Can an employer who experiences a sudden loss of business be exempted from the requirement to pay the collective dismissal notice pursuant to Quebec’s Act respecting labour standards? The Court of Québec recently ruled, in Commission des normes du travail c. Industries Troie inc.,1 that if the loss of business was in fact unforeseen, the employer can indeed be relieved of the obligation to pay notice of collective dismissal.
According to the Act respecting labour standards (“LSA”), every employer who will dismiss ten or more employees in the course of two consecutive months must advise the employees and the Minister of Employment and Social Solidarity in advance of doing so. The length of the notice (from 8 to 16 weeks) will depend on the number of employees dismissed in the period of two consecutive months.2
Every employer who does not give the notice or who gives insufficient notice must pay each employee an indemnity equal to his or her regular wages, excluding overtime, for the period equivalent to the notice that was supposed to be given or the remainder thereof where only partial notice was given. However, the LSA also provides that “[i]n the case of a superior force or where an unforeseeable event prevents an employer” from meeting the above obligations, the employer must give such notice “as soon as the employer is in a position to do so.”3 While the notion of superior force is clearly established, the notion of an unforeseen event is less clear.
THE CASE OF LES INDUSTRIES TROIE INC.
Although the Commission des normes du travail argued that Les Industries Troie inc. operated in a difficult industry and should thus have “seen the handwriting on the wall”, the Québec Court disagreed, holding that such an assessment should be made not with reference to a possible business outcome, but rather an outcome that could probably not have been foreseen by a reasonably diligent person in the same circumstances.
DOWNTURN IN THE BUSINESS
After four decades of existence, by the year 2000, Les Industries Troie inc. had become a specialist in the creation and design of jeans. The company met its spike in demand that year by building a brand new production facility.
However, like many family businesses, Troie was not immune to the threat of competition and fluctuating customer demand. Less than a year after Troie had injected $2.3 million into its new facility, its principal client (the new facility having been constructed primarily in order to meet that client’s production requirements) announced the end of its relationship with Troie.
Troie bounced back by repositioning itself on the market as a “full package” supplier. By 2003, Troie was completely set up to buy its own fabric, apply its own models and proceed with cutting and assembly as a “one stop shop.” The company also became “leaner and meaner” through investment in new software that would cut its production costs and turnaround time.
Despite some peaks and valleys in early 2004 due to another major client’s decision to change suppliers, production was on the rise. However, things took a turn for the worse in the summer of 2004. Following the loss of a supply contract to a bulk retailer, one of Troie’s largest clients announced an immediate reduction in its orders from 5,000 units to 2,000 units per week; another client cancelled its standing order for 1,000 units per week. In the days following these announcements, other clients reduced and cancelled orders, with the result that Troie’s weekly production dropped to 5,000 units from 11,500 units, and its weekly revenue declined to $46,000 from $110,875.00. In August 2004, Troie came to the difficult decision to close the business by the end of the year.
On September 2, 2004, Troie gave notice to the Minister of Employment and Social Solidarity of a closure of its production facility and the collective dismissal of all of its 186 non-unionized employees. The following day, the employees were given individual notices in accordance with section 82 of the LSA that their employment would terminate by the end of November 2004, or when the need for their services ended.
THE COMMISSION DES NORMES DU TRAVAIL SUES TROIE IN QUÉBEC COURT
Following an investigation by the Commission, Troie was ordered to pay $30,800.04, representing indemnities in lieu of notice payable to 17 of the 186 employees who were laid off. These amounts represented the balance between the amount of notice given and the indemnity of 12 weeks that the Commission considered to be owing.
Although the Commission argued that Troie knew it was on unsteady ground and should have realized earlier that it would have to close its doors, Troie responded before the Québec Court that the sudden loss of contracts announced by its clients was fatal to its survival, amounting to an event beyond Troie’s control that it could not have foreseen. The Court agreed that, as a reasonably diligent employer, Troie could not have foreseen the downturn, and exempted it from paying the balance of the collective dismissal notice.
Although the LSA requires an employer to give notice of collective dismissal, and where insufficient notice is given, to pay an equivalent indemnity to the employees being dismissed, it also provides for the requirement to pay such notice to be suspended where the employer is prevented from meeting those obligations owing to an unforeseen event, which could include a sudden downturn in business. A complete assessment of the facts leading to a collective dismissal will always be necessary in order to determine whether the Commission will or will not see fit to apply the relief provision.
It is worth mentioning that the Court pointed out in its decision that the LSA’s drafters chose the term “événement imprévu” (not “événement imprévisible”), which wording speaks to what was foreseen by the employer, acting as a reasonable person in the circumstances prevailing at the time in question. The use of the word “unforeseeable” in the English translation of the law is therefore misleading as it would appear to connote a higher standard than was actually intended by the legislator