There has been some controversy on the issue of whether the financial circumstances of the employer should play a role in deciding what constitutes reasonable notice of termination, or pay in lieu of notice. This was recently cleared up by the Ontario Court of Appeal in Michela v. St. Thomas of Villanova Catholic School (PDF). The Court overturned a lower court ruling that had reduced the normal, reasonable notice period due to the poor financial position of the employer who had to terminate the employees. The appeal court found that this was not a relevant factor.

Background

Teachers Ms. Michela, Mr. Gomes, and Ms. Carnovale were terminated from their employment with a private school, St. Thomas of Villanova Catholic School (the "School"). The School informed the teachers that, due to lower enrollment, their employment contracts would not be renewed for the upcoming academic year.

The teachers commenced an action for wrongful dismissal, and the matter proceeded by way of motion for summary judgment (PDF).

The motion judge first found that the teachers were employed for indefinite periods (as opposed to fixed terms). They were thus entitled to reasonable notice of termination. This finding was not appealed. 

However, the motion judge then decided to reduce the twelve-month notice period proposed by the teachers to six months, taking into account the School's financial position and the availability of alternative teaching positions.

As a general rule, the calculation of the reasonable notice period is a fact-specific exercise, with regard to certain factors that focus on the circumstances of the employee (known as the Bardalfactors, from the 1960 decision of the Ontario High Court, Bardal v. Globe & Mail, namely:character of the employment, length of service, age, and availability of similar employment). The motion judge reasoned that the employer's financial circumstances form part of the "character of the employment" factor. He reduced the notice period accordingly.

Appeal Decision

The teachers appealed. They took the position that the financial circumstances of their former employer were irrelevant to calculating the period of reasonable notice.

The Court of Appeal agreed. The three judge panel unanimously found that an employer's financial situation forms no part of the "character of the employment". Rather, this factor considers the nature of the position held by the employee, such as his or her level of responsibility and the expertise required.

The Court emphasized that, with all of the Bardal factors, the concern is with the circumstances of the wrongfully dismissed employee, not with the circumstances of the employer. Though an employer's financials may be the reason for terminating employment, they should not be a consideration in calculating the notice period.  As the Court said, "they justify neither a reduction in the notice period in bad times, nor an increase when times are good".

The appeal was allowed and the teachers' reasonable notice period was increased to twelve months.

Take-Away for Employers

This decision, though not necessarily beneficial to employers, is important. It dispels any uncertainty with regard to whether an employer's financial circumstances should play a role in the reasonable notice calculations for dismissed employees. Regardless of whether the employer is in a stable, poor or excellent financial state, the notice period is determined based on the character of the employment, length of service, age, and availability of similar employment, with regard to the employee's experience, training, and qualifications. It is the employee's circumstances, and not those of the employer, that are material.