Can COVID-19 Impact Severance?

The Issue:   Do Employers Owe More Severance Due to COVID-19?

One of the biggest issues in Ontario employment law since the first pandemic lockdowns of March 2020 has been whether an employer – in the event of a termination of employment without cause – needs to provide a longer than normal common law reasonable notice period, or pay in lieu of that notice, because of COVID-19. This issue applies where there is no valid employment contract providing for less than common law notice.  After all, for many – but not all – employees it can be a great deal harder to find new employment during the pandemic.

For the purposes of this blog, and for simplicity, I will use the words and phrases “severance”, “reasonable notice”, “notice”, “notice period”, and “pay in lieu of notice” interchangeably. However, my use of the word severance here should not be confused with “severance pay” as defined by and provided for under the Employment Standards Act, 2000.  That type of severance, if payable, is unaffected by the pandemic. Instead, my focus is on severance due under the common law.

The Answer: It depends… on the timing of the termination and if the pandemic impacted re-employment

A January 18, 2021 decision of the Ontario Superior Court of Justice, Yee v. Hudson’s Bay Company, 2021 ONSC 387, states that the pandemic should be considered when determining reasonable notice for employees who are dismissed after the pandemic began. That said, COVID-19 did not influence the court in Yee because of the timing of the termination (an issue that will come up in future decisions). However, the Yee decision opened the door for judges to order additional common law severance to employees if those employees were terminated after the start of the pandemic and if there is evidence that the pandemic impacted on the employee’s ability to become re-employed.

If you want to know the essential details of the facts and findings in Yee and learn about subsequent court decisions to see how the law has evolved, then read “The Fine Print” below. Otherwise, skip to the section “What You Must Know and Key Takeaways”. But I suggest reviewing the bolded text in “The Fine Print” section.

The Fine Print

Melvin Yee was employed for 11.65 years as a Director, Product and Design and Development for HBC when he was dismissed on August 28, 2019 on a without cause basis. He earned $162,635.00 in base salary, plus bonus, benefits and pension. By the time his case was heard by the Court in December 2020, he was 62-years old. While he began looking for work in February 2020, he had not found a job by the trial date (16 months post-termination), and “HBC conceded that mitigation was not an issue”.

At trial, Mr. Yee sought 18 months’ pay in lieu of notice, and HBC argued the notice period should be 11 months.

Referring to the four “Bardal factors” upon which…reasonable notice should be assessed” (from the landmark 1960 court decision, Bardal v. Globe & Mail), Mr. Justice Dow indicated that Mr. Yee’s age favoured a longer notice period, his length of service was “neutral to somewhat favouring a longer period”, and his character of employment “favours awarding a longer period of reasonable notice”.

With regard to the fourth Badal factor, “the availability of similar employment having regard to the experience, training and qualifications of the employee”, Mr. Yee’s counsel argued that the judge “should take into account the recent COVID pandemic and resulting significant increased difficulty in obtaining comparable employment.” Evidence was led about the large numbers of job applications made by Mr. Yee.

As noted above, Mr. Yee’s termination took place almost seven months prior to when Ontario started to go into lockdown in March 2020.

The Court went on to add (emphasis mine):

“[22]    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.”

[……]

[25]     I return to the Bardal v. Globe & Mail, supra decision where the four factors to be considered are prefaced with the statement “the reasonableness of the notice must be decided with reference to each particular case.” To that end, based on the consideration of the entire factual matrix as detailed above, I find 16 months to be the proper notice period. That is, until December 28, 2020.

Presumably, if the Court had considered the pandemic, it would have ordered 17 – 18 months’ notice.

As to be expected, with time, more court decisions considering the impact of COVID-19 on reasonable notice followed. In all but one of those decisions, the employee was dismissed in 2020, unlike Mr. Yee.

Marazzatto (dismissed March 4, 2020)

They say that timing is everything, and Marazzato v. Dell Canada Inc., 2021 ONSC 248 is a case in point. Before moving on to consider post-Yee decisions, it is important to first take a brief look this decision that was released on January 12, 2021, six days before Yee was released. Mr. Marazzato was 59 years old when he was dismissed on March 4, 2020 after 14 years of service. He was a Senior Manager Director Sales who oversaw nine employees. He earned $465,695.75 in 2019.

Mr. Marazzato sought 20-months’ notice, while Dell argued that notice should be limited to 16 months (keeping in mind that each month of notice was potentially worth a significant amount of money). In determining notice, the Court took into account the Bardal factors of age, length of service, character or employment and availability of similar employment.  Then, Justice Dow, wrote:

“[14]           I was also asked to take into consideration the economic downturn caused by the COVID pandemic as part of this factor.  This would be on the basis there would be extra difficulty in finding and obtaining a new position.  In this regard, I would note no evidence of same was presented to me.  Further, it would not be appropriate to speculate on that submission without evidence.  For example, while there has been an economic downturn for many, Mr. Marazzato’s former employer and his skill set is in the computer business which may have actually benefited from the COVID pandemic and its resulting greater use of computers for access to the internet and remote practices.  The only evidence that touches on this area before me was Dell’s strong financial performance to October, 2020 as reflected in its increased share price.  That is insufficient to make any concrete determination.  Overall, I would conclude this factor does not favour a longer period of notice.

In the end, the court “split the difference” and awarded 18-months’ notice.  After one reads my summary of the decisions that follow, you may well wonder if Marazzato would have been decided differently had the case been heard only months later. For example, see Lamontagne below.

Iriotakis  (dismissed March 25, 2020)

The next decision, from February 2021, was Iriotakis v. Peninsula Employment Services Limited, 2021 ONSC 998. Here the employee was terminated on March 25, 2020, which was after the pandemic began. However, the court did not refer to Yee, (possibly due to the close timing between the release of the two decisions).

Mr. Iriotakis was  a 56-year-old business development manager who was dismissed without cause after 28 months of service. He secured alternate employment in just under seven months.  Plaintiff’s counsel sought a 6-month notice period, while defence counsel argued that 2 -3 months should suffice.  Justice Dunphy noted that:

“I have little doubt that the pandemic has had some influence upon Mr. Iriotakis’ job search and would have been reasonably expected to do so at the time his employment was terminated in late March 2020. However, it must also be borne in mind that the impact of the pandemic on the economy in general and on the job market, in particular, was highly speculative and uncertain both as to degree and to duration at the time Mr. Iriotakis’ employment was terminated. The principle of reasonable notice is not a guaranteed bridge to alternative employment in all cases however long it may take even if an assessment of the time reasonably anticipated to be necessary to secure alternative employment is a significant factor in its determination. I must be alert to the dangers of applying hindsight to the measuring of reasonable notice at the time when the decision was made to part ways with the plaintiff… (emphasis mine).

Thus, late March 2020 was not late enough in the pandemic to justify a larger than normal severance despite the fact that lockdowns in Ontario had already begun. Remember though, the Court in Iriotakis did not consider Yee, which is important for reconciling Iriotakis with the decisions that follow.

Lamontagne  (dismissed February 19, 2020)

In late March 2021, the Superior Court released Lamontagne v. J.L. Richards & Associates Limited, 2021 ONSC 2133. Here, a 36-year-old assistant controller was terminated on February 19, 2020 after 6.25 years of employment. According to the Court:

“[63] The parties also disagree about the effect, if any, of the COVID-19 pandemic on the reasonable period on notice. The applicant argues that on February 19, 2020, COVID-19 was becoming a serious global issue, with the first lock down measures coming only a few weeks later. The respondent states that the applicant’s employment was terminated “a month prior to the start of the first reported COVID-19 case [in Ottawa], at a time when no one foresaw the COVID-19 pandemic, or the economic disruptions that it would cause … [and] prospects for employment were promising” such that it appeared virtually certain that the applicant would rapidly secure new comparable employment. Notice is to be assessed at the time that the employment is terminated.

[64] By February 19, 2020, the possibility of a global pandemic was discussed. Cases had been reported in Asia, parts of Europe, and some had been reported in the United States. A global health emergency was brewing, and there existed at least the threat of a global pandemic, although most were not expecting what was about to happen. I take judicial notice that by February 19, 2020, there was the threat of a possible global pandemic. This threat created uncertainty about what might happen, including how our economy might fare, if a global pandemic ever became a reality. This degree of uncertainty, which existed on February 19, 2020, is one of the many factors that I consider in assessing the reasonable period of notice applicable to the circumstances of this case: Yee v. Hudson’s Bay Co….” (emphasis mine).

In the end, the court awarded Ms. Lamontagne 10 months after she sought 15 months, and the employer argued the notice period was 6 or 7 months. Interestingly, the Court did not consider Iriotakis, which reached a different conclusion despite the pandemic having already started when Mr. Iriotakis was dismissed. However, we don’t really know how much the pandemic influenced the court’s decision to award 10 months of severance in Lamontagne. We only know that it influenced it to some extent.

Kraft  (dismissed second week of March, 2020)

Next up is Kraft v. Firepower Financial Corp., 2021 ONSC 4962, which was released on July 15, 2021. Mr. Kraft was a specialized commissioned salesperson in the investment banking field when he was dismissed in March 2020 after 5.5 years of service. Regarding the impact of the pandemic on notice, the Court considered all of the decisions referred to above and had this to say:

“[15] It is noteworthy that the Plaintiff was dismissed right at the onset of the COVID-19 pandemic. He contends, and the length of his job search demonstrates, that this situation seriously impacted on his ability to find new employment.

[16] The Defendant’s position is that I should take no account of the economic shutdown occasioned by the pandemic. Relying on Yee v Hudson’s Bay Company, 2021 ONSC 387, counsel for the Defendant submits that the Plaintiff was in fact dismissed before the Ontario government enacted its initial pandemic emergency orders and so the COVID-19 pandemic does not count. I view this as a misreading of the Yee case and as a focus on what is really a red herring.

[17] At issue here is the job market and the impact of COVID on that market. The reason that the pandemic was not taken into account in determining the reasonable notice period in Yee is that the employee in that case was terminated in August 2019 – i.e. more than a half year prior to the COVID pandemic – and there was no evidence that the pandemic impacted his job search.

[18] Here, by contrast, the Plaintiff was terminated during the second week of March 2020, the very same week and just days before the Ontario government declared an emergency. Whatever policy considerations drove the provincial government to implement its emergency orders on one particular day that week and not another are not relevant to the analysis; the point is that the economy was already shutting down and remained closed during the Plaintiff’s inevitably prolonged job search. A global pandemic does not just emerge on the day of the government’s emergency decree.

[19] Especially during the first half-year of the shutdown in response to the pandemic, there was uncertainty in the economy and the job market and fewer employers were looking to fill positions. I agree with cases that warn against the danger of applying hindsight to the reasonable notice analysis: Iriotakis v. Peninsula Employment Services Limited, 2021 ONSC 998, at para 19. But as a number of my colleagues have commented, “[t]his degree of uncertainty, which existed on February 19, 2020, is one of the many factors that I consider in assessing the reasonable period of notice applicable to the circumstances of this case”: Lamontagne v. J.L. Richards & Associates Limited, 2021 ONSC 2133, at para 64. (emphasis mine).

And then:

[21] For employees of his age, experience, and time on the job, the case law varies between 4 and 12 and months as a reasonable notice period. Scanning the relevant case law, the average notice period in the reported cases is in the range of 9 months…

[22] As indicated, there is evidence that the pandemic impacted on the Plaintiff’s ability to secure new employment. In light of that evidence, he deserves to receive at least somewhat above the average notice period. I would peg the figure at 10 months, or one month more than the average for his circumstances during non-pandemic times…” (emphasis mine).

Thus, the court in Kraft quite nicely squares the three decisions discussed so far, and tells us how much the increase in reasonable notice should be due to the pandemic:  One month in this case.

Will the “COVID-19 bump up” be limited to one month, or even 10% in future cases?  Only time will tell, as the decisions that folllow did not address this issue.

Herreros  (dismissed October 30, 2019)

Just one day after the release of Kraft, the same Court released Herreros v. Glencore Canada Corporation, 2021 ONSC 5010 – which, unsurprisingly, did not consider Kraft, but it did consider the other decisions mentioned above. Any employees (and their lawyers) hoping that the post-Yee case law meant that employees who were dismissed late in 2019 might receive a longer notice period were disappointed to learn otherwise. Susan Herreros was a 57-year-old senior business analyst in the employer’s IT department, with 15 years of service. She was dismissed on October 30, 2019 (two months after Mr. Yee, and less than three months before Ms. Lamontagne).  But according to the Court:

“[19] … in this case, the pandemic had not yet materialized at the time of dismissal. Given that an assessment of the Bardal factors, and the assessment of compensation, is to take place as at the time of termination, I find that the pandemic is not a relevant factor in my consideration of the fourth Bardal factor: see Yee v. Hudson’s Bay Company…” (emphasis mine).

Pavlov (dismissed May 28, 2020)

This action was heard by the Court in May, 2021 – before the release of Kraft and Herreros – but the judge’s decision was not released until November, 2021. In Pavlov v. The New Zealand and Australian Lamb Company Limited, 2021 ONSC 7362, a 47-year-old director of marketing and communications, with just under three years of service, was dismissed on May 28, 2020. Mr. Pavlov earned $131,943.00 plus bonus and benefits in his “comparatively senior and important role”.

With regard to common law reasonable notice, the court had this to say:

“[16] At the time of Pavlov’s dismissal, the initial effects of the global pandemic were being experienced by industries of all sorts, including those associated with international importing and distribution. It is a reasonable inference to draw from the evidence and the timing of the dismissal that the effects and uncertainties of the pandemic were obstacles to Pavlov’s efforts to obtain alternate employment. These obstacles would, or should, have been known to NZAL Co. at the time of Pavlov’s dismissal.

[17] Pavlov seeks a length of reasonable notice within the 9- to 12-month range in light of these various considerations….

[18] NZAL Co. relies heavily on the comparative brevity of Pavlov’s employment and takes the position that the period of notice that applies would be in the range of 3-4 months and certainly no more than 5 months.

[19] Although Pavlov had been employed for a comparatively short time his position, duties, responsibility, age and level of remuneration entitled him to a period of notice greater than that suggested on behalf of NZAL Co. and one which must be determined with reference to the prevailing economic uncertainties which had a negative impact on Pavlov’s ability to secure similar alternative employment.

[20] In my opinion, Pavlov was entitled in all of these circumstances to 10 months’ reasonable notice of termination, or pay in lieu thereof.”

No reference was made to Yee or Lamontagne in the judge’s decision, but, no doubt, one or both decisions were brought to the Court’s attention during submissions. Pavlov was an important victory for employees, and there can no longer be any doubt that a dismissal during at least the first half of 2020 (or, at least starting in February), and beyond, will impact the amount of severance in the plaintiff’s favour – provided there is evidence that the pandemic negatively impacted on an employee’s ability to mitigate.

Unfortunately, unlike in Kraft, the decision in Pavlov does not tell us how much the pandemic should influence reasonable notice in terms of additional months. In this decision though, based on what counsel for each side were seeking, it is likely that the pandemic increased notice by more than one month.

Russell  (dismissed July 21, 2020)

This decision was released prior to Kraft and Pavlov, but it only recently came to my attention. It also involves the latest dismissal (termination) date of all of the decisions reviewed in this blog.

Russell v. The Brick Warehouse LP 2021 ONSC 4822,  involved a “lifelong employee of…The Brick. The Brick was the only full-time employment Mr. Russell has ever had. He was hired…on September 14, 1984…[and] terminated, without cause…effective July 21, 2020…Russell was 57 years old at the time of termination. He had worked at The Brick for just over 36 years.”

Mr. Russell argued that “there are extraordinary circumstances that warrants notice beyond [the usual cap of] 24 months, and that the COVID-19 pandemic serves as reason to extend the reasonable notice at common law even further.”, in this case to 30 months.

At the time of termination, Russell was a supervisor who earned $74,859.00 per year plus benefits. He was dismissed, along with a number of employees, “as part of a restructuring necessitated by the economic downturn as a result of the COVID-19 pandemic.” Justice Vella found that, “having regard to the Bardal factors….the appropriate notice period for Russell is 24 months at common law, without consideration of extraordinary circumstances.”  In considering the Bardal factors, the judge wrote that “Russell, as at the date of his termination…

d) has challenging circumstances in terms of finding alternative work due, in part, to the COVID-19 pandemic. Unlike the situation in Marazzato [which you might remember from the beginning of this blogpost]…I do have some evidence before me upon which to conclude that COVID-19 will likely adversely affect Russell’s attempts to find other comparable employment. This evidence arises from the fact that in the termination letter The Brick admitted that the economic downturn caused by COVID-19 was the reason why Russell, and several other employees, had been terminated in the first place: See Lamontagne…”

In considering whether there are extraordinary circumstances though, the judge wrote:

“[42] In Dawe v. The Equitable Life Insurance Company of Canada, 2019 ONCA 512, the Court of Appeal found that age, length of service and the fact that the employee was a lifelong employee were not exceptional circumstances for purposes of extending the notice period beyond 24 months.

[43] Russell submits that his age, years of service, lifetime service to The Brick, his “limited” high school education, COVID-19, lack of a reference letter and relocation counselling and post termination conduct of The Brick constitutes extraordinary circumstances justifying a longer notice period. In my view, the factors Russell advances have been factored into the notice period already, with the exception of The Brick’s termination and post termination conduct [providing a termination letter and severance package offer that was not ESA compliant]. The Brick’s termination and post termination conduct is better addressed under a moral/aggravated damages analysis.

[44] Consequently, I do not find extraordinary circumstances have been proven in this case and decline to extend the notice period on this basis.”

While COVID-19 was not a reason to exceed the 24-month notice cap in this case, we don’t know how much influence it had in determining the notice period based on the normal Bardal factors– just like in Pavlov. We only know that it had some influence here. However, I suggest that, even absent a termination during the pandemic–and for reasons related to the pandemic, Mr. Russell probably still would have been awarded 24-months even if the pandemic had not been considered by the court, given his age and lengthy tenure.

Miller  (resigned April 29, 2020)

No, what you read above is not a typo:  It says “resigned” rather than “dismissed”. Allow me to explain: In Miller v. Ontario Potato Distribution Inc., 2022 ONSC 1490, the plaintiff worked for the defendant for 11.5 years. At the time his employment ended on April 29, 2020, he was a 45-year old manual labourer earning $18.50 per hour. While the plaintiff claimed that he was constructively dismissed, the court found that he voluntarily resigned in writing and dismissed his action for damages. However, Justice D.A. Broad had this to say on the subject of the notice period in the event that dismissal of the action was in error:

[48]           … the plaintiff sought damages based upon a notice period of 12 months, equivalent to effectively one month per year of service…

[49]           The defendant submits that 6 months would represent an appropriate period of notice…

[51]           In my view, I can take judicial notice in the case at bar that the plaintiff’s ability to find equivalent alternate employment was adversely affected by the COVID-19 pandemic.

[52]           In the circumstances, I find ten (10) months to be an appropriate notice period, considering the Bardal factors including, in particular, the availability of similar employment having regard to the plaintiff’s experience, training, and qualifications.

So again, the court took judicial notice of the impact of the pandemic on finding alternate employment, and so it impacted the (hypothetical) notice period here – but (again) we do not know to what extent.

 

What You Must Know

If you skipped “The Fine Print” and are rejoining us, welcome back. However, I suggest you at least read the bolded passages from the court decisions referred to above.

 

Key Takeaway for Employers (including HR professionals)

Ontario employers should expect that they will likely need to make larger than normal severance payments if an employee is dismissed after the pandemic began (as early as February 2020, and at least as late as July 2022 – and probably beyond). How much larger remains to be seen, but probably one to three months based on current trends. As well, employers should review with an employment lawyer any contracts they have in place to determine if they can legally avoid the larger severance obligation – or to determine if such a contract would be helpful.

 

Key Takeaway for Employees

Employees terminated in or after February 2020 (and at least into the summer of 2022) can likely expect larger than normal severance payments, if:

  • They haven’t already signed an employment contract with a legally enforceable termination clause denying them the larger severance; and
  • They can prove that COVID-19 is affecting, or will affect, their re-employment prospects. One should not assume that judicial notice will necessarily be taken with respect to this issue. Actual evidence is recommended.

Employees should consult with an employment lawyer about these important issues if they are facing job loss and before agreeing to a severance package.

 

Key Takeaway for Lawyers or Paralegals

I recommend that legal professionals carefully read and consider the decisions set out above as, no doubt, we’ll be hearing more about them in the future—especially in light of the arguments I see counsel make at mediations for employment-related disputes. It is also time to review your clients’ employment contracts to see if they properly permit or restrict common law notice.

If you are an employer or employee, I can help you with contracts and any severance-related or other workplace issue. I have more than 25 years’ experience as an employment lawyer with satisfied, repeat clients.

If you are a lawyer or paralegal looking to hire a mediator or mediator-arbitrator for your employment law dispute, I am a mediator with more than a decade of experience conducting in-person, virtual and hybrid employment mediations.

 

This blog is for educational purposes only and is not intended as legal or other professional advice.

 

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