Court of Appeal Decision of the Week

Employment Law: Severance Not Affected by Employer’s Financial Circumstances

Case: Michela v. St. Thomas of Villanova Catholic School, 2015 ONCA 801 (CanLII)

Keywords: Employment Law; Reasonable Notice; Termination; Economic Circumstances

Synopsis:

St. Thomas of Villanova Catholic School employed the appellants, Domenica Michela, Sergio Gomes, and Catherine Carnovale, on a series of one-year contracts. Although the appellants were senior teachers at the private school, each had their employment terminated as part of cost savings measures due to an expected drop in student enrolment.

The school refused to give the teachers any notice, contending that their fixed-term contracts had merely come to an end. The appellants commenced an action for wrongful dismissal. On summary judgment, the motion judge found the teachers were wrongfully dismissed employees with indefinite terms and each was awarded pay in lieu of six months’ notice.  Taking into account the school’s alleged financial problems, notice was reduced from 12 to 6 months. The appellants sought to vary the damage award by substituting a 12-month notice period.

Appellate courts in most Canadian jurisdictions have made it plain that an employer’s obligations to give notice are not reduced just because the employer is doing poorly financially. Indeed, if an employer’s financial circumstances were slavishly considered, similarly situated employees would hold a dubious distinction as the only class of creditor whose claims may be reduced just because of such financial issues.

Prior to Michela in Ontario, a decision of the Court of Appeal (Bohemier v. Storwal International Inc. 1983 CanLII 1956 (ON CA)) had been taken to mean that economic circumstances might justify a reduction in the notice period.

Michela settles three decades of uncertainty in favour of a firm and clear statement that notice periods do not fluctuate, and certainly do not go down based on an employer’s financial circumstances. According to the Court, although an employer’s financial issues may be the underlying reason for termination,  they cannot have an effect on the actual scope or size of its liability to employees. In stating this, the Court revisited the 1983 precedent and otherwise adopted the law in a manner consistent with other jurisdictions in Canada.

Importance:

The decision brings certainty to the law of employment. It also confirms the employee-centred nature of the notice period: what is reasonable should reflect an employee’s circumstances and be responsive to the need to find suitable, alternative employment. What is reasonable is not a reflection of what an employer might find reasonable  in light of its current financial misfortune. An employer owes suitable notice on termination as a matter of basic contract law and fairness; this does not change where financial circumstances are unfavourable.

Counsel for the Appellants: Michael Wright and Stephen Moreau (Cavalluzzo Shilton McIntyre Cornish LLP, Toronto)

Counsel for the Respondent: Ian St. John and Jeffrey Rochwerg (Matthews Dinsdale & Clark LLP, Toronto)

Discuss on CanLii Connects

Posted: Thursday, December 17, 2015