The Issue: Do Employers Owe More Severance Due to COVID-19?
One of the biggest issues in Ontario employment law since March 2020 has been whether an employer 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 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 When the Termination Took Place
A January 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. However, the Yee decision may have opened the door for judges down the road to order additional common law severance to employees if those employees were terminated after COVID-19 began than to those who lost their jobs pre-pandemic.
The Fine Print
If you want to know essential details of the facts and findings in Yee then you’ve come to the right place. Otherwise, skip to the section “What You Must Know and Key Takeaways”. But I suggest at least reviewing paragraph 22 highlighted below.
Here are the essential facts about Mr. Yee and his employment with HBC:
- 62 years old when his case was heard in December 2020
- 11.65 years of service
- Position: Director, Product Design and Development
- Reported to a VP and supervised up to five people
- Termination Date: August 28, 2019
- Compensation at termination:
- $162,353.00 base salary
- Bonus (with a potential 2019 payout of $24,411.78)
- Group benefits valued at 10% of base salary
- Pension plan
- Discounts on HBC products
- Mitigation: Yee began his job search efforts in February 2020 and did not find a new job as of the date of trial (almost 16 months post-termination). “HBC conceded that mitigation was not in issue.”
Mr. Yee sought 18 months, 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.
Mr. Yee relied on the decision of Paquette v. TeraGo Networks Inc., 2015 ONSC 4189 for the proposition 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, Justice Dow wrote “that statement [in Paquette] needs to be considered with the statement in Holland v. Hostopia.com Inc., 2015 ONCA 762…that “Notice is to be determined by the circumstances existing at the time of the termination and not by the amount of time it takes the employee to find employment”.
As noted above, Mr. Yee’s termination took pace almost seven months’ prior to when Ontario started to go into lockdown in March 2020.
The Court went on to add (emphasis mine):
“ 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.”
 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.
In the end, the Court ordered HBC to pay severance totalling nearly $255,000:
- 16 months of base salary
- Unpaid portion of the 2019 bonus
- Group benefits for 16 months (of not already paid in part) based on 10% of base salary
- Pension contributions for 16 months
The Court then made deduction for HBC’s payment to date of $159,907.49.
Technically speaking, paragraph 22 above, insofar as it applies to post-pandemic terminations, is “obiter” (as if the judge wrote “BTW…”) because Mr. Yee was not dismissed post-pandemic. Accordingly, it is not binding precedent (and that’s why I call this case “curious”), but, no doubt, it will end up being influential over the coming months.
What You Must Know
If you skipped “The Fine Print” and are rejoining us, welcome back. However, I suggest you at least read the most notable (and curious) part of the Yee decision: Paragraph 22, which is highlighted above.
Key Takeaway for Employers (including HR professionals and in-house counsel)
Employers should expect that they will likely need to make larger than normal severance payments if an employee is dismissed after the pandemic began (March 2020 in Ontario). 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 March 2020 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.
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 Yee decision in its entirety as, no doubt, we’ll be hearing more about it in the future—especially in light of the arguments I see counsel make at mediations for employment-related disputes. It also has more to say than what is outlined above (including how to measure damages, and an interesting discussion about when it is appropriate to award additional damages for bad faith). It is also time to review your clients’ employment contracts to see if they properly permit or restrict common law notice.
On February 9, 2021, in Iriotakis v. Peninsula Employment Services Limited, 2021 ONSC 998, the Court considered the impact of COVID-19 on the reasonable notice period for an employee who was terminated on March 25, 2020, almost one week after the Government of Ontario enacted a Declaration of Emergency to protect the public from the spread of COVID-19. However, the court did not refer to the Yee decision (possibly, due to the close timing between the release of the two decisions).
In Iriotakis, a 56-year-old business development manager 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 was asked to make findings about the job market and the possible impact of Covid-19 on Mr. Iriotakis. 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…
 I do agree that the plaintiff’s age and the uncertainties in the job market at the time of termination [March 25, 2020] both serve to tilt the period of reasonable notice away from the fairly short period of notice that his short period of service might otherwise indicate. However, these factors do not apply to the exclusion of the others. A balanced approach is what is called for.
 Having regard to all of the Bardal factors, I am of the view that three months notice represents a reasonable balancing of the relative brevity of the plaintiff’s service, a consideration of his age and a consideration of his prospects. Mr. Iriotakis is entitled to receive an amount of money equivalent to the earnings and the value of the benefits that he would have earned had he been given the three month’s working notice that he was entitled to receive. Such payment is to be made without offset or deduction for CERB payments received by the plaintiff.”
Would the Court in Iriotakis have reached a different conclusion had it considered Yee, or would it have not made any difference because March 25, 2020 was not “after the beginning of the COVID pandemic and its negative effect on finding comparable employment” as the Court in Yee put it? Would the result have been different if the termination had taken place one week later? What about one month later? Only time will tell.
If you are an employee or employer, I can help you with any severance-related or other workplace issue. I have more than 25 years’ experience as an employment lawyer with satisfied, repeat clients.
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This blog is for educational purposes only and is not intended as legal or other professional advice.