Economic Dismissals Amid Coronavirus (March 25, 2020)

By Nikolay Y. Chsherbinin

    With thousands of job casualties being claimed each week by the wounded economy, buzzwords like layoffs, downsizing, corporate reorganizations and economic restructuring are becoming increasingly ingrained in employers’ minds. By contrast, ambushed by employers’ unpreparedness to survive another economic downturn, employees frantically search the Internet in the hope to understand concepts of constructive dismissal, litigation, legal costs and, especially, what constitutes a reasonable notice period.

But just how does an economic downturn impact on an employee’s reasonable notice entitlement?

To answer this question, one should first understand that notice is the information that employment will end on a certain date. The purpose of notice of impending termination is not to pay, but to give employees the chance to arrange their affairs and try to find new employment.

The question of common law notice is more complex. It requires a court or arbitrator to make a case-specific inquiry and assess its findings against the four traditional factors used to determine the period of reasonable notice as set out in Bardal v Globe & Mail Ltd. Those factors are: age, length of service, nature of the position and availability of similar employment. An additional factor comes into play in periods marked by economic slump, which is the economy itself. Still, as the court in Bardal said: “[t]here can be no catalogue laid down as to what is reasonable notice in particular classes of cases.”

A survey of cases ranging from 1980 to 2017 that discussed an economic downturn as a factor in determining the period of reasonable notice revealed that, during the 1980s, courts were divided between supporting employers and employees in their discussion of economic conditions, contrasting the hardships of employees with the financial peril of employers who blamed factors “beyond their control.” Some judgments emphasized the unique perspective that law is autonomous from the economy. This approach signaled that economic conditions have little or no relevance to the employment contract. This proposition holds true as a rule today.

1980

In the 1986 case Ansari v British Columbia Hydro & Power Authority, the British Columbia Supreme Court said: “it does not seem to me that economic considerations such as reduced business activities or opportunities should be a factor in fixing the period of reasonable notice.”

The Alberta Court of Queen’s Bench followed this reasoning a year later in Dasent v. D. Molesky Surveys Ltd.: “[t]he condition of the economy… is a factor to consider but because of social programs and unemployment benefits that are available, it should not operate as a reason for extending the reasonable notice that is required to be given,” the Alberta court said.

1990

In the recession of the 1990s, judgments were often characterized by rationalizations of economic dismissals based on the approach of the Ontario High Court in Bohemier v Storwal International Inc.

In Bohemier, the court recognized the need “…to preserve the ability of an employer to function in an unfavourable economic climate. He must, if he finds it necessary, be able to reduce his work force at a reasonable cost. If he can not do so, the alternative may be bankruptcy or receivership. It seems to me that when employment is unavailable due to general economic conditions, there has to be some limit on the period of notice to be given to discharged employees even if they are unable to secure similar employment within the notice period.”

The Court of Appeal for Ontario agreed that the trial judge was right to take into account economic factors when determining reasonable notice, but nevertheless varied the decision by increasing the length of notice.

Following the lead in Bohemier, courts refrained from chastising employers for discharging employees in a period with a limited job market. Rather, it appears they agreed recessionary economic conditions “required” organizations to reduce their staff.

Nevertheless, in Russell v Winnifred Stewart Assn. for the Mentally Handicapped, the Alberta Court of Queen’s Bench criticized the employer for how it responded to the new economic context and questioned the necessity of the dismissal for economic reasons.

While judges accepted the legitimacy of economic dismissals for other types of employers, they still emphasized that “a contract is a contract” and contractors upheld their end through their loyalty to the organizations.

2009

With the 2009 recession, judgments continue to be pro-employee. In Munoz v Canac Kitchens, the dismissal took place in the context of the termination of other Canac employees as a result of a steady decline in Canac’s business. Despite being advised during the trial that Canac was in the process of closing down entirely, the Ontario Superior Court of Justice found the employee, a team leader with more than 12 years of service who was 52 years old and remained unemployed 16 months after his termination, was entitled to 12 months’ notice.

In January 2009, when Canada lost 129,000 jobs, the court in Mahesuram v Canac Kitchens Ltd. awarded another employee of Canac, 59 years old with 19 years of service, 18 months’ notice.

2015

In 2015, in Michela v St. Thomas of Villanova Catholic School, 2015 ONCA 801, the Court of Appeal for Ontario directly asked itself the question: “[a]re an employer’s financial circumstances a relevant consideration in determining the period of reasonable notice to which a wrongfully dismissed employee is entitled?”

The Court of Appeal made it clear that the employer’s poor economic circumstances do not justify a reduction in the length of the notice period: “[22] it is important to emphasize, then, that an employer’s poor economic circumstances do not justify a reduction of the notice period to which an employee is otherwise entitled having regard to the Bardal factors.”

The court specifically explained that the ruling in “Bohemier does not hold, and this court has never held, that an employer’s financial difficulties justify a reduction in the notice period. It does no more than to hold that difficulty in securing replacement employment should not have the effect of increasing the notice period unreasonably.”

2017

Similarly, in Nemirovski v Socast Inc., 2017 ONSC 5616, the court, on a summary judgement motion, awarded the employee 9 months’ compensation in lieu of reasonable notice. It took notice of the employer’s argument that it was “[16]…in fragile financial circumstances. That may be the case but that is not a reason to dismiss the plaintiff’s motion or alter the notice period.” In arriving to its conclusion, the court relied on Michela.

As can be seen, an economic downturn will seldom serve to reduce an appropriate notice period, but may well serve to increase it if the employee cannot find alternate employment. Without supporting financial evidence, a rationale for reducing staff during a downturn to remain competitive or even viable will not be received sympathetically in the courts. A case in point is Armstrong v Lendon, 2015 ONSC 3004, where the court opined: “[18] As a matter of law ability to pay is generally not a factor to be considered in assessing damages for breach of contract.” The court added that impecuniosity of the employer is a matter of fact that requires proof and would necessitate the production of “[19]…tax returns and other documents to establish his earnings and assets.”

COVID-19 Presents Novel Legal Issues

Despite that above-referenced jurisprudence, it would be possible for employers to argue that the 2020 economic downturn is fundamentally different from previous recessions, because on March 17, 2020 the Premier of Ontario declared a state of emergency in Ontario in recognition of the seriousness of the COVID-19 pandemic and to further contain the spread of COVID-19 on March 24, 2020, the Ontario Government ordered the mandatory closure of all non-essential workplaces.

These are unprecedented times that in the Boheimer’s words impact “general economic conditions,” which, in turn, not only necessitates but, in fact, mandates (by the Ontario Government’s order) the reduction in employers’ workforce.

The COVID-19 pandemic presents novel legal issues. To resolve them lawyers, as is common, start their analysis of a novel situation with a consideration of precedents. However, by definition a precedent was created in a different setting from the present, which is crippled by the global pandemic.

In my view, the proper way to approach a novel situation is to ask, without reliance on the past cases, what would be a sensible answer as a matter of policy. Having said this, I do recognize that clues to a sensible answer may be found in past cases, but extracting wisdom from them is not the same as treating them as “authorities” for novel legal situations.

Ultimately, judicial interpretation of economic dismissals varies to the extent that each downturn is characterized by a different combination of rationalizations on economic dismissals.

The common thread running through the recessionary periods is this: a carefully drafted employment contract will substantially reduce potential litigation.