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Does an Employer’s Financial Situation Influence Reasonable Notice Periods?

The Ontario Court of Appeal recently addressed an old debate in employment law:  if an employer is in financial difficulty, should the court reduce the period of notice required to terminate employment contracts?  The new case is called Michela v. St. Thomas of Villanova Catholic School.

In Michela, three teachers at a private school has been employed according to a contractseries of 11 and 13 one year renewable contracts until finally their employer informed all three that they would not be renewed.  The employer tried to argue that no reasonable notice was required since the employees were all employed pursuant to a one year fixed term contract.

However, the lower court did not buy that argument and treated the employees as indefinite term employees who therefore were entitled to ‘reasonable notice’. [See Chapter 11, pp.  136-137 in Law of Work for a discussion of when courts treat apparent fixed term contracts as indefinite term contracts]  The lower court ruled that 6 months’ notice is reasonable and in doing so, emphasized that the employees understood and agreed that their jobs were tenuous.  The judge ruled that an employer’s precarious financial circumstances was relevant to assessing the notice period.  The employees appealed.

The Decision

The main issue for the Court of Appeal was whether the employer’s poor financial circumstances should reduce the notice period.  This is not a novel issue.

I deal with this question in Chapter 13 of The Law of Work (pages 162-163 specifically), which explores how modern judges decide how much notice is reasonable, applying the criteria from the famous Bardal v. Globe and Mail decision of 1960.  Among the factors that case listed as relevant to the assessment were “character of employment” and “availability of similar employment”.   The lower court judge in Michela erred by treating the employer’s financial circumstances as falling within the ‘character of employment’.  That category refers to the type of job the employee performed (managerial versus non-managerial), a factor that is becoming less important (as I note on p. 160-161).

On the question of whether the employer’s financial circumstances should reduce the notice period, the Court of Appeal is unequivocal:

Ontario Court of Appeal:  It is important to emphasize…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.

In Box 13.5 of Law of Work, I discuss the effects of a 1982 decision called Bohemier v. Storwal International.  I refer to that case as an example of how broader economic trends can infiltrate the employment law context and influence outcomes either directly or indirectly.  In Box 13.5 I cite Professor Geoff England, who concluded that the “Bohemier doctrine” had led to decreased notice periods during poor economic times.

In Bohemier, the lower court awarded 8 months’ notice to an employer terminated during poor economic times and noted that reasonable notice calculations should take into account what is reasonable to the employer as well as the employee, including the need for employers in difficult financial times to reduce their workforce in an economical manner.  This suggested that the state of the economy was relevant to the assessment of ‘reasonable notice’.  The Court of Appeal increased the notice period to 11 months, finding that the lower court judge had not given enough weight to the normal Bardal factors of age and seniority.

The Court of Appeal in Michela clarified that Bohemier should not be interpreted as permitting a reduction in the notice period when an employer is in difficult financial circumstances:

“even assuming that the employer 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.”

Issues for Discussion

Cross-reference to Law of Work text:  Chapter 11 (Termination by Agreement of the Parties) and Chapter 13 (Termination by an Employer with ‘Reasonable Notice’)

1.   Considering the basis for contract law damages, do you think that courts should take into account the financial circumstances of the employer when they assess how much notice of termination should be provided to an employee?

2.  Read the lower court decision in Michela.   On what basis that the court decide that the employees were employed under an indefinite term contract rather than a series of one year fixed term contracts?  Why is that ruling crucially important in this case?


One Response to Does an Employer’s Financial Situation Influence Reasonable Notice Periods?

  1. Jason Reply

    December 26, 2015 at 5:51 pm

    The reason for the notice period is to provide enough time for a worker to find alternative employment. So, if many similar businesses are struggling, it would make sense for a judge to award a greater notice period.

    I would have thought that this would be recognized by the Bardal factor: availability of alternative employment.

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