Employers who undertake reductions in force due to financial difficulties should not count on employee notice periods being reduced as a result of the financial troubles. This point was recently emphasized by the Ontario Court of Appeal in the decision of Michela v. St. Thomas of Villanova Catholic School.
Michela, Gomes and Carnovale were long-term teachers at St. Thomas of Villanova Catholic School, with 11, 13 and 8 years of service respectively. All worked under a series of one-year contracts. In May of 2013, the employer advised each of them in writing that they would not receive a contract renewal for the coming year because enrolment was expected to be lower. Subsequently, in June of 2013 each of them was provided with a termination letter and advised that notice was not owed because they were employed pursuant to fixed-term contracts.
The claims were dealt with by summary judgment, and the motions judge determined that due to the succession of fixed-term contracts, the employees were really indefinite term employees and entitled to common law notice of termination. However in determining that the reasonable notice period for each employee should be 6 months rather than the 12 months which was claimed, the judge made reference to the employer's poor financial position.
In overturning the decision, the Court of Appeal made reference to the Bardal factors used to calculate reasonable notice at common law: the employee's character of employment, length of service, age, and availability of similar employment having regard to experience, training and qualifications. The Court found that the motions judge had mistakenly viewed "character of employment" through the lens of the employer rather than the employees, and stated that the financial position of the employer does not factor into the calculation of reasonable notice. The court confirmed that while an employer's financial position may be the reason for a termination without cause, the financial position of the employer does not justify a reduction in the notice period in bad times nor an increase when times are good.
For employers considering reductions in force during difficult times, it may be best to consider other options such as a temporary layoffs, ensuring that proper termination provisions are in place which provide only statutory minimums in the event of termination, or the provision of working notice. While legal advice should be sought in order to ensure the best plan of action, it is clear at the very least that employers should not count on a reduced notice period due to a difficult financial position.
The decision in Michela v. St. Thomas of Villanova Catholic School can be read here: http://www.ontariocourts.ca/decisions/2015/2015ONCA0801.htm.
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