Digging deep into shallow pockets

Employees have a right to reasonable notice, but what if the employer can’t afford it?

By Jeffrey R. Smith

To some employers, it seems nearly impossible to terminate a worker's employment in Canada.

However, what is really the case is that the bar is high to prove just cause for dismissal — which many consider fair, since termination is the “capital punishment” of employment. Employers can terminate any of their staff whenever they want, the caveat being they must provide reasonable notice or pay in lieu of in the absence of just cause. And that’s where employers may have their stumbling block.

Where there isn’t just cause, employers owe reasonable notice of dismissal, depending on factors such as the employee’s length of service, position, age and the likelihood of finding similar work. Employment standards legislation outlines the minimum notice required, but this usually doesn’t actually cover the full entitlement. Common-law precedents usually provide more entitlement — though many shy away from the so-called “rule of thumb,” employers can generally protect themselves from legal action if they provide about one month of notice or pay in lieu for every year of the employee’s service. For very long-term employees, the maximum notice seems to be between 18 and 24 months.

However, in the case of a long-term employee, the amount of notice entitlement can be a little too rich — especially since sometimes a long-term employee is only being let go because of financial difficulties. In such circumstances, the employer may be shutting down and unable to provide working notice and may not have the funds to provide pay in lieu. What should the employer’s obligation be?

Three years ago, an Ontario company went through some financial difficulties and had to dismiss nine employees. The statutory minimum notice was eight weeks, and the company offered 16 weeks in exchange for the signing of a release. One of the workers, who had been with the company for 12 years, filed a claim for 12 months’ pay in lieu of notice.

The court agreed the 12-year worker might have been entitled to 12 months notice, but it recognized that, because of the company’s difficulties, even if the worker was given proper notice his hours — and therefore his income — would be less than usual. As a result, the court found the appropriate damages for pay in lieu of notice was eight months: see Gristey v. Emke Schaab Climatecare Inc., 2014 CarswellOnt 3422 (Ont. S.C.J.).

In this case, the worker’s entitlement to notice of dismissal was reduced because of the employer’s situation. While the worker didn’t get his full entitlement, the reality is that, in such circumstances, such a decision could be beneficial to the worker. If a worker’s true entitlement is more but the employer can’t pay because it goes under, the worker might not get anything. A difficult financial situation hurts both employers and employees, so a decision like the one above could still be seen as favourable to the employee if it increases the chance of the employee actually receiving the damage award.

Is this a fair way of handling situations where economic difficulties force employers to dismiss employees? What’s the proper balance between the entitlement of reasonable notice and the employer’s bottom line?

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