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

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 those decisions, the employee had been terminated in 2020, unlike Mr. Yee.

Iriotakis  (dismissed March 25, 2020)

The first, 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).

[23] 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….”

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.

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 … [that] 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 choice of 10 months, only 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 next decision in this series was not helpful.

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 terms of the opportunities to obtain comparable employment, Ms. Herreros urged the court to consider the COVID-19 pandemic as a negative factor reducing her opportunity to obtain other employment, and therefore as justifying a lengthier notice period. I recognize that in some cases the pandemic may be a relevant factor: see Russell v. The Brick Warehouse, 2021 ONSC 4822 [unreported and therefore not considered by your author]; Lamontagne v. J.L. Richards & Associates Limited2021 ONSC 2133. However, 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].

[20] However, I do find that this fourth Bardal factor was a neutral one since Ms. Herreros had IT skills that were transferrable, and other skills that are likely not (i.e., her support of the IT applications unique to Glencore).”

 

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 (definitely March 2020 but probably as early as February). How much larger remains to be seen, but probably up to 10% 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 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 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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