Reduction in notice period due to economic downturn?

In times of economic downturn, employers often ask about ways to reduce common law severance obligations to employees. In most cases, courts will not have much sympathy for employers. However, where there is evidence of real financial difficulty and a poor market, there is some new authority that a court will reduce the reasonable notice period to which the employee would otherwise have been entitled. In a recent case, Gristey v Emke Schaab Climatecare Inc., 2014 ONSC 1798 (CanLII), an Ontario court concluded that “economic factors” – in this case, evidence of the market and the financial health of the Company at the time of termination of the plaintiff’s employment – were relevant factors for determining what was ultimately awarded to the plaintiff.

The court found authority for this proposition in the decision of Ontario’s Court of Appeal from 1982 called Bohemier v Storwal International Inc., 1982 CanLII 1764. Despite the fairly circumscribed circumstances upon which such relief to an employer would be provided, the court in Gristey accepted that the Company’s work was sparse at the time of the plaintiff’s termination and that its business market was generally poor. The court also accepted that there was no sign of material improvement for the Company in the foreseeable future.

Interestingly, the court also noted that the Company’s evidence with respect to how it determined what to offer the plaintiff on termination was not based upon the Company’s ability to pay, but rather on what it viewed to be fair. There was also an acknowledgment during the trial by the Company that the business could have afforded continuing to pay the plaintiff some amounts after the termination date and that the Company had made a profit in the months following the termination. Despite these latter findings, the court nonetheless accepted that the Company was in financial difficulty at the time of the decision to terminate the plaintiff’s employment and agreed to discount a reasonable notice period of 12 months by one-third.

Arguments to reduce notice periods will only be available in limited circumstances and upon actual evidence of real and dire financial difficulty on the part of the Company with “no sign of material improvement in the foreseeable future”. It remains to be seen whether this case will renew a concept that has for the past many years been generally rejected.

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