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Are an Employer’s Financial Circumstances Relevant when Determining what a Wrongfully Dismissed Employee is Entitled?

The Ontario Court of Appeal’s Decision in Michela v. St. Thomas of Villanova Catholic School, 2015 ONCA 801

Background

Domenica Michela, Sergio Gomes and Catherine Carnoval (hereinafter the “appellants”) are school teachers who were employed by St. Thomas of Villanova Catholic School (hereinafter the “respondent”), a private school, on a series of one-year contracts. The appellants were employed by the respondent for a total of thirteen (13), eleven (11) and eight (8) years respectively.

The appellants each received a letter advising that their contracts would not be renewed for the upcoming academic year due to lower projected enrollment. Each appellant also received a follow up letter or email a month later confirming their termination.

The appellants brought an action for wrongful dismissal. The respondents submitted that the appellants were not entitled to notice because the natures of their employment contracts were fix-term. The motion judge rejected this argument and held that the appellants were employed for indefinite periods and therefore entitled to reasonable notice of termination. The motion judge further found that the reasonable notice period to be twelve (12) months, but reduced the award for the appellants to six (6) months on the basis of the respondent’s financial situation.

The Ontario Court of Appeal’s Decision

The appeal was allowed for the reasons that follow.

The Court held that the motion judge erred by including the respondent’s financial circumstances as a factor in considering the character of the employment. The Court went on to note that determining a reasonable notice period is fact-specific with the relevant factors set out in Bardal v. Globe & Mail Ltd., (1960), 24 D.L.R. (2d) 140 (Ont.H.C.) at p. 145. However, the Court found that these factors do not include the financial circumstances of the employer. Specifically the Court set out that “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.” (para 17).

The Court concluded that the reduction from a notice period that has been established as reasonable is not supported by case law and is contrary to the objective of an employee’s right to reasonable notice or pay in lieu of reasonable notice.

Our Thoughts

Although an employer’s financial circumstances may be the reason for the termination of an employee, it cannot erode the right of an employee to reasonable notice. Otherwise, employers with prosperous financial circumstances at the time of termination would be left open to lengthen the notice period by virtue of their positive financial situation. This case gives greater certainty to the purpose of an employee’s right to a reasonable notice period as well as what factors are relevant in establishing the reasonable period.

The above article is for general information purposes only and does not constitute legal advice. If you have concerns with regard to the foregoing issues, please make an appointment with one of our lawyers or a qualified legal practitioner elsewhere.