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Nov 24, 2015

Economic circumstances as a factor in notice periods

A look at 2 cases in lower courts that look at employer's financial condition

By Stuart Rudner

, I discussed the fact that a court had taken a new factor into account when assessing the applicable period of notice of dismissal: The employer's breach of its duty of honesty in contractual relations.

Another factor employers often try to rely on is the financial condition of the company or the broader economy. Effectively, the argument they put forward is that the reason they are dismissing the employees in question is because they can't afford to keep them and their financial condition should be taken into account when a court assesses how much notice, or pay in lieu of notice, they must provide. 

Generally speaking, employment lawyers will say this is completely irrelevant. Some courts have expressed the view that while the economic circumstances may be relevant, they will typically be a neutral factor in the sense that if the economy is in bad shape, it will take the employee even longer to find new work, which would counterbalance any argument that the notice period should be reduced due to the employer's financial circumstances.

While the Court of Appeal for Ontario approved of the use of the employer's financial condition in order to reduce the applicable notice many years ago, that approach has rarely been followed, and the prevailing view has been that is not the way our courts will assess an individual's entitlement. 

Recently, however, there have been at least two cases where lower courts have accepted evidence of the employer's financial condition and taken that into account in order to reduce the applicable notice period. In Lederhouse v. Vermilion Energy Inc., an Alberta court considered the economic downturn that continues to plague the economy in Alberta.

There is no doubt it has had a dramatic impact on the economy, resulting in the loss of thousands of jobs. The individual had been working for Vermilion Energy for about three-and-a-half years, and the Court of Queen's Bench of Alberta took the economic conditions into account. Specifically, the court referred to a 2001 decision in Novak v. Flintech Services Ltd. in which the same court considered a dismissal in anticipation of an economic downturn.

In that case, which in turn cited the previous decision in Heinz v. Cana Construction Co., where the court wrote as follows: 

“There is, however, judicial support for the proposition that an economic downturn in the fortunes of an employer which is not brought about by his own incompetence or mismanagement constitutes a legitimate factor to consider in determining the requisite notice. These cases recognize that it seems unrealistic to force an employer to give the same notice period in a time of recession as he would in a time of prosperity." 

The court in Lederhouse followed this reasoning, writing that “the employer cannot help that the world economy is faltering and should not be ‘punished’ therefore." The court did not express the specific impact that this factor had upon its decision, only noting that it was one of the matrix of factors to consider. 

Ultimately, the court found the reasonable notice period was nine months. 

In another recent case, the Ontario Superior Court of Justice found that the economic circumstances of the employer could be considered in Gristey v. Emke Schaab Climatecare Inc. In that case, the court accepted the defendant's argument, citing the decision of Bohemier v Storwal International Inc., which was decided by the Ontario Superior Court of Justice and affirmed by the Court of Appeal for Ontario in 1983.

As mentioned above, this case has not been followed to any significant extent. However, it was followed in this case, and the notice period was reduced from 12 months to eight as a result of the economic circumstances. 

These recent decisions call into question the relevance of the economic circumstances when assessing an employee's entitlement to notice of dismissal. In the past, counsel that have advised employer clients not to put forward such arguments will have to reconsider, and plaintiff's counsel will have to recognize this is a factor that might be used against their client.

Unfortunately, it takes the vague notion of reasonable notice and makes it even more ambiguous. 

As somewhat of a side note, it is important to remember that the nature of the employer organization is irrelevant. Specifically, I work with many charities and not-for-profit organizations, and many of them are shocked to learn that with respect to employment standards and other obligations, the nature of the organization is completely irrelevant. Courts will not reduce the applicable notice period simply because the employer is a charity or not-for-profit organization.

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