As the COVID-19 (coronavirus) pandemic continues, it has caused a significant impact on the Canadian economy. While many companies have been able to sustain themselves, some businesses have been forced to cease operations permanently. The result is that many employees across Ontario have either been placed on a temporary layoff or lost their jobs permanently. But a question many employment lawyers (both for employers and employees) are grappling with is: will the pandemic justify an increase in an employee’s financial severance package?
While financial viability is a key reason for the disruptions to the labour market, another contributing factor influencing employers’ decision to lay off employees is simply future uncertainty caused by COVID-19. Specifically, most employers are unsure what impact COVID-19 will have on their responsibilities to their employees upon termination.
Generally, in most cases where an employee’s job is terminated, the employer must provide the employee with prior notice of termination (typically consisting of a financial severance package). However, in the unprecedented cases of the current global pandemic, the difficulty is determining whether it will result in the employer having to pay more severance pay to an employee or less severance pay.
There are reasonable arguments to be made on both sides of the equation, and these will form important policy considerations for the courts when resolving these employment disputes.
On the one hand, employees will rightfully argue that the significant economic and labour market downturn caused by COVID-19 will make it much more difficult to replace a lost job, which entitles them to greater severance compensation. And since the purpose of a severance package is to provide a “financial cushion” to the employee to assist in their transition to new employment, it would seem logical to expect COVID-19 to increase an employee’s severance package entitlements. This is what some employment lawyers have coined a “COVID-19 Bump.”
On the other hand, employers will generally argue that COVID-19’s extraordinary impact on their business operations requires some flexibility in managing their workforce (e.g., allowing temporary layoffs even if it is not authorized by an employment contract), and most importantly justifies lower severance compensation to employees in order to allow them to weather the storm to better times – and perhaps be in a financial position to rehire most of their employees when COVID-19 subsides and the economy rebounds.
General Rules Regarding an Employee’s Severance Package Entitlements
The nature and purpose of severance compensation (reasonable notice) are well-established in Ontario employment law. Although employees may be dismissed without cause, permanent employee requires an employer to give “reasonable notice” of an intention to terminate employment, unless the employee agrees to the minimum entitlements under the Employment Standards Act, 2000 in an employment contract. If not, common law requires employers to provide employees with a greater period of time to find replacement work by compensating them for the amount of wages and benefits that they would have earned had they been permitted to serve out the notice period.
The calculation of an employee’s reasonable notice period under common law is a fact-specific exercise. The relevant factors were established by the court in the case of Bardal v. The Globe & Mail Ltd., 1960 CanLII 294 (ON SC), which focus on the circumstances of the employee at time of termination:
- 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.
These factors are not watertight; the strength of one may compensate for weakness on another.
While Ontario employment law is always changing, the courts have never had to deal with a global pandemic and decide what impact it will have on employers’ responsibilities and employees’ entitlements upon termination. However, while there is no precedent, there are a few prior court cases that provide some helpful guidance on what the courts will likely consider when dealing with these cases, especially wrongful dismissal and constructive dismissal claims.
When the courts are asked to determine how much reasonable notice of termination an employee was entitled to receive before losing their job (or the value of the severance package), they pay particular attention to the employee’s age, years of service, position and the likelihood of finding comparable employment. In other words, in the world of COVID-19, it is fair to assume the inability to find new employment is a top consideration for the courts when dealing with wrongful dismissal claims arising as a result of COVID-19. However, it is not the only consideration – and the courts have been clear that no one factor is decisive or should be given priority (although again – those rules were established in the context of a pre-COVID-19 world).
Recent Cases Decided Dealing with Impact of COVID-19 Pandemic on Employee Severance Package
In one of the few wrongful dismissal cases decided in the ongoing COVID-19 pandemic, the court in Yee v. Hudson’s Bay Company, 2021 ONSC 387 awarded an increased reasonable notice period to the dismissed employee. Based on the specific of that case, the court “bumped” up the length of the reasonable notice period to 16 months of compensation, for a 62-year old employee who served as Director of Product Development for about 11.5 years. In making its decision, the court stated that a wrongfully dismissed employee’s reasonable notice period must “be determined by the circumstances existing at the time of termination and not by the amount of time that it takes the employee to find employment.”
Additionally, the court made the following observation that is instructive in understanding the likely direction of the courts when deciding wrongful dismissal cases in the post-COVID-19 era:
“It seems clear terminations which occurred before the COVID pandemic and its effect on employment opportunities should not attract the same consideration as termination after the beginning of the COVID pandemic and its negative effect on finding comparable employment.”
In reaching this conclusion, the court relied on a few notable cases where the courts discussed the general rule as to the impact of the economic conditions when award reasonable notice periods:
“In support of Melvin Yee’s position, I was directed to the statement by Justice Perell in Paquette v. TeraGo Networks Inc., 2015 ONSC 4189 (at paragraph 27) that “Economic factors such as a downturn in the economy or in a particular industry or sector of the economy that indicate that an employee may have difficulty finding another position may justify a longer notice period”. However, that statement needs to be considered with the statement in Holland v. Hostopia.com Inc., 2015 ONCA 762 (at paragraph 61) that “Notice is to be determined by the circumstances existing at the time of termination and not by the amount of time that it takes the employee to find employment”.”
Prior Ontario Court Decisions
Although not dealing directly with the impact of a global pandemic, the leading case in Ontario is Michela v St. Thomas of Villanova Catholic School, 2015 ONCA 801 (“Michela”). In that case, the employer (a private school) experienced financial difficulties and was forced to dismiss some of its employees. At trial, the judge found that the teachers were wrongfully dismissed, but reduced their severance compensation from 12 months of pay in lieu to 6 months’ pay in lieu of notice, after taking into account the respondent’s financial circumstances and the availability of similar employment in the labour market.
However, on appeal, the higher court overturned the judge’s decision, deciding that an employer’s poor economic circumstances and financial health does not justify a reduction in the notice period – just like an employee’s difficulty is securing replacement employment does not have justify increasing the notice period unreasonably. Additionally, the court held that employers cannot simply assume employees will be able to find obtain comparable employment within a specific time period because of favourable economic conditions, since that is simply speculation and does not justify reducing the notice period.
In the court’s view:
“…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.”
Based on the limited court guidance provided by Michela, it would be fair to assume the courts will likely attempt to strike a balance between the policy considerations of protecting employees’ rights to receive a fair severance package, and an employer’s ability to cope with the extraordinary circumstances caused by a global pandemic by neither increasing or reducing an employee’s severance compensation. In other words, it is unlikely there will be a “COVID-19 Bump” justifying a significant increase to an employee’s severance package entitlements.
Contact Employment Lawyer
If you are an employee who has been temporarily laid off or terminated from your employment during the COVID-19 pandemic, it is important to seek legal advice as soon as possible as soon as possible. Speaking with an experienced employment lawyer will help you understand and pursue your full employment law rights in Ontario, even if you have a written employment agreement that your employer says limits your entitlement. You may be entitled to more generous severance compensation under common law, particularly in a severance package.
No matter which side you are on, our employment lawyer is ready to assist with your case. Please feel free to reach out to Bune Law at 647-822-5492.
Disclaimer: The content on this website and blog is not legal advice or legal opinion of any kind, and is only general information. It is in no way particular to your individual case and should not be relied upon in any way. The outcome of a legal matter depends on its unique circumstances, and prior successes are not indicative of future results. No portion or use of this website or blog will establish a lawyer-client relationship with the author, this law firm or any related party. Should you require legal advice for your particular situation, please fill out the form below, or call 647-822-5492, to request an initial consultation.