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Notice periods and an employer’s economic circumstances | Stuart Rudner

Tuesday, July 07, 2020 @ 9:44 AM | By Stuart Rudner


Stuart Rudner %>
Stuart Rudner
This is not a new issue, but one that is certainly front and centre at the moment: how will the economic circumstances of an employer, an industry or even the economy as a whole, impact the amount of notice or severance to which a dismissed employee is entitled? And on a more philosophical level, how should it?

If an employer is in dire financial straits, unable to keep up with all of their costs and effectively forced to reduce their labour force, should they be expected to pay out substantial amounts in severance?

Conversely, if the industry is hurting, or (as in the current situation), there is a worldwide economic slowdown, shouldn’t employees be entitled to additional compensation to reflect the increased difficulty they will experience when trying to find new employment?

We are often met with objections from corporate clients when we explain that the common law approach to “reasonable notice” takes into account many factors, but the financial condition of the company is not one of them. Just to make things “worse” from their perspective, the availability of similar employment, or lack thereof, is a factor to be considered.

There is no question that the economic impacts of the COVID-19 crisis have been and will be devastating to many businesses, and many jobs will be lost. Many experts are predicting the worst recession since the post-war era, leaving many businesses and individuals concerned for their futures.

The employment standards legislation will establish the absolute minimum entitlements to notice or compensation. However, unless there is a valid termination clause in an enforceable employment agreement, they are entitled to “reasonable notice” or pay in lieu. And as we all know, many employment agreements and termination clauses are not enforceable, particularly in light of the recent Ontario Court of Appeal decision in Waksdale v. Swegon North America Inc. 2020 ONCA 391.

Contrary to popular belief, notice is not one month per year of service. There are many factors that can impact the notice period, though we tend to focus on the “Bardal factors,” named after a case that is now decades old:

● Length of service;
● Nature of position/character of employment;
● Age of employee; and
● Availability of similar employment.

In 1985, the B.C. Court of Appeal in Hunter v. Northwood Pulp and Timber Ltd., [1985] B.C.J. No. 2139 held that “The lack of available employment opportunities resulting from a depressed economy is a factor to be taken into account.” However, they added that “The economic factor must not be given undue emphasis.”

Conversely, the submission that employers should “get a break” on severance in hard times has been largely rejected. For example, in Michela v. St. Thomas of Villanova Catholic School 2015 ONCA 801, three employees at the school were terminated due to low enrolment. The trial judge considered the employer’s financial challenges and awarded six months of pay in lieu of notice. The Ontario Court of Appeal overruled this approach; their decision is instructive:

“[18] The confusion in this area stems from Bohemier v. Storwal International Inc. (1982), 1982 CanLII 1764 (ON SC), 40 O.R. (2d) 264 (H.C.), cited by the motion judge, at para. 91, to support the proposition that ‘[u]ncertainty, especially where an employee knows that there are financial concerns, can be a factor in reducing the length of notice that might otherwise be reasonable…’ The motion judge quoted the following passage found at p. 268 of Bohemier:

“An employee may be dismissed either on reasonable notice or by payment in lieu of notice. The latter alternative is almost invariably selected because, for obvious reasons, it is not helpful to a business to continue to employ a person who has received notice of dismissal. Payment in lieu of notice involves a cost to the employer for which there is no corresponding production or benefit. In my view, there is a need to preserve the ability of an employer to function in an unfavourable economic climate. He must, if he finds it necessary, be able to reduce his work force at a reasonable cost.”

“[20] 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...”

“[23] Thus, even assuming that the respondent was suffering financial difficulties when it dismissed the appellants, the motion judge erred in concluding that the period of notice to which the appellants were entitled should be reduced as a result. That conclusion is neither required by the case law nor consistent with the nature and purpose of an employee’s right to notice.” [Emphasis added.]

Given that our firm works with both employers and employees, and I often act as a mediator, I can see both sides of the argument. There are compelling reasons to protect both parties in the type of situation we currently find ourselves in, but it is rarely possible to please everyone.

Stuart Rudner is a leading Canadian employment lawyer and mediator at Rudner Law. He is the author of You’re Fired! Just Cause for Dismissal in Canada. He can be reached at 416-864-8500 or stuart@rudnerlaw.ca.

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