Northern Exposure

Sharing the pain: Do economic conditions count?

by Clayton Jones

Does a poor economy mean a shorter reasonable notice period? Canadian employers often ask this question—particularly in cyclical industries.

When assessing reasonable notice, courts will consider the employee’s position and responsibilities, length of service, age, and the availability of similar employment. Not only has it been unusual for courts to consider negative economic conditions as a factor justifying a reduced notice period, this has typically been used to lengthen the notice period in favor of the employee.

However, there are two cases from the past year—one from Ontario and one from Alberta—where the court was prepared to give the employer some credit for the economic situation it found itself in.

Gristey v. Emke Schaab Climatecare Inc. (Gristey)

In Gristey, the employee had been employed as a heating technician by the employer for 12 years. His employment was terminated at the same time as eight other employees in September 2011. The reason? Lack of work. During the last few years of the employee’s employment, his hours had fluctuated between 22 and 37.5 hours per week, depending on the amount of available work.

At trial, the employee argued that the reasonable notice period was 12 months. The employer argued that the poor economic climate and the precarious financial situation it found itself in justified a shorter notice period than usual.

The judge agreed with the employer, concluding that the notice period should be discounted by one-third (i.e., from 12 to eight months) to take into account the economic factors that existed at the time. Specifically, the judge referred to the unfairness that a 12-month notice period would create given that the employee likely would have worked fewer hours than normal had he been provided with working notice.

Lederhouse v. Vermilion Energy Inc. (Lederhouse)

In Lederhouse, the employee had been employed as a geologist in the oil and gas industry in Calgary. On July 21, 2014, she was terminated after 3 1/2 years’ service.

An issue at trial was the effect of the economic downturn in the oil and gas industry. The employee argued that the hiring freezes and downsizings within the industry should result in her being placed at the upper end of the notice range. The employer, meanwhile, argued that the downturn should be used to reduce the applicable notice period.

The judge concluded that the depressed economy was a factor that could be properly considered in assessing notice. In coming to this conclusion, comments were made suggesting that had the termination occurred during an economic recession (as opposed to before), the employer would not need to provide the same amount of notice it normally would provide.

Implications for employers

The Gristey and Lederhouse cases provide a glimmer of hope that courts in Ontario, Alberta, and across the rest of Canada will have sympathy for employers negatively affected by economic conditions. At the same time, employers should continue to tread carefully in trying to rely on economic factors to justify providing employees with reduced notice.

The best approach? Ensure there is a well-written employment agreement in place at the time of termination that limits severance liability.