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Considering the economic circumstance of employer when deciding notice of dismissal

Historically, an individual’s entitlement to notice of dismissal or pay in lieu thereof at common-law was governed by the Bardal v. Globe and Mail case, which identified four factors:

  1. the employee’s length of service;
  2. the employee’s age;
  3. the employee’s position/character of employment; and
  4. the availability of comparable employment.

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Our courts have made it clear that the factors enumerated in Bardal were not exhaustive, and over the years, many other factors have been considered in assessing an individual’s entitlement. Among others, inducement has become a significant factor where the facts support it. As well, the economic circumstances of the employer, and the economy more broadly, have been considered, though this factor has created some controversy.

The impact of the employer’s financial condition at the time of termination on the notice period has been the subject of some debate. In 1983, the Ontario Court of Appeal held, in Bohemier v. Storwal International Inc., that the financial circumstances of the employer are a factor that can be considered in the assessment of the notice period.

Based upon that decision, it would seem that notice periods may be reduced in difficult economic times, particularly where the employer in question can show economic distress. That being said, many courts have deemed the economic circumstances to be a “double-edged sword”, since it will mean that the employer faces economic challenges but also that higher unemployment will mean that the dismissed employee will take longer to find new employment. As a result, decisions such as Szwez v. Allied Van Lines Ltd. have considered this to be a neutral factor with little, if any, impact on the notice period.

Some courts have explicitly rejected the notion, confirmed in the Bohemier case by the Court of Appeal, that economic circumstances can serve to lessen the employer’s obligation at the time of termination. In Swianamer v. Union Tele-Communications Inc., the court ruled as follows:

… I fail to see how an employer’s poor financial position or need to improve profitability impacts on an employer’s legal obligation to anyone, particularly its employees
An employer has every right to determine its priorities, and take what steps it deems necessary to address market and economic conditions as it sees fit. However it cannot do so and plead an entitlement to diminish its responsibility in law when it comes to the termination of the employment of its employees.

Reorganization, downsizing, restructuring, financial mismanagement and redundancy are not factors to be taken into account in diminishing the appropriate reasonable period of notice.

According to Mr. Justice John Sproat, in his leading text, the Employment Law Manual,”although Boheimer is law in Ontario, it is becoming apparent that the principle enunciated is unwieldy in application.”

Recently, however, the Ontario Superior Court of Justice adopted the approach established in Bohemier in Gristey v. Emke Schaab Climatecare Inc. In that case, the employer led evidence of its precarious financial position, and the court accepted this. In the end, the court found that the notice period should be reduced as a result of the employer’s financial condition.

The plaintiff was 52 years old at the time of termination and had been employed for approximately twelve years in residential services. He was dismissed along with eight other employees. According to the court:

[52] I accept that work for the Defendant was sparse as of August/September 2011. I accept that the market, generally, was relatively poor.

[53] I accept that there was no sign of material improvement in the foreseeable future.

[54] But the testimony of Douglas Schaab works against the Defendant’s implied submission that eight weeks’ pay in lieu of notice was reasonable because that was all that the company could reasonably afford. The decision to pay eight weeks’ wages and offer another eight weeks had nothing to do with the company’s ability to pay, according to Mr. Schaab. That was not all that the Defendant could reasonably afford. In fact, Mr. Schaab acknowledged that the business could have afforded to continue paying to Mr. Gristey $1000 to $1200 per week after the end of August 2011. And, even accounting for delays in getting paid for projects completed in 2010, the fact is that the company amassed a large profit in the twelve months ending in February 2012.

[55] I will discount what I otherwise find to be a reasonable notice period to account for the economic factors that existed in August and September 2011, but not nearly to the extent advocated for on behalf of the Defendant.

[57] In my assessment, economic factors aside, a reasonable notice period for Mr. Gristey would have been twelve (12) months.

[58] I think, however, that 12 months is too high when one factors in the economic considerations. This was a tough decision for the company. It was entitled to adjust its operations in light of the relatively poor market prevailing at the time. I attribute no bad motives or callous behaviour to the Defendant or to Douglas Schaab. In fact, he struck me as a caring and earnest gentleman who has successfully built a solid business with an unblemished reputation. I give him a great deal of credit for that.

[59] In light of the economic factors, I have decided to discount the notice period by one-third, from twelve to eight (8) months. Essentially, this is a recognition that (as I said above), had Mr. Gristey’s employment not been terminated, he would have likely worked less hours during the notice period. Thus, it would not be fair to the Defendant to apply the full twelve-month notice period.

As a result, the law is somewhat unclear as to whether employers are able to discount severance payments if they can legitimately demonstrate financial hardship. Due to the uncertainty, employers do so at their own risk. It is quite possible that another judge would consider the same type of circumstances and find that the notice period is the notice period, regardless of the employer’s financial condition, and that the employer is therefore obligated to pay more than they originally provided.

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Rudner Law, Employment / HR Law & Mediation

Employment Lawyers and Mediators at Rudner Law
Rudner Law is a firm specializing in Canadian Employment Law. They provide clients with strategic advice regarding all aspects of the employment relationship, negotiate and advocate on their behalf and represent them before courts, mediators and tribunals. Blog posts are written by Stuart Rudner, the principal and founder of Rudner Law, Brittany Taylor, a Senior Associate at Rudner Law, Nadia Zaman, an Associate at Rudner Law and Anique Dublin, a Law Clerk at Rudner Law. Read more
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