeal clarified that
the relevant character of the employment is defined only by the
circumstances of the individual employee, rather than the employer.
The employer's circumstances are irrelevant to that
The Court of Appeal rejected the interpretation of the trial
judge of an old decision which appeared to support the trial
judge's ruling. The Court of Appeal held that in fact, what
that earlier decision warned against was an extension of the notice
period where the general economic climate made it difficult for a
dismissed employee to secure new employment. That decision did not
provide for a reduction in the notice period due to the economic
conditions of the employer.
As a result, the Court of Appeal restored the twelve (12) month
notice period and invalidated the reduction applied by the trial
judge for the employer's economic circumstances.
What Employers Need to Know
While trying economic circumstances often mean that the size of
the workforce must be reduced, those circumstances do not reduce
the liability they face with respect to their departing employees.
As a result, employers cutting their costs by dismissing employees
must be careful to accurately assess the true liability they face
in so doing.
Another important factor to consider is the Court of
Appeal's more sweeping and broad dicta that the factors
affecting reasonable notice are concerned with the position of the
employee rather than the employer. The Court of Appeal held that
this is true for all of the factors used in determining reasonable
notice. As a result, smaller organizations and non-profits may face
the same liability as larger multinational corporations, since the
analysis of reasonable notice is from the position of the employee,
rather than the employer. This is despite the fact that the impact
of a reasonable notice award may be of significantly greater impact
to a smaller organization.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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