Employee salaries and benefits can be some of the greatest costs
borne by a business. As a result, when a company faces financial
hardship, they will often terminate positions to reduce their
costs. However, many employers may not realize that the obligation
to provide reasonable notice of termination could negate any
short-term cost savings they hoped to realize.
When an employee is dismissed due to their employer's
financial circumstances or restructuring, the termination of their
employment is without cause. As a result, they are entitled to
reasonable notice of termination at common law (unless this right
has been limited through an enforceable termination clause). There
is no precise method to determine a person's common law
entitlement to reasonable notice of termination. Canadian courts
determine the requisite amount of reasonable notice on an
individual basis by taking into account factors such as the
character of the employment, the likelihood of securing alternate
work, and the employee's age, position, and length of service.
Although employers will sometimes estimate the notice period based
on a rule of thumb of one month of notice per year of service,
courts deny that this "rule" exists. Depending on the
circumstances, employees could be awarded significantly more (and
sometimes less) than one month per year of service.
Employers often believe that their financial difficulty should
be a factor in determining the reasonable notice period. However,
the courts do not agree. Most recently, the Ontario Court of
Appeal, in Michela v St. Thomas of Villanova Catholic School,
2015 ONCA 801, overturned a trial decision which relied on the
employer's finances to reduce the plaintiffs' notice
entitlement. In that case, the trial judge found that the dismissed
employees would typically be entitled to 12 months' notice of
termination, but only awarded them 6 months' notice due to the
employer's financial circumstances. The Court of Appeal held
that this was an error, and confirmed that the determination of the
reasonable notice period turns on the employee's (and not the
employer's) circumstances. It stated:
It suffices to say
that the character of the employment, like the other
Bardal factors, is concerned with the circumstances of the
wrongfully dismissed employee. It is not concerned with the
circumstances of the employer. 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.
It is important to
emphasize, then, 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
This clear statement by the Ontario Court of Appeal confirms
that employers are not justified in relying on their finances to
provide less notice of termination. As a result, many employers
facing financial strain are left in the difficult situation of not
being able to afford to keep their employees, but also not being
able to afford to meet their termination obligations. Employers
should consider being pro-active to avoid such a dilemma by
implementing employment contracts with enforceable termination
clauses which limit employees' termination entitlements.
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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Unfortunately, reasonable accommodation for employees in the workplace continues to be the source of significant litigation and even today we continue to see outrageous examples of employers behaving badly.
We are now beginning to see reported cases involving charges and subsequent fines laid against employers for failing to provide information, instruction and supervision to protect a worker from workplace violence.
On October 13, 2016, the Supreme Court of Canada denied leave to appeal an Ontario Court of Appeal decision which ordered an employer to pay a former employee 37 months of salary and benefits following termination.
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