An employment relationship is governed by the rules of the contract. Employers must give employees notice of an impending termination or pay in lieu of notice or risk a breach of the employment contract. So how much notice needs to be given or paid to an employee terminated without cause?
The Ontario Superior Court recently considered the amount of reasonable notice owed to employees who were terminated after their employer was financially impacted by the pandemic. Before reviewing the facts of the case and the court’s findings, we will briefly review an employee’s entitlements when terminated without cause.
Employee Entitlements for Termination Without Cause
There are two types of notice that apply to provincially-regulated employees: statutory notice and common law notice.
Notice Under the Employment Standards Act
Statutory notice is provided pursuant to the Ontario Employment Standards Act (the “ESA”), which sets out an employee’s bare minimum notice entitlements upon termination depending on the employee’s length of service. The ESA does not apply to all employees in Ontario. For example, federally-regulated employees fall under federal employment legislation.
Common Law Notice
In addition to notice under the ESA, an employee is also entitled to reasonable notice at common law. There is no set formula for determining reasonable notice at common law. It is a fact-specific exercise that depends on a number of factors, including:
- the employee’s age
- length of service
- character of employment
- availability of similar employment, having regard to the employee’s experience, training, and qualifications
These factors are generally employee-centric and are based on the employee’s ability to find alternate employment.
But what about employer-specific factors? Is an employer’s financial position a factor that may be considered when determining the length of reasonable notice to be awarded an employee? This issue is particularly important with so many employers having been impacted by the COVID-19 pandemic and thus being forced to reduce their workforce.
Employees Laid Off as a Result of the Pandemic
In Ristanovic v. Corma Inc., the defendant, Corma, was a manufacturer of corrugated tubing employing approximately 100 people. Corma depended on China for certain key supplies and also relied on overseas markets for 95% of its business.
In late 2019 and early 2020, the outbreak of the COVID-19 pandemic in China significantly disrupted Corma’s ability to carry on business as its supply chain was disrupted by shutdowns. Corma ultimately suffered a catastrophic decline in its revenues of about 40% and laid off 17% of its workforce, including the two plaintiff employees. The plaintiffs were 67 and 62 years old. They retained counsel shortly after receipt of their lay-off notices and advised Croma that they were electing to treat their lay-offs as constructive dismissals.
Although the lay-off notices indicated that the lay-offs would not exceed 35 weeks, neither of the plaintiffs were recalled within 35 weeks as indicated. Neither plaintiff was able to find employment since their lay-off notices went into effect. At the hearing, Corma indicated that it was able to recall both plaintiffs to full-time employment as soon as practicable.
Determining the Period of Reasonable Notice
The court found that “there was no question” the unwritten agreements governing the plaintiffs’ employment contained an implied term that their employment would not be terminated except on reasonable notice. The plaintiffs took the position that they were entitled to reasonable notice of between 22 and 24 months given their age, lengthy period of service (over 30 years and 28 years), the difficulties faced by people in their age bracket in securing alternative employment and, of course, the additional obstacles posed by lockdowns and the pandemic.
The defendant generally agreed that a period of reasonable notice in the range of 18-22 months was appropriate. However, it urged the court to reduce the amount of notice given the impact of the pandemic on its business and the maintenance of benefits by the defendant during the layoff period.
Employer’s Financial Position Does Not Reduce Reasonable Notice Obligation
The court acknowledged that fixing a period of reasonable notice is always a difficult process. It also noted that the economic circumstances prevailing at the time of the employees’ termination were – and remain – difficult.
Despite this acknowledgement, however, the court ruled that the defendant employer’s financial position should not reduce the employee’s entitlement to reasonable notice. The court noted the objective of reasonable notice is to give the employee reasonable time to find replacement work. According to the court, considering an employer’s ability to pay while determining reasonable notice is a “slippery slope.” As the court stated:
“While it is tempting to accede to the defendant’s suggestion that if the prevailing economic circumstances may operate to lengthen notice from the perspective of the terminated employee it should also serve to curtail it from the perspective of the employer who is also blameless and is being hard hit, that is not an analysis that I think can fairly be applied. Ability to pay as a criterion for fixing damages is a slippery slope to engage upon and I do not intend to do so here.”
Therefore, the court was satisfied that 22 months was a reasonable notice period for both employees.
Contact Baker & Company in Toronto for Advice in Employment Law Matters
The pandemic has created unprecedented difficulties for many industries. While there is no set formula for determining reasonable notice, the experienced team of employment lawyers at Baker & Company have extensive experience assessing and providing advice on termination packages. We can help in providing fair termination packages to avoid wrongful dismissal claims and costly litigation. To speak with a lawyer, contact us online or by phone at 416-777-0100.