THE EMPLOYERS' EDGE
Money Doesn’t Matter!
Financial Circumstances of Employer Not a Proper Factor in Assessing Reasonable Notice
As employer counsel, it is not unusual for us to hear from a client that poor financial circumstances mean not only that dismissals are necessary but also that the employer cannot afford to pay common-law reasonable notice to its departing employees.
While at one time an employer’s financial circumstances could be taken into consideration in assessing reasonable notice for a dismissed employee, the Ontario Court of Appeal has effectively shut down an employer’s ability to get any measure of relief where challenging economic realities make lengthy notice periods impractical.
In Michela v. St. Thomas of Villanova Catholic School the lower court - on a motion for summary judgement - held that three teachers with service ranging from 8 to 13 years would have been entitled to twelve (12) months’ common-law reasonable notice but for the financial circumstances of the school. The motion judge reduced the notice periods from 12 months to 6 months and found that it was appropriate to consider the employer’s need to reduce its prospective deficit in determining a reasonable award.
On appeal, the Court of Appeal overturned the motion judge’s decision and found that there was no room in the assessment of reasonable notice to take into account the employer’s financial circumstances. The court reasoned that if the motion judge’s decision was upheld, it would allow judges to award more notice to employees in good economic times. The Court of Appeal determined that the Bardal factors that have been used by courts to assess reasonable notice for over fifty years (age, service, character of employment, and the availability of similar employment) were not broad enough to include a consideration of an employer’s financial circumstances.
While the Court of Appeal’s decision is certainly not good news for employers struggling financially, it is a timely reminder that a well-drafted employment agreement with termination and temporary lay-off clauses can give an employer much greater flexibility in managing financial downturns, as well as significantly reduce its liability in the event of a dismissal. And while an employer with financial challenges may no longer receive a sympathetic ear at court, relying on financial circumstance can still be an effective negotiation tool in resolving dismissal issues where the risk of insolvency/bankruptcy may persuade an employee to accept less than they might be awarded after costly and often lengthy litigation.
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