Calculating Reasonable Notice In The Event Of Employer Bankruptcy

The Employment Standards Act (“ESA”) is the legislation that sets out minimum employment rules in Ontario and is particularly important for workers in the province. The terms of every employment agreement in Ontario are subject to the obligations of the ESA.

When an employer becomes bankrupt, employees are entitled to receive reasonable notice of termination or pay in lieu of notice. The amount of reasonable notice is based on the length of employment and other factors such as age, position, and the availability of similar employment opportunities.

Section 9 (1) of the Employment Standards Act (the “Act”) is relevant to consider when calculating the period of statutory reasonable notice. It provides that if an employer sells a business (or a part thereof) and the purchaser employs an existing employee, the employee’s employment is deemed not to have been terminated for purposes of the Act.

In addition, other factors considered when determining reasonable notice include the following: 

• The manner of the employee’s dismissal; 
• Improper allegations of cause made by the employer about the employee; 
• Conduct of the employer and employee both before and after the termination; 
• Existing provisions in the employment contract regarding termination

Resale in the context of bankruptcy continues the period of service for the purpose of the Act’s statutory notice

Section 9(1) of the Employment Standards Act states that if an employer sells a business (or a part thereof) and the purchaser employs an existing employee, the employee’s employment is deemed not to have been terminated for purposes of the Act. This means that the employee’s period of service continues for the purpose of calculating statutory notice.

For example, if an employee has worked for a company for five years and then the company sells its business to another company that employs the employee, the employee’s period of service will be deemed to be five years with the new company.

For common law notice, a new employer breaks the period of employment

Constructive dismissal occurs when an employee resigns as a result of the employer creating a hostile work environment. This can happen when an employer fails to live up to the essential obligations of the employment relationship. It can also occur when an employer wrongfully makes working conditions so intolerable that the employee is forced to resign.

In other words, constructive dismissal arises from the failure of the employer to live up to the essential obligations of the employment relationship, regardless of whether the employee signed a written employment contract. Having a labour lawyer in Canada on retainer is advised to help you understand the legal process.

Serving a predecessor employer may be a relevant factor when calculating the period of common law notice

The period of common law reasonable notice is determined by courts based on several factors. The four main factors (also known as the Bardal factors) are:

1. Age
2. Length of service
3. Nature of the position held
4. The availability of similar employment

Other factors that may be considered include the type or character of employment and seniority.

Here are some examples of how the Bardal factors have been applied in previous cases:

• In one case, a 62-year-old employee with 20 years of service as a senior manager was awarded 24 months of reasonable notice.
• In another case, a 50-year-old employee with ten years of service as a sales representative was awarded 12 months of reasonable notice.
• In another case, a 47-year-old employee with 14 years of service as a sales representative was awarded 18 months of reasonable notice.

Employee worked for a new employer after bankruptcy, then was terminated

In Chin v. Beauty Express Canada Inc., the Ontario Superior Court considered an employee’s service with her previous employer in calculating her total years of service. The plaintiff was a part-time aesthetician at Beauty Express, a salon located in the Bay. 

She began working for Beauty Express in 2013 and continued working there until she was terminated without cause in 2020. The plaintiff had also worked for another salon before working at Beauty Express.

The court found that the plaintiff’s prior experience was relevant when calculating her total years of service. As a result, the court awarded her an extended notice period.

Employment contract unenforceable, paving the way for common law notice

An employment contract with a valid and enforceable termination clause that limits the employee’s entitlement to only statutory notice is not entitled to common-law notice. If a written employment contract is unenforceable, the employee’s entitlement is governed by the common law, which provides employees with ”reasonable notice,” which tends to be much more generous than most written employment contracts and certainly more generous than the legislated minimums.

Employee argued for lengthy common law notice considering her combined 20 years of service

Length of service is one of many factors courts consider in determining the period of common law reasonable notice. The court will consider factors such as age, salary, position, length of service, experience, access to similar employment, and other circumstances impacting the ability to find comparable employment.

Some account of prior service was factored into the employee’s notice period

In determining the length of the reasonable notice period in any particular case, courts will look at the Bardal factors, which include: 

• The character of employment, 
• Length of service, the plaintiff’s age,
• Availability of alternative employment. 

Generally, “length of service” is given significant weight. Therefore, prior service can be factored into an employee’s reasonable notice period calculation.

Prior service can be factored into an employee’s reasonable notice period calculation. However, calculating reasonable notice can be a complex process that requires a thorough understanding of the law and the specific circumstances of each case. Therefore, it’s important to consult with a labour lawyer who can help you navigate this process and ensure that your rights are protected.