A recent decision of the Ontario Court of Appeal has clarified employers’ notice obligations in the event of business closure, particularly with respect to mass termination notice requirements under the Employment Standards Act, 2000 (the “ESA”) and “working notice” more broadly.
Wood v. CTS of Canada Co.was a class action brought on behalf of 74 employees who were severed when CTS closed its Streetsville, Ontario, manufacturing plant. The former employees claimed that the termination notice CTS provided was invalid and inadequate for various reasons, such that they were entitled to additional pay in lieu of notice following the plant closure.
In September 2018, the Ontario Court of Appeal overturned significant parts of a 2017 summary judgment decision in which the Superior Court of Justice had found in favour of the severed employees. Employers should take note of the following issues determined by the Court of Appeal in Wood v. CTS of Canada Co.:
- “Form 1” notice of mass termination required by the ESA must be given to the ESA Director on the first day of the statutory notice period. It does not need to be given before the commencement of the statutory notice period, even if the employer has chosen to give employees greater notice of termination, i.e. notice on some earlier date.
- Late delivery of the Form 1 notice disentitles an employer to credit for working notice between the start of the statutory notice period (the due date for the Form 1 notice to the ESA Director) and the date on which the Form 1 notice is actually received. However, late delivery does not render earlier notice of termination given to employees invalid or ineffective for all purposes.
- Extensions to a period of working notice may legally constitute fresh notices of termination which restart employees’ notice periods and deny employers credit for working notice completed up to the date of the extension.
- Employers may not receive credit for working notice if exceptional demands or other workplace conditions interfere with the quality of an employee’s opportunity to find new employment during the working notice period.
It is hard to overstate the significance of these points for employers navigating a plant closure. Had the Court of Appeal not corrected the lower court’s interpretation of the ESA mass termination provisions, it would have been arguable that Form 1 notice is required to start the clock running on employees’ statutory and common law reasonable notice periods (where employees are so entitled) in a mass termination scenario – a much costlier proposition for employers in the event of delayed Form 1 delivery.
Beyond formal notice requirements, Wood v. CTS of Canada Co. also cautions employers that credit for working notice is contingent on both quantity and quality. Employers should therefore avoid placing exceptional demands on employees during their working notice periods, allowing employees to work beyond the date specified in an original notice, or otherwise creating uncertainty around the real termination date, all of which can render notice ineffective.
“Form 1” Mass Termination Notice Required by the ESA
Pursuant to the ESA’s mass termination provisions, if more than 50 employees will be terminated in the same four-week period, the employer must give 8, 12 or 16 weeks’ notice to the severed employees. Unlike in an ordinary termination scenario, the length of notice required by the ESA in a mass termination depends on the number of employees who will be terminated in a given four-week period, not individual employees’ years of service.
In addition to providing termination notice to the employees themselves, employers must also give the Ministry of Labour’s ESA Director what is known as “Form 1” notice of the mass termination. One of the purposes of this Form 1 notice is to facilitate the provision of government services and benefits to the employees.
The Time for Giving Form 1 Notice
The primary dispute in Wood v. CTS of Canada Co. arose from the differential timing of CTS’s termination notice to its employees, on one hand, and to the ESA Director, on the other. The question before the courts was essentially whether the working notice CTS gave employees prior to giving Form 1 notice to the Director was valid and creditable towards CTS’s notice obligations.
CTS initially gave its employees notice of termination in April 2014. However, CTS did not deliver its Form 1 notice to the Director or post the Form 1 notice in the workplace until May 2015, more than a year after it gave notice to the employees, and 12 days into the mandatory 8-week notice period stipulated by the ESA.
At first instance, the motion judge interpreted the ESA mass termination provisions as requiring that CTS serve and post the Form 1 notice on the same day that it gave the initial notice to its employees in April 2014. The motion judge went on to find that the 13 months’ working notice prior to the Form 1 delivery was invalid and could not be counted in satisfaction of employees’ notice entitlements.
On appeal, however, the Ontario Court of Appeal held that the motion judge erred in deciding the Form 1 issue. It concluded that CTS’s Form 1 notice was only required to be delivered and posted “on the first day of the statutory notice period,” and not before, even though notice had been given to employees directly at some earlier date.
Associate Chief Justice Hoy, writing for the Court of Appeal, fundamentally disagreed with the motion judge’s conclusion that the ESA mass termination provisions were ambiguous to begin with. She also rejected the motion judge’s “flawed” approach, which resolved the alleged statutory ambiguities in the employees’ favour, in accordance with a broad view of the ESA’s remedial objectives and other interpretive principles. In this regard, the Court of Appeal emphasized that “the purpose of the ESA is to protect the interests of employees by requiring employers to comply with certain minimum standards…not to impose requirements on employers in excess of the statutory minimums.” The motion judge therefore erred in considering the greater extent of government services CTS’s severed employees might have received had CTS delivered its Form 1 notice to the ESA Director when it originally gave notice of termination.
Consequences of Late Delivery of the Form 1 Notice
The Court of Appeal also overturned the motion judge’s finding that the consequence of late delivery of the Form 1 notice “was that the notices of termination sent prior to CTS giving Form 1 notice were deemed for all purposes not to have been given.”
Associate Chief Justice Hoy concluded that the ESA mass termination provisions were unambiguous about the legal repercussions of late Form 1 delivery: the Form 1 notice is only deemed not to have been given until it is received by the ESA Director. As a result, CTS was not entitled to credit for the 12 days’ working notice from the start of the statutory notice period (being the date on which the Form 1 was due) and the date on which the Form 1 was in fact received.
The Quality and Conditions of Working Notice
CTS’s plant closure strategy was to ramp up production at its Streetsville plant in order to bank an inventory of parts which could be supplied to customers after the closure, until it had manufacturing capacity in Mexico. CTS thus permitted several employees to work more hours than permitted by the ESA’s overtime provisions, and “forced” other key employees to work overtime up to 60 hours a week.
On this issue, the Court of Appeal upheld the motion judge’s decision to deny CTS credit for these employees’ working notice periods. The Court reaffirmed the principle that “[i]n determining whether the employer is entitled to credit for working notice, it is relevant to consider the quality of the opportunity given the employee to find new employment.” Given that that “the primary objective of reasonable notice is to provide the dismissed employee with an opportunity to obtain alternate employment,” Associate Chief Justice Hoy observed that working notice has both a “quantitative” and “qualitative” aspect. However, Justice Hoy qualified these remarks with the proviso that “working” is inherent in the concept of “working notice,” and therefore, “[t]he fact that the normal demands of the employee’s position leave the employee with less time to look for alternate work than if the employee were not working does not warrant denying the employer credit for a portion of the period of working notice.”
Extending Working Notice
CTS also extended several employees’ working notice periods, with their agreement, beyond the termination dates specified in their original termination notices, and beyond the 13-week temporary work period permitted by the ESA.
On this point, the Court of Appeal again agreed with the motion judge’s determination that CTS was only entitled to credit for these employees’ working notice periods from the date of the letters providing them with notice of their actual (revised) termination dates. Associate Chief Justice Hoy reasoned that “[t]he cumulative effect of the multiple extensions created uncertainty as to when their employment would terminate,” contrary to the rule that notice must be “clear and unambiguous.” She also concluded that the ESA requires employers to give fresh notice if temporary work exceeds 13 weeks post-termination.