Nelligan O’Brien Payne gratefully acknowledges the contribution of Alex Dezan, Student-at-Law in writing this blog post.
When an employer wants to terminate an employee without cause, it is required to do one of two things: give reasonable notice in advance of termination, or provide pay in lieu thereof (assuming the employee has no valid and enforceable employment contract).
Although they are not obliged to do so, employers more commonly terminate employees and pay them their entitlements for a reasonable period, rather than pay them to continue working after they have been terminated.
The purpose of reasonable notice is to provide dismissed employees with a reasonable opportunity to find comparable employment elsewhere. If an employer does not provide adequate compensation in lieu of notice, the dismissed employee can seek damages for the losses incurred during their reasonable notice period.
Courts consider a number of factors to determine exactly how long a dismissed employee’s reasonable notice period should be. These factors include:
- Their length of service;
- Their age;
- The character of their employment; and
- The availability of similar employment, having regard to their experience, training, and qualifications.
But what happens if you are terminated because your employer is in dire financial straits? Are you entitled to less, simply because you were terminated as a cost-saving measure?
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The Ontario Court of Appeal has recently considered whether an employer’s financial circumstances are relevant when determining a dismissed employee’s reasonable notice period. In Michela v. St. Thomas of Villanova Catholic School, three Ontario schoolteachers were dismissed by their employer. Sergio Gomes, Domenica Michela, and Catherine Carnovale worked under fixed-term, one-year contracts for their employer for 13, 11, and 8 years respectively. In letters it sent to each employee on May 31, 2013, the school cited decreased enrolment as justification for their decision not to renew their contracts. Michela and Carnovale were officially terminated on June 27, 2013, with Gomes following three days later. The teachers brought a motion for summary judgment, alleging that they were wrongfully dismissed, and seeking reasonable notice damages.
The employer argued that the teachers were not entitled to reasonable notice because their contracts were fixed-term contracts. The motion judge rejected this argument, finding them instead to be more akin to permanent employees, given their length of service, among other factors. However, the motion judge reduced the 12-month reasonable notice period suggested by the teachers to 6 months, in order to accommodate the school’s financial condition. The motion judge considered the employer’s financial circumstances under the “character of the employment” factor, finding that the school’s decision to terminate the teachers due to decreased enrolment spoke to the “character” of the job itself. Furthermore, the judge held that as the teachers worked for a smaller institution, they should have anticipated less job security than if they worked for a larger, more profitable school.
The Court of Appeal rejected this approach, and held that the “character of the employment” consideration, like all of the others, must focus on the employee, not the employer. Although the Court did not comment on the declining importance of the “character of the employment” factor for reasonable notice calculation purposes, it did emphasize that all of the factors in the reasonable notice analysis should focus on the wrongfully dismissed employee, and not the employer. An employer’s financial circumstances may indeed be the reason for termination, but this should not impact the length of an employee’s reasonable notice period.
The Court of Appeal took the opportunity to clarify a narrow area of the law that the motion judge cited in his reasons, and which had been misconceived in a number of other decisions. The motion judge improperly cited Bohemier v. Storwal International Inc. as standing for the proposition that reasonable notice periods can be reduced where the employer is struggling financially.
The Court noted that the motion judge failed to include important portions of that judgment, and clarified that an employer’s finances, no matter how dire, do not impact a wrongfully dismissed employee’s reasonable notice period. At paragraph 20, the Court stated:
“Bohemier does not hold, and this court has never held, that an employer's financial difficulties justify a reduction in the notice period. It does no more than to hold that difficulty in securing replacement employment should not have the effect of increasing the notice period unreasonably. That is what this court should be taken to have meant when, in its brief endorsement in Bohemier, it said that the lower court judge was right to "tak[e] into account economic factors when considering the case for each of the parties."
The Court of Appeal also rejected another of the motion judge’s justifications for reducing the notice period: that because a 6-month notice period would bring the terminated teachers to the Christmas season, it was “reasonable to presume” that new teaching positions were likely to become available at that time. The Court held that there was no evidentiary basis for this presumption, and that this finding was purely speculative.
The Ontario Court of Appeal’s reasons in Michela clarify that employees will not have their reasonable notice periods reduced due to an employer’s financial circumstances when they are wrongfully terminated. This case also warns employers: although finances can be a reason for termination, they cannot be a reason for denying your former employees the severance protection that they have earned.
If you feel you have been provided with less notice than you deserve, please speak to one of our lawyers in our Employment Law Group.