Canada: Part 2: Update On The Calculation Of Reasonable Notice In An Economic Downturn

Last Updated: March 9 2016
Article by Jill W. Wilkie

The calculation of reasonable notice will always be an issue where there is no express termination provision in the employment contract. This calculation grows increasingly complex with the addition of economic stress. The employer has a common law duty to provide a reasonable notice period based on a non-exhaustive list of factors such as age, experience, length of service, and the possibility of re-employment (Bardal v. Globe & Mail Ltd., [1960] O.J. No. 149 (Ont. H.C)). While it has been established that economic factors may be added to this list, the law is unsettled on how such factors will affect notice periods. The lower courts in both Ontario and Alberta have split on this issue. One line of cases, recently reinforced by the Ontario Court of Appeal, supports the conclusion that difficult economic times should lead to lengthened notice periods, as it is harder for employees to find re-employment after termination. This interpretation relies on the core purpose of reasonable notice periods which is to support the employee in their transition to new employment (McKay v. Camco Inc., [1986] O.J. No. 2329 (Ont. C.A.) at para. 40). The second line of cases is based on the understanding that in times of poor economic health, employers cannot afford to keep their employees, therefore they cannot be expected to pay out the same notice periods that would be reasonable during times of economic prosperity.

Zoldowski v. Strongco Corp., 2015 ONSC 5485 ("Strongco") is a recent decision within the first line of cases which suggests that the court may take into consideration the impact of an economic downturn on an individual's ability to find suitable re-employment. Based on an assessment of the "economic climate in Southern Ontario", the court found the employee was owed 14 months of pay in lieu of notice, as opposed to the ten months argued by the employer. Strongco relied on Paquette v. TeraGo Networks Inc., 2015 ONSC 4189 ("Paquette") regarding the duty to mitigate, however, Paquette is also an important case in support of applying economic factors to lengthen notice periods. While litigated in Ontario, Paquette deals with the economy in Alberta as the plaintiff was employed by TeraGo in Calgary. The court relied on a number of Ontario cases which support the conclusion that:

"Economic factors such as a downturn in the economy or in a particular industry or sector of the economy that indicate that an employee may have difficulty finding another position may justify a longer notice period: Bullen v. Proctor & Redfern Ltd., [1996] O.J. No. 340 (Ont. Gen. Div.) at paras. 24-29; Thomson v. Bechtel Canada Ltd., [1983] O.J. No. 2397 (Ont. H.C.); Corbin v. Standard Life Assurance Co., [1995] N.B.J. No. 461 (N.B. C.A.); Leduc v. Canadian Erectors Ltd., [1996] O.J. No. 897 (Ont. Gen. Div.) at para. 34-36." (at para. 27)

After considering the employee's age, length of service, skills, probability of comparable re-employment, and the economic climate in Alberta, the court determined that the employee was entitled to a reasonable notice period of 17 months.

Alternatively, comparable courts in both Alberta and Ontario have established that employers can rely on economic factors to reduce reasonable notice periods. In Gristey v. Emke Schaab Climatecare Inc., 2014 ONSC 1798 ("Gristey"), an employee was terminated after 12 years along with eight others due to lack of work. The court found that the employee was wrongfully dismissed, however, the calculation of damages claimed by the employee was disproportionate given the circumstances of employment. The employer argued that the poor economic climate and its effect on the employer's business justified a shorter notice period. The court agreed. The notice period was reduced from 12 to 8 months to take into account economic factors present at the time of termination. It should be noted that the court also took into consideration the fact that had the employee not been terminated he would have likely worked fewer hours during the notice period.

The authority for the reduction contemplated in Gristey was derived from Bohemier v. Storwal International Inc. (1982), 40 O.R. (2d) 264 (Ont. H.C.) ("Bohemier"), a case which was decided in 1982 in the midst of another notable recession:

Payment in lieu of notice involves a cost to the employer for which there is no corresponding production or benefit. In my view, there is a need to preserve the ability of an employer to function in an unfavourable economic climate. He must, if he finds it necessary, be able to reduce his work force at a reasonable cost. If he can not do so, the alternative may be bankruptcy or receivership. It seems to me 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.

In a recent Alberta decision, Lederhouse v. Vermilion Energy Inc., 2015 ABQB 387 ("Lederhouse"), the court took judicial notice of the fact that oil prices had fallen dramatically. In interpreting the case law around these circumstances the court determined that during an economic downturn, "the employer cannot help that the world economy is faltering and should not be 'punished' therefore." The court made it clear that economic factors were part of the "matrix of factors" to consider and suggested that if an employee is terminated during an economic downturn the notice period may be reduced.

It appeared as if the second line of cases was gaining steam in the face of the economic downturn, however, the Ontario Court of Appeal released a decision in November, 2015, which may become persuasive in Alberta. Justice Huscroft in Michela v. St. Thomas of Villanova Catholic School, 2015 ONCA 801 ("Villanova") rejected Gristey claiming that Justice Conlan misunderstood the earlier Bohemier decision, resulting in a skewed analysis. Justice Huscoft limited the interpretation of Bohemier to the assertion that a reasonable notice period should not be unreasonably lengthened due to economic factors. Justice Huscroft goes as far as to state that economic difficulties faced by the employer should never be taken into consideration when determining reasonable notice and that economic factors should only be considered with regards to the impact on the employee:

Nevertheless, it is clear that Bohemier has caused some confusion in wrongful dismissal litigation. Most recently, it was relied on in Gristey v. Emke Schaab Climatecare Inc., 2014 ONSC 1798 (CanLII), 2014 C.L.L.C. 210-028, in reducing an employee's notice period by one-third as a result of the relatively poor state of the market and the financial health of the employer.

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 factors. See Anderson v. Haakon Industries (Canada) Ltd. (1987), 1987 CanLII 2406 (BC CA), 48 D.L.R. (4th) 235 (B.C.C.A.), at pp. 238-41 (Lambert J.A.), pp. 243-44 (Wallace J.A.); Farquhar v. Butler Bros. Supplies Ltd. (1988), 1988 CanLII 185 (BC CA), 23 B.C.L.R. (2d) 89 (C.A.), at pp. 92-93; and Sifton v. Wheaton Pontiac Buick GMC (Nanaimo) Ltd., 2010 BCCA 541 (CanLII), 12 B.C.L.R. (5th) 90, at paras. 34-35, 47-50.

Thus, even assuming that the respondent was suffering financial difficulties when it dismissed the appellants, the motion judge erred in concluding that the period of notice to which the appellants were entitled should be reduced as a result. That conclusion is neither required by the case law nor consistent with the nature and purpose of an employee's right to notice.

However, it should be noted that Justice Saunders considered the employer, not just the employee, in determining the reasonable notice period in Bohemier:

The claim is for damages for breach of contract. In determining the amount of notice to be given to an employee, the principal concern has rightly been to consider what is reasonable in the circumstances in which the employee finds himself. In my opinion, there is another factor to be considered. As this is a contract matter, the notice period must also be reasonable for the employer. What may be a reasonable period to allow a discharged employee to find new employment may be more than an employer should be asked to pay. An employer may dismiss for cause without notice but the economic requirements of the business or even the incompetence or negligence of the employee do not constitute cause. If the period of notice is extended too far, the ability to dismiss employees for economic or other reasons may be seriously impaired or rendered illusory. [Emphasis added.]

Villanova is the most current case in Ontario regarding calculating notice based on economic factors, but given the current state of the economy and the lower court's contradictory decision in Alberta, it is doubtful that the debate will end here.

While there is some uncertainty regarding constructive dismissal and the corresponding mitigation required during times of economic hardship, the law on calculating notice periods relying on economic factors is even less developed. The courts will consider economic stress in their application of reasonable notice, however, it is not clear which way the legal pendulum will swing in the future.

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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Jill W. Wilkie
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