Court confirms impact of COVID-19 on severance packages

At this point, it is trite to say that the COVID-19 pandemic has clearly impacted the Canadian economy to a significant degree. During the month of December 2020, Statistics Canada reported a loss of approximately 63,000 jobs. Many Canadians are wondering when and from where their next paycheck will come.

The pandemic’s impact on employment law in Ontario, however, has been much less clear.  One of the biggest issues that employment lawyers are contending with has been whether an employee is entitled to a greater amount of severance due to COVID-19.

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Recently, the Ontario Superior Court of Justice in Yee v. Hudson’s Bay Company attempted to provide some clarity on this issue when it considered the effect of the pandemic on an employer’s obligation to provide reasonable notice of termination or severance pay.

Yee v. Hudson’s Bay Company

What Happened

After over 11 years of service, Melvin Yee was terminated without cause by Hudson’s Bay Company on August 28, 2019.  He was 62 years of age at that time, and had been employed in the role of Director of Product Design and Development.

Mr. Yee’s contract of employment did not contain an enforceable termination provision. He was therefore entitled to severance pay based on factors dictated by common law. The four main factors used in assessing an employee’s severance package are:

1. the age of the employee at the time of termination;
2. the employee’s length of service;
3. the employee’s position at the time of termination; and
4. the availability of comparable employment with regard to the employee’s education, training and qualifications.

Additional factors may also be considered on a case-by-case basis.

In Mr. Yee’s case, the judge found that the first three factors (age, length of service, and position) warranted a larger severance amount.

How Will COVID-19 Impact the Assessment of Severance?

Regarding the fourth factor – the availability of similar employment having regard to the experience, training and qualifications of the employee – Mr. Yee argued that the court ought to take into account the pandemic’s impact.

Before coming to his decision, the judge acknowledged previous cases which held that economic factors, such as a downturn in the economy, may play a role in extending the reasonable notice period. The judge also noted that a terminated employee’s entitlements are also to be determined by the circumstances at the time of the termination itself.

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While the judge did not specifically state the degree to which the COVID-19 pandemic would affect the issue of reasonable notice, he did confirm that its negative impact on the availability of comparable employment is a factor that is taken into account.

The Court’s Decision

After considering all of the factors, and given that Mr. Yee’s employment was terminated before the pandemic began, the judge held that the pandemic’s impact on the job market would not be relevant in Mr. Yee’s case for purposes of extending the reasonable notice period.

The judge ultimately concluded that Mr. Yee was entitled to 16 months’ severance pay.

Takeaway for Employees

More severance during pandemic

For those who have had their employment terminated during the pandemic, the decision in Yee v. Hudson’s Bay Company may be very beneficial in extending what would otherwise be the reasonable notice period.  This is particularly important in the midst of a pandemic, with the general number of comparable job opportunities being much more limited than usual.

Takeaway for Employers

Need to prove industry not affected by COVID-19

It is the employer’s obligation to prove that a terminated employee has failed to mitigate his or her damages. However, given the decision in Mr. Yee’s case, employers will have to be particularly mindful of the pandemic’s impact on the industry in question. Employers may now need to prove that the industry was not adversely affected by the pandemic, or otherwise risk having to pay more severance due to COVID-19.    

Introduce well-drafted employment contracts

Having a valid employment contract in place at the time of termination, with an enforceable termination clause, will greatly minimize (if not extinguish) the potential impact that COVID-19 may have regarding the issue of reasonable notice.

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Whether you are an employee who has just lost their job, or an employer considering terminating the employment of one or more of your employees, contact our team immediately to determine what your rights and legal options are before making any assumptions or taking any action. Our employment lawyers in Ontario, Alberta, and British Columbia have secured full compensation for tens of thousands of Canadians.