Court of Appeal Clarifies the Law Surrounding Mass Terminations

In a recent case, Wood v CTS of Canada Co., [Wood] the Ontario Court of Appeal clarified an employer’s obligations under the Employment Standards Act, 2000 (the “ESA”) when engaging in mass terminations. In Wood, the employer terminated over 50 employees at one of its facilities as a result of plans to relocate manufacturing operations elsewhere. The 74 employees who did not sign documents releasing the employer of any obligations related to their employment commenced a class action proceeding seeking additional pay in lieu of common law notice.

Under the ESA, employers who dismiss more than 50 employees in a four-week period have engaged in a “mass termination” which triggers certain statutory obligations. The ESA prescribes that in the event of a mass termination, employers must provide employees with enhanced working notice and severance pay (which is distinct both from statutory termination notice and common law notice or pay in lieu thereof) and must also inform the ESA Director of the mass termination by way of a Form 1 document. Employers who provide working notice (which means that employees work through the notice period, as opposed to receiving pay for the notice period) can continue to employ workers for up to 13 weeks past the end of the notice period (the “effective date”) without triggering the obligation to give fresh notice of termination.

The employees in Wood made three claims relating to their dismissal:

1. That the employer had failed to file the Form 1 with the ESA Director on time, invalidating the notice provided to the dismissed employees and entitling them to further pay in lieu of notice.
2. That employees were required to work overtime during the working notice period that exceeded the limits contained in the ESA, entitling them to additional pay in lieu of notice.
3. That five employees who worked for more than 13 weeks beyond the effective date were entitled to fresh notice of termination.

Timeliness of the Paperwork

Section 58 of the ESA requires that the ESA Director be furnished with a Form 1 in the event of a mass termination, “on the first day of the notice period.” Section 58 formed the basis for the dispute over this issue with the employer arguing that the notice period referred to was the statutory notice period, whereas the employees contented that the Form 1 must be provided as soon as the employer notifies employees of their impending dismissals even if the notice period is greater than the statutory entitlement. The employees also argued that since notice to the Director was not provided in the correct fashion, it would invalidate the notice provided and the employer would not be credited as having given employees their statutory notice entitlement. On this point, the Court of Appeal sided with the employer, overturning the trial judge’s finding that the ESA required notification to be provided to the Director the moment an employer notified employees of a mass termination. The Court also held that although the employer was correct in believing that notice must be provided only at the beginning of the statutory notice period, it nevertheless notified the ESA Director 12 days late and thus employees were entitled to an additional 12 days of pay in lieu of notice.

Exceptional Working Demands During the Notice Period

The Court heard evidence that some employees were required to work up to 60 hours per week during the working notice period without consent in violation of the ESA. The Court upheld the trial judge’s finding that requiring or inducing employees to work overtime hours in excess what is permitted by the ESA invalidated the working notice provided to these employees. The Court noted that the purpose of working notice is to allow a dismissed employee to search for other reasonable employment during the notice period. The Court found that it is not unreasonable to expect an employee to look for a new job while still working, however, it is unreasonable to hold the employee to this obligation if they are subject to exceptional workplace demands during this period, like working excessive overtime hours, if the demands are not consented to by the employee.

The Court observed that the quality of an employee’s opportunity to find other suitable employment is a relevant consideration in determining whether or not adequate notice has been provided. Because the 60-hour work weeks constituted an “exceptional demand” on the employees which prevented them from making efforts to find alternative employment, the employer was not credited for the notice provided to the 18 employees who had been forced to work overtime during the notice period.

Employees who Worked more than 13 Weeks After Effective Date

Section 6 of O. Reg 228/01, which is a section of the ESA Regulations, provides that employers may continue to provide temporary work to dismissed employees for a 13-week extension period after the date of dismissal. If an employer continues to provide the employee with work beyond 13 weeks, fresh notice of dismissal is required. In Wood, five employees who had been provided adequate working notice were offered $500 to continue working for 13 weeks beyond their original termination date, which is permissible under O. Reg. 228/01. However, the employer further extended the employees’ termination date on three occasions, pushing the employees’ actual termination date well beyond 13 weeks after the employees’ initial termination date, in violation of Section 6 of O. Reg. 228/01.

The Court found that because the employer had contravened the ESA by retaining the employees beyond the 13-week period, the notice provided to these five employees was invalid. As a consequence, the employees were entitled to a new notice period of the same length as the initial notice period. The new notice period was deemed to have commenced on the date that the employer notified the employees of their actual termination date.

Takeaways for Employers

Wood highlights the importance of understanding the formal requirements of the ESA, and the extent to which violations can cause liability and additional costs. In the case of mass terminations, notice must be given to the ESA Director through a Form 1 on the date that statutory notice is required under the ESA. Further, where employers seek to have outgoing employees work temporarily under the 13-week provision under O.Reg. 288/01, they must ensure that such employees do not work more than 13 weeks after the initial termination date, or risk paying pay in lieu of notice for the original notice period.

The decision in Wood also means that employers cannot impose exceptional working demands on outgoing employees during a working notice period. Employers will not be credited for any notice provided to those employees while exceptional working demands are being placed on these employees, provided the employee does not consent to the working demands. Wood indicates that an employer mandating its employees to work excessive overtime hours without consent would constitute an excessive working demand. These findings will be significant for employers who wish to provide working notice as opposed to pay in lieu of notice for dismissed employees. To avoid losing credit for working notice, employers must be careful to not impose excessive working demands on employees during the working notice period, or to obtain consent in writing where such demands are imposed.