There has been some controversy in Canadian law on the issue of whether the financial circumstances of the employer should play a role in deciding what constitutes reasonable notice of termination or pay in lieu of notice. Since multiple factors go into deciding what’s reasonable in many circumstances, why not this one?
This controversy was recently resolved by the Ontario Court of Appeal in Michela v. St. Thomas of Villanova Catholic School. The court overturned a lower court ruling that had reduced the normal, reasonable notice period because of the poor financial position of the employer that had to terminate the employees. The appeal court found that this was not a relevant factor.
Teachers Michela, Gomes, and Carnovale were terminated from their employment with a private school, St. Thomas of Villanova Catholic School. The school informed the teachers that because of lower enrollment, their employment contracts would not be renewed for the upcoming academic year.
The teachers sued claiming wrongful dismissal. They immediately brought a motion for summary judgment. The motion judge first found that the teachers were employed for indefinite periods (as opposed to fixed terms). They were thus entitled to reasonable notice of termination. This finding was not appealed.
However, the motion judge then decided to reduce the 12-month notice period proposed by the teachers to six months, taking into account the school’s financial position and the availability of alternative teaching positions.
As a general rule, the calculation of the reasonable notice period is a fact-specific exercise with regard to certain factors that focus on the circumstances of the employee. Known as the Bardal factors, after the 1960 Bardal v. Globe & Mail Ltd. decision of the Ontario high court. Those factors are character of the employment, length of service, age, and availability of similar employment. The motion judge reasoned that the employer’s financial circumstances form part of the “character of the employment” factor. He reduced the notice period accordingly.
The teachers appealed. They took the position that the financial circumstances of their former employer were irrelevant to calculating the period of reasonable notice.
The Court of Appeal agreed. The three-judge panel unanimously found that an employer’s financial situation forms no part of the “character of the employment.” Rather, this factor considers the nature of the position held by the employee, such as his or her level of responsibility and the expertise required.
The court emphasized that, with all of the Bardal factors, the concern is with the circumstances of the wrongfully dismissed employee, not with the circumstances of the employer. Though an employer’s financials may be the reason for terminating employment, they should not be a consideration in calculating the notice period. As the court said, “they justify neither a reduction in the notice period in bad times nor an increase when times are good.”
The appeal was allowed and the teachers’ reasonable notice period was increased to 12 months.
Takeaway for employers
This decision, though not necessarily beneficial to employers, is important. It dispels any uncertainty with regard to whether an employer’s financial circumstances should play a role in the reasonable notice calculations for dismissed employees.
Regardless of whether the employer is in a stable, poor, or excellent financial state, the notice period is determined based on the character of the employment, length of service, age, and availability of similar employment, with regard to the employee’s experience, training, and qualifications. It is the employee’s circumstances, not those of the employer, that are material.