Do Financial Circumstances Mean Anything (Severance)?

No, an employer’s financial circumstances are not a relevant consideration in determining reasonable notice of termination in Canada.

As we assume most managers know, employment contracts require employers, absent express contractual language to the contrary, to give reasonable notice of an intention to terminate an employee if the dismissal is without cause: Machtinger v. HOJ Industries Ltd., 1992 CanLII 102 (SCC).

Damages for dismissal without reasonable notice are designed to compensate employees for the losses incurred during the period of reasonable notice – the amount of wages and benefits that they would have earned had they been permitted to serve out the notice period: see Arnone v. Best Theratronics Ltd., 2015 ONCA 63.

The calculation of the notice period is a fact-specific exercise. The relevant factors are set out in Bardal v. The Globe & Mail Ltd. (1960), 1960 CanLII 294 (ON SC) ("Bardal"), and focus on the circumstances of the employee: the character of their employment, their length of service, their age, and the availability of similar employment, having regard to their experience, training, and qualifications.

An employer’s financial circumstances is specifically not a part of an employee’s “character of employment”. As set out in Michela v. St. Thomas of Villanova Catholic School, 2015 ONCA 801 (CanLII), the character of the employment refers to the nature of the position that had been held by the employee – the level of responsibility, expertise, and so on. It suffices to say that the character of the employment, like the other Bardal factors, is concerned with the circumstances of the employee. It is not concerned with the circumstances of the employer. An employer’s financial circumstances may well be the reason for terminating a contract of employment – the event that gives rise to the employee’s right to reasonable notice. But an employer’s financial circumstances are not relevant to the determination of reasonable notice in a particular case: they justify neither a reduction in the notice period in bad times nor an increase when times are good.

It is important to emphasize, then, that an employer’s poor economic circumstances do not justify a reduction or a bump of the notice period to which an employee is otherwise entitled having regard to the Bardal factors. 

Read More: What makes an employment contract void?

goHeather lets employers make employment contracts from lawyer-made templates to help them limit the amount of reasonable notice (i.e. severance) they must provide an employee upon termination.