The Ontario Superior Court of Justice (Superior Court) recently granted summary judgment in favour of a class of employees who were part of a “mass termination” following a business closure. The Superior Court’s decision in Wood v. CTS of Canada Co. and CTS Corporation provides important guidance for employers when faced with a business restructuring or shutdown of operations.
The Employment Standards Act, 2000 (ESA) sets out specific notice requirements for a “mass termination”, which is defined as the termination of 50 or more employees in a four-week period. Employers must provide at least eight weeks’ notice of termination to all affected employees and must submit a prescribed form (Form 1) to the Ministry of Labour (MOL) and post a copy of it in the workplace.
The defendant, CTS of Canada Co. (CTS), operated an automobile manufacturing plant in Mississauga, Ontario. In February 2014, CTS announced to its 129 employees that it intended to close the Mississauga plant in 2015 as part of a global reorganization of its business. In April 2014, CTS delivered written notice of termination letters to employees, with termination to be effective in March 2015 (later extended to June 26, 2015), thus providing over 12 months of working notice. CTS also held outplacement workshops and provided access to career management services to facilitate job transition.
On May 12, 2015, CTS notified the MOL of the impending closure by submitting Form 1, and also posted a copy at the plant.
On behalf of a class of 76 former employees, the plaintiffs brought an action alleging that CTS had breached the ESA by failing to submit Form 1 to the MOL in April 2014, when the company first notified employees of the business closure. As a result, the company should not be able to claim credit for working notice provided prior to submitting Form 1. CTS maintained that the requirement to submit Form 1 was not triggered until the beginning of the minimum eight-week statutory notice period.
Finding in favour of the employees, Justice J. Sproat held that a proper interpretation of the ESA requires employers to submit Form 1 on the first day of any notice period that is provided to employees. He noted that the Form 1 process triggers the provision of government services to assist employees with reintegration into the workforce and that access to these services should be provided as early as possible.
As a consequence of CTS’ delayed notification, the Superior Court found:
- The ESA provides that notice of termination is deemed not to have been given to employees until the MOL receives Form 1. Compliance with the Form 1 notification requirement is also an implied term of the contract of employment. The appropriate remedy for breach is that the working notice provided is void. In other words, an employer is not entitled to credit for any working notice prior to submitting Form 1.
- CTS condoned and encouraged many of its employees to work overtime hours in excess of the ESA maximums during the working notice period to meet plant closure goals. CTS was not entitled to credit for working notice for any week in which a plaintiff not exempt from the ESA overtime provisions worked in excess of the ESA maximums.
The Superior Court did, however, find that CTS had not acted in bad faith and held that the plaintiffs were not entitled to fresh severance pay beyond the amounts already provided.
The plaintiffs have claimed C$5-million in general and punitive damages, although the damages are yet to be assessed.
KEY TAKEAWAYS FOR EMPLOYERS
The Superior Court was undeterred by the fact that the impacted employees would essentially receive the windfall of a long working notice period as well as wrongful dismissal damages because of what appeared to be a technical misinterpretation or error by the employer regarding the submission timing for Form 1.
When contemplating a business closure or restructuring that may result in a mass termination, in addition to notice and severance pay requirements, employers must be careful to comply with all of the statutory requirements for notifying employees and relevant government officials. According to this decision, failure to provide a Form 1 notice of a mass termination under the ESA at the correct time may potentially invalidate an otherwise proper notice of termination for common law purposes.
The affected employees appeared to have mitigated alleged losses by remaining employed during the working notice period. Nevertheless, given the Superior Court’s finding regarding the impact of excessive overtime hours, it appears that employers must also refrain from allowing employees to take on additional tasks or work substantial overtime hours, otherwise they risk invalidating a working notice period.
CTS intends to appeal the decision.