The COVID-19 pandemic has had a devastating impact on our economy over the past year. Many of us have experienced firsthand the struggles of small businesses and hard-hit industries such as the food services sector and tourism. The strains on businesses are unavoidably accompanied by employee layoffs and terminations. Near the beginning of the pandemic, one question on many employment lawyers’ minds was, what impact will the COVID-19 pandemic have on calculating an employee’s severance pay?
After much speculation, the Ontario courts have finally provided some guidance. Before we discuss this recent case, we will review the general rules about severance pay.
As a reminder, severance pay and termination pay are two distinct concepts, but for the purposes of this article, we will be using the term “severance pay” generally to refer to all amounts an employer may owe an employee upon termination.
Determining severance pay is a fact-specific exercise
It is well-established that employers in Ontario can terminate non-unionized employees for any legal and non-discriminatory reason, as long as the employee is provided his/her entitlements upon termination. That is, as long as an employer provides sufficient notice of termination (or pay in lieu of notice) and severance pay (if any), it can terminate an employee without cause at any time.
Where an employment contract does not effectively limit an employee’s entitlements to the minimum amounts outlined in employment legislation, the employee is entitled to a greater amount of notice of termination based on common law.
Although there are countless factors that may be relevant to determining an employee’s common law notice entitlements, the Bardal factors are the core factors used, which are:
- character of the employment;
- length of service;
- the employee’s age; and
- availability of similar employment, having regard to the experience, training and qualifications.
Many speculated that the pandemic’s impact on the fourth Bardal factor may increase an employee’s entitlements upon termination. This was further hinted at in a 2021 case from the Ontario Superior Court.
COVID-19 may increase an employee’s entitlements upon termination
In Yee v Hudson Bay Company, a 62-year-old employee who worked for his employer for 11.65 years was terminated in August 2019. He earned a six-figure income and was employed as a Director, Product Design and Development at the time of his termination.
The employee argued that he should be awarded a longer notice period given the pandemic’s impact on the economy. However, the judge referenced another case and reiterated that notice is determined by the circumstances existing at the time of termination. Since the employee was terminated prior to the start of the pandemic, the pandemic and it subsequent impact on the economy was not taken into consideration in determining his notice period. The judge awarded 16 months of pay in lieu of reasonable notice.
However, the judge did make additional comments which leave the doorway open for future decisions to provide an increased notice period for terminations after the beginning of the pandemic, due to its negative effect on finding comparable employment.
This additional comment is in line with some previous decisions that have awarded longer notice periods due to a poor market or downturn in the economy.
Although this may be a glimmer of good news for terminated employees, what does it mean for employers? Don’t employers also deserve some protection from having to pay increased amounts to terminated employees amidst an economic downturn? Unluckily, previous cases have found that an employer’s financial circumstances are irrelevant in determining the amount of reasonable notice an employee is entitled.
There is a signal from courts that employees who were terminated after the start of the COVID-19 pandemic may receive a longer notice period, as it may have had a negative impact on their ability to find comparable employment. However, it remains to be seen whether or to what extent the pandemic may affect an employee’s notice period.
Blogging for Achkar law is Christopher Achkar, founder and principal of Achkar Law. Since being called to the bar in 2016, Christopher works with employers regarding all their HR Law needs at multiple levels of court, including tribunals such as the Human Rights Tribunal of Ontario, the Canadian Human Rights Commission, the Ontario Labour Relations Board, and the Workplace Safety and Insurance Board.