Issue

Does an employer’s financial position impact the amount of termination pay an employee is entitled to receive?

Facts

The St Thomas of Villanova Catholic School (STVCS) employed three teachers on a series of one-year contracts. Gomes, Michela and Carnovale were employed for thirteen years, eleven years and eight years, respectively. Each of the teachers received a letter from the STVCS informing them that their contracts would not be renewed because enrolment for the upcoming academic year was expected to be lower. The teachers commenced an action for wrongful dismissal. The motion judge found that the teachers were entitled to reasonable notice, however the twelve-month notice period suggested by the teachers was reduced to six months after taking into account the STVCS’s financial position and the availability of alternative teaching positions.

The Law

An employee who is terminated without cause is generally entitled to reasonable notice of termination which is determined by a number of factors including: 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 question in this case was whether a judge should also consider the employer’s financial circumstances.

The Decision

The motion judge decided that the twelve-month notice period sought by the teachers should be reduced to six months because the employer’s financial circumstances were considered part of the “character of the employment.” factor. Because of the nature of the school, it could not provide the security of employment offered by larger, better-funded institutions. The motion judge found that the teachers must be taken to have understood the circumstances of their employer. Therefore, the employer’s circumstances could not be ignored in assessing the reasonable notice.

The Ontario Court of Appeal disagreed and clarified the nature and purpose of reasonable notice: it 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.

Therefore, the appeal court concluded the motion judge erred in considering an employer’s financial circumstances as part of the “character of the employment.” and stated that the character of the employment refers to the “nature of the position that had been held by the employee,” that is, the level of responsibility, expertise, etc. The calculation of the notice period is not concerned with the circumstances of the employer, and to reduce the notice period on this basis would not be consistent with the nature and purpose of an employee’s right to notice.

Bottom Line

According to this case, an employer cannot pay you less termination pay simply because the organization is experiencing financial difficulties.