Common law severance
Common law severance
In Terminating Employees, I discussed the severance obligations imposed on an employer by the BC Employment Standards Act, when an employer is terminating an employee. In this post, I will provide an overview of an employer’s common law obligations when it seeks to end the employment relationship.
To recapitulate briefly, the BC Employment Standards Act sets out the minimum payment or working notice that an employer must give to an employee who is being terminated. For these minimum severance obligations to apply, it must be clearly stated in the employment contract. If there is no employment contract, or the employment contract does not contain a termination provision or the termination provision is ambiguous, an employer must give an employee notice or payment in lieu of notice, in accordance with the common law concept of reasonable notice.
The amount of reasonable notice that an employer must give, depends on the facts of each situation. If too little notice is given, an employer runs the risk of the employee bringing a wrongful dismissal action. While calculating reasonable notice is a complicated process, it is not done in a vacuum and the following four factors are used as a guide:
- The employee’s age
- The length of service
- The employee’s position including salary
- Availability of similar employment
Generally, an older employee who has worked for a longer period of time will be entitled to more notice. However, one must also consider the nature of the position and the availability of similar employment. Thus, a younger employee who has not worked for a long time could be entitled to a longer notice period if the employee’s position requires significant expertise or if the kind of job that he/she is doing is rare and it would be difficult for the employee to find alternative employment that is comparable.
Common law reasonable notice would also be impacted by “inducement”. Accordingly, an employer who induces an employee to leave secure employment and then fires the employee without cause, would have to give more notice.
While the upper limit of common law reasonable notice is generally 24 months, an employee could be entitled to more notice in special circumstances.
An employer can discharge its common law reasonable notice obligations by giving an employee working notice, pay in lieu of working notice, salary continuance or a combination of these options. Employers should seek legal advice when structuring severance packages as the courts are very strict on employee entitlements. For example, where an employee is given pay in lieu of notice, the employer must also give the employee any and all amounts that the employee would have received had the employee worked during that period. This includes salary, benefits, commissions, stock options, etc.
Unlike the situation with statutory severance, an employee who claims to be wrongfully terminated, must seek to minimize his/her losses. This is called the duty to mitigate and requires an employee to make reasonable efforts to find suitable alternative employment. If an employee fails to mitigate his/her losses, the court may reduce the amount of damages that it would otherwise have awarded to the employee as reasonable notice. The employer carries the burden of showing that the employee failed to make reasonable efforts at finding alternative employment or that the employee turned down suitable offers.
The content of this article is for informational purposes only and is not legal advice. You should consult a lawyer before taking any action.
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