Are Employers’ Financial Circumstances Relevant in Calculating Termination Pay?

In a word. No.

The Ontario Court of Appeal has reaffirmed, definitively, that an employer’s financial circumstances are not relevant to the determination of reasonable notice in a particular case.

The lower court judge had awarded teachers who had their employment terminated from their school 12 months of pay in lieu of notice. However, the judge reduced this by half, to 6 months, in large part due to the financial circumstances that the school was in. The lower court judge cited a passage from a prior decision that noted that “The law does not ignore the dilemma of the employer.” The Court of Appeal made it quite clear that the law does in fact ignore the (financial) dilemma of the employer.

The Court of Appeal restated the reason for reasonable notice or pay in lieu thereof:

“Although employees may be dismissed without cause, ’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’ Reasonable notice allows employees a reasonable period of time to find replacement work. Damages for dismissal without reasonable notice are designed to compensate employees for the losses incurred during the period of reasonable notice – the amount of wages and benefits that they would have earned had they been permitted to serve out the notice period.”

as well as the factors that go into determining the appropriate amount of notice:

“The calculation of the notice period is a fact-specific exercise. The relevant factors are set out in Bardal v. The Globe & Mail Ltd. (1960), 24 D.L.R. (2d) 140 (Ont. H.C.), at p. 145, and focus on the circumstances of the employee: 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.”

The lower court judge had used the “character of employment” factor in justifying a reduction of the notice period by half due to the school’s financial hardship. The Court of Appeal rejected this approach noting that the character of employment is concerned with the circumstances of the wrongfully dismissed employee and not with the circumstances of the employer.

While one could argue that consideration ought to be given to the employer’s financial situation, such an approach is inconsistent with the philosophical reasoning behind the obligation to provide reasonable notice or pay in lieu thereof.

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