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Does an employer’s financial health affect the termination entitlements of employees? The Ontario Court of Appeal officially signs the divorce papers

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Corporate restructuring has become a business reality in our volatile global economy. Just last week, Maple Leaf Foods announced its plan to cut more than 400 jobs across the country in a move to redirect resources and remain cost competitive. Other large organizations, including Bell Media and Enbridge, have recently announced similar restructuring plans that are expected to result in mass employee layoffs.

Beyond complying with their “mass termination” obligations as prescribed by the Employment Standards Act, 2000, struggling organizations often question whether their poor financial health can justify reducing the severance packages of employees impacted by their restructuring decisions. In Michela v. St. Thomas of Villanova Catholic School, 2015 ONCA 801 (“Michela“), the Ontario Court of Appeal provides some timely guidance on this issue and confirms that an employer’s financial circumstances are irrelevant for the purposes of determining an employee’s right to reasonable notice of termination.

In Michela, a group of school teachers (the “Teachers”) brought a motion for summary judgment in a wrongful dismissal action against their former employer, the St. Thomas of Villanova Catholic School (the “School”). The motions court judge found that the Teachers had been wrongfully dismissed by the School and were entitled to reasonable notice.  However, the motions court judge reduced the 12-month notice period proposed by the Teachers to six months after taking into account, inter alia, the School’s financial position:

I find that the notice period proposed is too long. I point out that, if notice for 12 months is reasonable, the School will have to pay the same amount for these teachers as if they had remained on staff for the year that was upcoming. Assuming that the other two teachers who were terminated maintained the same rights, it is not difficult to see that the School would be unable to reduce its prospective deficit by terminating staff it did not need. The law does not ignore the dilemma of the employer. The teachers should be taken to understand this aspect of their employment and, in this case, were made aware of the concern. In this situation, I reduce the claim for notice by half, to six months. [Emphasis Added]

The Court of Appeal held that the motions court judge erred in considering the School’s financial circumstances as part of the “character of employment” analysis prescribed by the former Ontario High Court of Justice in Bardal v. The Globe & Mail Ltd., [1960] 24 D.L.R. (2d) 140 (“Bardal“).  Specifically, the Court of Appeal confirmed that the relevant factors set out in Bardal are concerned only with the circumstances of the employee and not those of the employer:

It is important to emphasize, then, that an employer’s poor economic circumstances do not justify a reduction of the notice period to which an employee is otherwise entitled having regard to the Bardal factors…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]

Accordingly, the Court of Appeal’s decision in Michela provides a number of key reminders:

  • For Employers – When planning and implementing mass restructuring plans, employers must keep in mind that the law requires them to provide adequate reasonable notice (or pay in lieu thereof) to affected employees, without regard to the organization’s financial struggles. A proactive approach may stave off expensive lawsuits for wrongful dismissal in which the employer’s purported financial difficulties are found to be irrelevant.
  • For Employees – Employees should not allow themselves to be deceived by any representations that an employer’s financial struggles justify a reduced severance package. Employees are encouraged to seek legal advice to confirm their proper termination entitlements.

Titus Totan

About the Author: Toronto employment lawyer Titus Totan supports both employee and employer clients in all areas of employment law, including employment standards, contractual and implied obligations, terminations, workplace investigations and workplace human rights.