Factoring in employer's economic condition, part 2

By Stuart Rudner 

In a previous post, I discussed whether the financial condition of an employer should be taken into account in assessing the reasonable period of notice it must provide to a dismissed employee.

As I indicated, the answer has historically been no; the economic circumstances of the employer are not relevant and are not to be taken into account.

However, I mentioned two cases which adopted a different approach and allowed for a reduction in the notice period as a result of the financial situation of the employer. Just last week, the Ontario Court of Appeal released its judgment in the case of Michela v. St. Thomas of Villanova Catholic School and confirmed that the economic condition of the employer is not a factor to be considered. 

In Michela, the motion judge had determined the reasonable period of notice would have been 12 months but for the financial circumstances that the company faced. In light of the circumstances, the judge reduced the notice period in half, saying the plaintiff was only entitled to six months. 

The motion judge adopted the reasoning many employers put forward: That in many cases, the reason for dismissal is their lack of funds, and they should not be put in a position where they must pay substantial severance as a result. The motion judge wrote as follows: 

“If notice for 12 months is reasonable, the school will have to pay the same amount for these teachers as if they had remained on staff for the year that was upcoming. Assuming that the other two teachers who were terminated maintained the same rights, it is not difficult to see that the school would be unable to reduce its prospective deficit by terminating staff it did not need. The law does not ignore the dilemma of the employer. The teachers should be taken to understand this aspect of their employment and, in this case, were made aware of the concern. In this situation, I reduce the claim for notice by half, to six months.” 

The plaintiff appealed, and the appeal was allowed. The Court of Appeal went back to basic principles, noting that the concept of reasonable notice is to allow a dismissed employee a reasonable amount of time in which to find new work. 

“Damages for dismissal without reasonable notice are designed to compensate employees for the losses incurred during the period of reasonable notice — the amount of wages and benefits that they would have earned had they been permitted to serve out the notice period.” 

The court also noted the primary factors that are to be taken into account: 

• the character of employment
• length of service
• age
• the availability of similar employment, having regard to the employee's experience, training and qualifications. 

The Court of Appeal noted that the motion judge emphasized the character of employment factor and used it to reduce the notice period by six months. Specifically, the motion judge found that the teachers should have understood the specific circumstances faced by the school, and that the school would have to wait until June every year to be sure of its requirements for the upcoming school year.

The Court of Appeal found that this was an error, and not something to be taken into account when considering “character of employment.” The court went on to confirm that the character of employment “refers to the nature of the position that has been held by the employee — the level of responsibility, expertise and so on.” 

The court referenced the case of Bohemier v. Storwal International Inc. as being the source of some confusion. This case was relied upon by the motion judge and has been referenced in the past as supporting the notion that the employer's financial circumstances should be taken into account. However, the Court of Appeal wrote that: 

“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.” 

Interestingly, the court specifically referenced the case I mentioned last week, being Gristey v. Emke Schaab Climatecare Inc., and confirmed that the decision in that case was an error. The court made it clear that the economic circumstances of an employer are not to be taken into account when assessing the reasonable period of notice. 

This decision should put an end to any confusion in this regard.