Financial Circumstances of Employer Not a Proper Factor
in Assessing Reasonable Notice
As employer counsel, it is not unusual for us to hear from a
client that poor financial circumstances mean not only that
dismissals are necessary but also that the employer cannot afford
to pay common-law reasonable notice to its departing employees.
While at one time an employer's financial circumstances
could be taken into consideration in assessing reasonable notice
for a dismissed employee, the Ontario Court of Appeal has
effectively shut down an employer's ability to get any measure
of relief where challenging economic realities make lengthy notice
In Michela v. St. Thomas of Villanova Catholic
School the lower court - on a motion for summary
judgement - held that three teachers with service ranging from 8 to
13 years would have been entitled to twelve (12) months'
common-law reasonable notice but for the financial circumstances of
the school. The motion judge reduced the notice periods from 12
months to 6 months and found that it was appropriate to consider
the employer's need to reduce its prospective deficit in
determining a reasonable award.
On appeal, the Court of Appeal overturned the motion judge's
decision and found that there was no room in the assessment of
reasonable notice to take into account the employer's financial
circumstances. The court reasoned that if the motion judge's
decision was upheld, it would allow judges to award more notice to
employees in good economic times. The Court of Appeal determined
that the Bardal factors that have been used by courts to
assess reasonable notice for over fifty years (age, service,
character of employment, and the availability of similar
employment) were not broad enough to include a consideration of an
employer's financial circumstances.
While the Court of Appeal's decision is certainly not good news
for employers struggling financially, it is a timely reminder that
a well-drafted employment agreement with termination and temporary
lay-off clauses can give an employer much greater flexibility in
managing financial downturns, as well as significantly reduce its
liability in the event of a dismissal. And while an employer with
financial challenges may no longer receive a sympathetic ear at
court, relying on financial circumstance can still be an effective
negotiation tool in resolving dismissal issues where the risk of
insolvency/bankruptcy may persuade an employee to accept less than
they might be awarded after costly and often lengthy
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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