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Employee’s “break in service” reduced wrongful dismissal entitlements: ONCA

In a recent decision from the Ontario Court of Appeal (ONCA) in Antchipalovskaia v. Guestlogix Inc., the ONCA held that in cases where an employee is terminated and subsequently rehired, the employee’s prior period of employment is relevant in determining what notice period the employee is entitled to, but the break in service can still reduce wrongful dismissal damages.

What happened?

Guestlogix Inc. (the “defendant”) had terminated the plaintiff’s employment in 2016 in the context of proceedings commenced by the defendant under the Companies’ Creditors Arrangement Act (CCAA). As part of those proceedings, the court made an order providing for payment to creditors, which included the plaintiff, given her status as a former employee at the time the order had been made. The employer was released from any claims by creditors.

The defendant had subsequently rehired the plaintiff on the same terms as her previous employment. However, the new employment contract did make it clear that for all employment related purposes, her new start date was 2016, not 2011. Subsequent to her rehiring, the plaintiff was terminated without cause in 2019.

The termination pay that the plaintiff received from the defendant was based upon the plaintiff’s entitlement under the Employment Standards Act, 2000 (ESA). The employer relied upon the termination provisions in the new employment agreement, signed by the plaintiff, which limited payments to the minimum amounts that would be due under the ESA.

The court deemed the termination provisions set out in the employment contract to be invalid and went on to consider the plaintiff’s entitlements to “common law notice” (which are significantly great than the minimum entitlements under the ESA). The trial judge considered the plaintiff’s employment continuous – in other words, there was not a break in service – both under the ESA and the common law. The trial judge awarded the plaintiff 12 months’ pay.

Issues on Appeal

The employer appealed the decision to the Ontario Court of Appeal.

The ONCA noted that the 12-month notice period had partially been based upon the lower court judge’s finding that the plaintiff had been continuously employed by the defendant for 8 years, from 2011 to 2019.

The issue on appeal was whether the lower court judge had erred in treating the plaintiff’s employment from 2011 to 2019 as one continuous period of time and, consequently, the length of termination notice the plaintiff was granted at common law.

Contrary to the lower court’s finding, the ONCA determined that the employee’s length of service was not continuous – in that there was a “break in service” within those 8 years – reducing her award from 12 months to 7 months’ pay. However, her 2011 start date was still a factor to be taken into consideration when calculating her award.

Decision

The ONCA agreed with the defendant, finding that the lower court judge had failed to give effect to the termination of the plaintiff’s employment in 2016 and the release granted in the CCAA proceedings. The ONCA stated that the lower court judge should have treated the plaintiff’s period of employment as running from 2016 to 2019.

However, the ONCA disagreed with the employer’s argument that the plaintiff’s period of employment from 2011 to 2016 should play no role in determining her notice period. Rather, the plaintiff’s years of employment prior to 2016 were still considered in determining her termination pay entitlements, as her prior years of service provided a benefit to the employer.

Bottom Line

This ONCA decision provides clarity for employers who are seeking protection under the CCAA and purchasers of a business looking to rehire employees. Even if a purchaser obtains a release of prior employment claims and decides to rehire a company’s employees, the time served by an employee in the prior employment period will still be deemed relevant for the purposes of determining the appropriate common law notice period that the employee is entitled to. Purchasers need to consider the seniority of the employees that they choose to rehire and should adjust their valuations accordingly.

At the same time, this decision also shows that employees who are terminated and re-hired can have their wrongful dismissal entitlements reduced if they are subsequently terminated once again. Although their prior length of service is still a contributing factor when determining severance pay, the break in service can reduce an employee’s total wrongful dismissal entitlement, especially in situations where the employer is released of prior employment claims.

John Hyde is the managing partner at Hyde HR Law in Toronto. He advises management on all aspects of employment and labour law, including representation before administrative tribunals, collective agreement negotiation, arbitrations, wrongful dismissal defence and human rights.