Employment & Labour

Employer’s finances not relevant to notice period: OCA

The Ontario Court of Appeal (OCA) has confirmed that an employer’s financial circumstances are not relevant to the determination of what a reasonable notice period may be for a wrongfully dismissed employee, says Toronto lawyer Michael Wright.

In Michela v. St. Thomas of Villanova Catholic School, 2015 ONCA 801, the court found an employer’s financial circumstances do not justify a reduction in the notice period in bad times or an increase when times are good.

The plaintiffs in the case – three schoolteachers represented by Wright, of Wright Henry LLP, and his partner Stephen Moreau – brought the appeal in response to a Jan. 7 summary judgment in their wrongful dismissal action against the private school.

The motions judge found the teachers were wrongfully dismissed and awarded pay in lieu of the 12 months’ notice he found they should have received, says the ruling. However, the judge reduced the notice period to six months for each of the teachers after taking into account the school’s difficult financial situation, the decision reads.

The teachers argued the damage award should be varied by substituting an undiscounted 12-month notice period and the appeal court agreed.

“An employer’s financial circumstances may well be the reason for terminating a contract of employment – the event that gives rise to the employee’s right to reasonable notice,” Justice Grant Huscroft writes for the appeal court. “But an employer’s financial circumstances are not relevant to the determination of reasonable notice in a particular case.”

The three teachers were employed on a series of one-year contracts spanning eight to 13 years, says the ruling, and each received a letter in May 2013 stating their contracts would not be renewed because enrolment for the upcoming academic year was expected to be lower. They commenced an action for wrongful dismissal and proceeded with a motion for summary judgment.

The employer argued the employees were not entitled to notice because they were employed pursuant to fixed-term contracts, but the motions judge found they were employed for indefinite periods and were entitled to reasonable notice, says the decision.

The motions judge emphasized the “character of the employment” in determining the shorter notice period, but financial circumstances should not be viewed as part of what constitutes that character, says the OCA.

“The character of the employment refers to the nature of the position that had been held by the employee – the level of responsibility, expertise, and so on,” writes Huscroft.

“It suffices to say that the character of the employment, like the other Bardal factors, is concerned with the circumstances of the wrongfully dismissed employee. It is not concerned with the circumstances of the employer.”

In addition to contesting the notice period on appeal, the teachers also argued the motions judge erred in law in presuming there may be positions they could secure six months following their termination.

The appeal court sided with the teachers on the issue, stating, “There is no evidentiary basis for the motion judge’s presumption concerning the future availability of teaching positions. It is a matter of speculation and is inconsistent with his conclusion that the appellants took all reasonable steps to mitigate their damages. It does not support the decision to reduce the notice period.”

In an interview with AdvocateDaily.com, Wright says the OCA ruling settles an area of the law that has been surprisingly and unnecessarily murky in recent years.

“It is a significant decision from our province's highest appellate court,” says Wright.

"It clarifies what should and should not be considered by judges in determining the common law notice periods owed to terminated employees," he says. "It rejects the concept that employers that are struggling financially should be entitled to a reduction in their legal obligations, and that employers that are in a strong financial position might have to pay a premium if they decide to terminate employees."

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