The New Bardal Factors May Just Be the Old Bardal Factors

Calculation of “reasonable notice” in employment law is one of those peculiarities where there is very little is definitive guidance. Reasonable notice, and payment in lieu, is more of an art than a precise determination.

Employers are not obligated to hire indefinite term employees forever, but where employees are dismissed without cause the employer should provide employees enough time to find replacement work. This notice period, or payment provided instead of working notice, are intended to compensate employees for losses a period of reasonable notice.

The principle was clearly stated by the Supreme Court of Canada in Machtinger v. HOJ Industries Ltd.,

In Canada, it has been established since at least 1936 that employment contracts for an indefinite period require the employer, absent express contractual language to the contrary, to give reasonable notice of an intention to terminate the contract if the dismissal is without cause…

This area of law also happens to be one of the main areas fraught with risk for employers in Ontario,. They often look at a statute called the Employment Standards Act, which appears to lay out what the appropriate notice period is. That mistake is one of the main reasons for wrongful dismissal litigation, and the central explanation for the bulk of the work in employment law.

Instead of the ESA, employers should be looking to a number of factors from the common law, which typically increase the amount of reasonable notice beyond what is in the statute. The main case used in calculating this amount is Bardal v. The Globe & Mail Ltd.

This case, which is from 1960, is used to this day, and the Bardal factors are the main underpinning for what is reasonable notice in employment law. The Bardal factors can include all of the following:

  • the character of their employment
  • their length of service
  • their age
  • and the availability of similar employment, having regard to their experience, training, and qualifications

Subsequent case law has also interpreted these factors to look at compensation, particular customs in specific industries, and any special circumstances surrounding the employee’s hiring.

The rationale is usually that more specialized employees, or those with an employer for a longer period of time, will likely have more difficulty finding comparable employment. Usually this is calculated at roughly one month of notice per year of employment up to 2 years maximum, though most low-skill or non-professional vocations would be capped at 1 year.

The Bardal factors and calculation of reasonable notice has always been done in a flexible manner. Following Wallace v. United Grain Growers Ltd. these periods extended as high as 36 months, until they were reigned in with Honda Canada Inc. v. Keays in 2008.

However, there are still cases after Keays which demonstrate an exceptionally high notice period. For example, in the 2014 case of Hussain v. Suzuki Canada Ltd., the court awarded a 26 month notice period. This was due to the plaintiff’s older age of 65, his long history of service over 35 years, and the low likelihood of finding comparable employment due to the economic climate. Justice Roberts justified this award as follows,

4 While there is no cap on the amount of reasonable notice of employment termination to which an employee may be entitled, and each case must be considered on its own particular circumstances…

5 In my view, while each factor on its own may not be exceptional, the combination of all of the above factors amount to the kind of exceptional circumstances that warrant a 26-month notice period.

Economic downturns don’t just affect the ability of terminated employees to find new employment. Generalized problems in the economy, or even particular issues for a specific industry, affect the employer’s operations as well. In fact, the employee in Hussain was terminated specifically because of these types of economic issues.

The poor state of the financial market and the employer’s financial health have been used in recent years, a time of significant economic challenges for many employers, to reduce a notice period even further. Justice Conlan’s 2014 decision in Gristey v. Emke Schaab Climatecare Inc. reduced the notice period by one third because of the finding that if the employee’s job had not be terminated, he would have ended up working fewer hours during this notice period anyhow as the employer’s business was shrinking.

Justice Conlan’s assessment of that factor was laid out in Gristey as follows:

[39] This is not a complicated case…

[56] So what would a reasonable notice period be in these circumstances? There is no science to that determination…

[57] In my assessment, economic factors aside, a reasonable notice period for Mr. Gristey would have been twelve (12) months.

[58] I think, however, that 12 months is too high when one factors in the economic considerations. This was a tough decision for the company. It was entitled to adjust its operations in light of the relatively poor market prevailing at the time. I attribute no bad motives or callous behaviour to the Defendant or to Douglas Schaab. In fact, he struck me as a caring and earnest gentleman who has successfully built a solid business with an unblemished reputation. I give him a great deal of credit for that.

[59] In light of the economic factors, I have decided to discount the notice period by one-third, from twelve to eight (8) months. Essentially, this is a recognition that (as I said above), had Mr. Gristey’s employment not been terminated, he would have likely worked less hours during the notice period. Thus, it would not be fair to the Defendant to apply the full twelve-month notice period.

The authority for this discounting is from a 1982 case, Bohemier v. Storwal International Inc. Justice Saunders justified this principle by emphasizing that notice must be reasonable from the perspective of both parties to the employment contract:

An employee may be dismissed either on reasonable notice or by payment in lieu of notice. The latter alternative is almost invariably selected because, for obvious reasons, it is not helpful to a business to continue to employ a person who has received notice of dismissal. Payment in lieu of notice involves a cost to the employer for which there is no corresponding production or benefit. In my view, there is a need to preserve the ability of an employer to function in an unfavourable economic climate. He must, if he finds it necessary, be able to reduce his work force at a reasonable cost. If he can not do so, the alternative may be bankruptcy or receivership. It seems to me that when employment is unavailable due to general economic conditions, there has to be some limit on the period of notice to be given to discharged employees even if they are unable to secure similar employment within the notice period.

However, this principal may now be undermined given Ontario Court of Appeal’s recent decision in an appeal on a summary judgment motion in Michela v. St. Thomas of Villanova Catholic School, where Justice Huscroft explicitly rejected Bohemier as it was applied in Gristey,

[20] Bohemier does not hold, and this court has never held, that an employer’s financial difficulties justify a reduction in the notice period. It does no more than to hold that difficulty in securing replacement employment should not have the effect of increasing the notice period unreasonably. That is what this court should be taken to have meant when, in its brief endorsement in Bohemier, it said that the lower court judge was right to “tak[e] into account economic factors when considering the case for each of the parties”

Justice Huscroft emphasized that the Bardal factors focus on the circumstances of the employees, not of the employer. The financial circumstances of the employer might be the reason for the termination, but are not relevant to the calculation of reasonable notice. He relied on authorities from British Columbia to substantiate this.

Unfortunately Justice Saunders in Bohemier actually did emphasize the bilateral nature of the employment contract, and the impact on employers in hiring and firing,

The claim is for damages for breach of contract. In determining the amount of notice to be given to an employee, the principal concern has rightly been to consider what is reasonable in the circumstances in which the employee finds himself. In my opinion, there is another factor to be considered. As this is a contract matter, the notice period must also be reasonable for the employer. What may be a reasonable period to allow a discharged employee to find new employment may be more than an employer should be asked to pay. An employer may dismiss for cause without notice but the economic requirements of the business or even the incompetence or negligence of the employee do not constitute cause. If the period of notice is extended too far, the ability to dismiss employees for economic or other reasons may be seriously impaired or rendered illusory.
[emphasis added]

In a time of economic turmoil, either in our relatively minor present challenges, or any unforeseen difficulties that the future may hold, this might make the operation of any small business in Canada impossible. In 1982 when Bohemier was heard, Canada was facing higher inflation, interest rates and underemployment than the U.S. Things got so bad in Canada that the Bank of Canada rate hit 21 percent in August 1981, and the inflation rate in 1981 averaged more than 12 percent. Canada was facing extremely high real interest rates, and a crisis far worse than what we’ve seen in the past 7 years.

There may yet be another way around this dilemma.

Justice Huscroft also justified his appeal by rejecting the motion judge’s finding that the notice period should be reduced due to the availability of other teaching positions. Although previous cases relying on Bohemier justify a reduction by looking at economic circumstances as part of the “character of employment.” Justice Huscroft noted there was no evidence about the future availability of teaching positions, which was particularly significant given his finding of mitigation of damages.

The Gristey decision was based on a similar finding that the employee did “adequately mitigate his damages,” but the notice period was based on what the employee would have earned had he worked during this period, which would have been less than his work prior to termination due to the poor job market, with no sign of material improvement in the foreseeable future.

The teachers in Villanova Catholic had similarly precarious employment contingent on enrollment, and limited opportunities in the private teaching sector. The small school could not offer the same type of job security as larger, more established institutions, and the teachers should have known this. Knowledge of the type of employment they were engaged in was categorized by the motions judge as part of the “character of employment” from the Bardal factors.

Categorization of the employment situation as part of the character appears to be what Justice Huscroft took issue with,

[16] 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. Historically, courts have drawn a distinction between management and non-management employees in determining notice, and have assumed that the former may require more time to find similar employment than the latter. This court has questioned the validity of this assumption and suggested that the character of the employment is “a factor of declining relative importance”: Di Tomaso v. Crown Metal Packaging Canada LP at paras. 27-28.

However, the passages Justice Huscroft cites here from DiTomaso speak of the declining importance of characterizing low level unskilled employees as deserving less notice because of the assumption they would have an easier time finding alternative employment. The cases referred to by the court there included warehouse clerks, a receptionist, driver. None of them had specialized training, and most did not have a university degree.

These cases contest the assumption that senior employees have more difficulty finding comparable employment, and this proposition has been empirically challenged. Judicial notice of this assumption was rejected, absent explicit evidence demonstrating a link between the character of lost employment to any substitute employment. More importantly, these cases still reinforce the proposition that all of the Bardal factors should be used holistically.

What these cases do not talk about character of the employment situation of the employer as a whole, or that of the specific industry. In fact the characteristics of particular industries is in large part the bedrock of calculating reasonable notice periods.

The best way to understand the Bardal factors may be in looking at the original Bardal decision itself. The original proposition behind “character of employment” in Bardal looked at peculiarities of the industry:

22 Applying this principle to this case, we have a servant who, through a lifetime of training, was qualified to manage the advertising department of a large metropolitan newspaper. With the exception of a short period of employment as manager of a street car advertising agency, his whole training has been in the advertising department of two large daily newspapers. There are few comparable offices available in Canada and the plaintiff has in mitigation of his damages taken employment with an advertising agency, in which employment he will no doubt find useful his advertising experience, but the employment must necessarily be of a different character.
[emphasis added]

The school teachers in Villanova Catholic had limited opportunities in teaching in a private school, but not limited teaching opportunities generally. The worker in Gristey had a far less specialized job, but had limited opportunities for mitigating his damages or continuing to work within the company itself.

Absent a successful appeal of Villanova Catholic, smaller employers may be able to utilize their financial situation as part of the analysis in mitigation, and at the very least should tender evidence about the financial situation of the company, the industry, the sector, and of comparable positions. All of these are still relevant considerations in character of the employment, even without the application of Bohemier. If neither an employer or comparable employers in the market would be able to mitigate any damages, such damages should be appropriately discounted.

The problem with this decision is that the Bardal factors have never been applied rigidly or with a search for original intent. Such exercises, where appropriate, are relevant more for interpretation of statutes such as the ESA, and not a common law analysis which has shifted and changed considerably over the years. Even in looking at early applications of these factors, this has been done in flexible manner, taking into consideration the entirety of the employment situation.

The Bohemier principles emerged in a context of financial hardship of the Canadian economy, not just the employer in question. When entering into similarly difficult times, it makes sense that all employees will have greater difficult continuing their employment with either their current employer, or other employers in society.

Relationships are two-ways. That includes the employer, and their ability to continue the employment in a reasonable manner.

The proposition posed here in Villanova Catholic is not only untenable, but poses a significant operations risk to small businesses, who will now be even more severely constrained in their abilities to customize their workplace. This may translate into greater reluctance in hiring individuals, and increased reliance on contract work instead.

Contract workers, as long as they are not deemed to be employees, have no entitlement to notice periods. For those poor souls, there will be no Bardal factors at all.

Comments

  1. Fortunately, not all is lost for “contractors” as the court has found that “dependent contractors” are entitled to practically the same notice as employees.

    In Keenan v. Canac Kitchens, 2015 ONSC 1055 (CanLII), the Plaintiffs were found to be dependent contractors (not employees) yet still awarded 26 months of pay in lieu of notice.

    The court has moved away from the fiction that someone who works for the same company every day for many years and loses his or her job can be dis-entitled to notice by virtue of an ‘on paper’ arrangement. This should give employers pause before they try to outsmart the employment law regime in Ontario that is designed to protect workers.

    http://www.canlii.org/en/on/onsc/doc/2015/2015onsc1055/2015onsc1055.html

  2. An important qualifier Matthew. My closing should probably have read either “independent” contractors, or contractors who are deemed to have rights similar to employees.

    Although I agree with you that employers should not try to circumvent employee protections, the reality of my conclusion remains the same. Employers simply rely on short-term contractors, without renewal of contract, and will increasingly do so in times of economic uncertainty.

  3. If any employer , big or small. wants to limit their Bardal exposure, all they have to do is insist, at the time of hiring, that the employee agrees to a fair and clear termination clause.

    Absent such a contractual provision, the application of the Bardal factors should be made simpler, not more complex. If we have to look at the financial resources of the employer in order to determine the proper notice period, then trials will be much lengthier, complex and thus costlier. What if the reason the employer is doing poorly is because of management made stupid decisions in the past? Should the dismissed employee receive a lesser notice period because of this?

    Moreover, if a poor employer pays less notice than the norm, surely a rich employer should pay more than the norm.

    Why should we only look at the financial situation of the employer? I suppose we should also look at the financial situation of the dismissed employee and their family. So if two employees of the same age, position , seniority and employer have different financial situations ( ie one is single with a rich daddy and the other has 3 dependant children) , should they receive different notice periods?

    Ability to pay or need of the employee are, and should be, irrelevant to the determination of a notice period.

  4. Barry,

    The reason for looking at the employer’s financial circumstances, and not that of family members of the employee, is basic contractual principles of privity. These were the principles enunciated in Bohemier.

    The other reason can be gleaned from the different types of consideration flowing from the parties to this contractual relationship. The employee gets pay, the employer gets work. If the work ends, the employer is obligated to provide notice, not necessarily money. Termination pay is payment in lieu, meaning an employer can and often does insist that an employee work for the notice period. If there is no work for this employee, or the work is diminishing, it necessarily changes the situation around this working notice, and should therefore affect payment in lieu.

    I agree that the best way to avoid such disputes is in a written employment contract itself, but the interpretation of “fair” is still subject to statutory minimums, and there are many employment situations that are far from “clear.” In Villanova Catholic and many other similar cases we’re actually dealing with repeated short-term contract workers who are deemed to be employees (or as Matthew points out, dependent contractors), where there is no termination clause at all. In these situations, which are very common in the labour marketplace, Bardal factors will still apply.

    Application of Bardal factors are still subject to context and discretion. I do not state here that a judge must look at the financial situation of an employer, but rather that a court may look at it as one of the reasonable circumstances surrounding a situation.

    The question of financial circumstances is not one about the ability of the employer to pay, but rather of the ability of the employer to continue the employment relationship in an indefinite term contract. When repackaged as a mitigation factor, as some of these cases have done, this is still a pertinent consideration.

    I am all for simplicity and predictability, but if that’s what we’re looking for we rarely use any common law test. Instead, we look to the legislature to draft statutes which would override and clarify expectations of the parties. Until then we’re stuck with contextual flexibility, which may be determined by the courts, but can hopefully be negotiated successfully between parties without it.

  5. I’m with Barry here – taking into account the financial situation of the employer makes no sense in principle. I just don’t see the connection to the reasonableness of notice. Beside that it opens a whole can of worms in terms of leading and arguing company finances, which can only increase the cost of wrongful dismissal litigation.

    I don’t understand how the financial situation of the employer can have anything to do with privity, as you contend Omar, but maybe I’m missing something.

    If an employer is in a challenging financial situation, and as a result will have difficulty paying reasonable notice, why should the court care? The employer could have structured the working arrangements and employment contracts to mitigate this risk, and chose not to. Why should the court step in to protect them from their bad decisions?

  6. John,

    The concept of privity only arises where dependents of the employees may be introduced into the financial circumstances of the employee, as Barry appears to have proposed. What’s more crucial and central from the Bohemier principles is the consideration flowing from the indefinite term contract, which is where notice periods themselves arise from. In looking at the consideration, the parties to whom it is flowing, and why, we can understand theimportant first principles behind why financial circumstances is a justifiable submission.

    I think it’s important here to emphasize that the financial circumstances do not remove the responsibility of an employer to provide reasonable notice, but rather serve as an argument against an extended notice. It is a submission on what is reasonable, not on the obligation itself.

    I also think it’s erroneous to suggest that such circumstances only arise from mismanagement of a company. The vast majority of small businesses are highly susceptible to environmental threats and changes that are entirely outside of their control, and the cases using Bohemier principles usually follow this pattern. The financial circumstances are entirely different for multi-million dollar international corporations, who have far greater ability to plan their human resource strategies, and deeper resources to draw upon on termination.

    The approach adopted by the Court of Appeal here appears to ignore the distinctions between the different types of businesses, and assumes that all employers are the same and maintain the same obligations. We know from statutory severance principles in s. 64 of the ESA that this is simply not the case.

    From an economic development perspective it’s absolutely essential to support small businesses, or at least take their unique circumstances into consideration. The economic shocks Canada currently feels largely exists due to our dependence on external corporate investment, and small businesses help to insulate against this slightly. More significantly, small businesses play an important role in the creation of unique jobs in an economy, and enhance the indepent vigour of a democracy.

    Louis Brandeis stated in 1911,

    …a [large] corporation may well be too large to be the most efficient instrument of production and distribution, and, in the second place, whether it has exceeded the point of greatest economic efficiency or not, it may be too large to be tolerated among the people who desire to be free.

    Despite production benefits in economies of scale realized since that time, there has been a resurgence in appreciation for these democratic principles of independence given the current economic climate.

    Although small businesses create jobs, these jobs typically offer less stability than larger businesses. That lack of stability is the reason for termination to begin with. Unduly hampering these small businesses with overly onerous financial constraints inhibits economic growth, and stifles the innovation in our society that typically occurs in these smaller workshops.

    The point I attempt to make above is that absent any statutory guidance to the contrary, the Bardal factors are intended to grow, be modified, applied flexibly, and provide judicial discretion to a trial judge. All the points made above around predictability and stability are entirely valid. But as already stated, contractual terms, structural arrangements, and legislative direction, are all far better solutions than attempting to apply originalism to a common law factor-based framework.

  7. We’re currently reviewing this case with my employment law class, and a wrongful inducement case that I gave them from Alberta helps illustrate an important point. Although the court in Dias v. Paragon Gaming EC Company reviewed the Bardal factors at paragraph 10, the court continued,

    [11] However, in this case, the factor which is of the single most importance in determining the period of reasonable notice is none of the above. It is the fact that the Plaintiff had been employed for a lengthy period in a secure position with ABS Casinos and was induced by the Defendant to leave that employment thereby giving up the period of reasonable notice to which he would have been entitled with ABS Casinos. The Court must recognize that an employee who leaves one position to take another assumes the risk that the new position will not be as secure as the position previously held. However, the table of sample notice periods produced at page 6-40.3 of the Sproat, Wrongful Dismissal Handbook gives a strong indication of the extent to which inducement by the employer is a factor in determining the reasonable notice period.

    [12] In this case, had there been no enticement by the employer, had the employee simply, without inducement of any kind, answered a public advertisement and changed positions, in my view an appropriate notice period in such a case would be approximately two months, primarily because of the short duration of the Plaintiff’s employment with the Defendant. However, having regard to the circumstances of the Plaintiff’s hiring in this case and the reasonable expectation that he had from the representations made to him at that time, a period of two months is grossly inadequate.
    [emphasis added]

    What this case illustrates, yet again, is that the Bardal factors have always been employed in a flexible manner, including approaches which emphasize a factor not listed in Bardal at all.

    Villanova Catholic reflects a very narrow interpretation of employment law which is largely inconsistent with over half a century of jurisprudence.