In a recent decision, the Ontario Court of Appeal clarified that when an individual’s employment is terminated without cause, the financial viability of the employer’s business is not a factor that affects the period of reasonable notice owed to that employee.
The case involved a private school’s termination of the employment of three of its teachers. In the wrongful dismissal proceedings, the judge concluded that twelve months was a reasonable notice period in the circumstances. However, the judge proceeded to reduce the teachers’ notice to six months, because of the volatility in the school’s enrolment and funding.
In allowing the appeal, the Court of Appeal explained that the proper analysis is focused on the employee’s circumstances, not the employer’s:
[a]n 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. But an employer’s financial circumstances are not relevant to the determination of reasonable notice in a particular case: they justify neither a reduction in the notice period in bad times nor an increase when times are good.
The Court noted that its decision is intended to address “confusion in the area,” reflected in past decisions that have taken into account the employer’s financial health when determining the appropriate notice period. Simply put, the Court of Appeal held that “an employer’s poor economic circumstances do not justify a reduction of the notice period to which an employee is otherwise entitled…”.