Severance pay not an entitlement
The concept of mitigation seems lost on many
Nov 18, 2013
By Stuart Rudner
I have written many times about how notice of dismissal, or the amount of pay in lieu thereof, is calculated. However, today I want to discuss the concept of mitigation.
When I work with individuals who have recently lost their jobs, many of them are surprised or even offended by the notion that if they find a new job relatively quickly, their entitlement will be reduced. At the same time, I must advise them that if they don't take reasonable steps to find new employment, their entitlement may also be reduced.
The confusion seems to arise out of a belief that "severance pay" is an entitlement derived based upon an individual's years of service. As I have discussed many times, the amount of notice or severance pay required is based upon a number of factors, and not just the individual's tenure.
However, what is more important to understand in this context is that it is not an absolute right. The common law concept of notice of dismissal is intended to estimate how long it will take the individual to find a new job, and to provide them with income during that period.
Statutory entitlements to termination or severance pay, if applicable, are not subject to mitigation; they are to be paid even if the individual obtains new employment on the very next day after they are let go.
However, the statutory amounts are significantly less than the common law notice periods. The common law is clear: If an individual earns employment or self-employment income during the applicable notice period, those amounts are to be deducted from individual's common law entitlement.
By way of example, if a court were to find that an employee was entitled to one year of notice, and that his income during that year would have been $100,000, but the individual was successful in finding new work and earned $40,000 during that one year, then their former employer's obligation would be reduced to $60,000.
This concept of mitigation is why many employers now routinely include a "clawback" provision in their severance offers. While these vary, the general idea is that if the individual is to receive salary and benefit continuance during the notice period, the salary payments and benefits will cease if and when the individual attains new employment.
In many cases, employers offer to provide a lump sum payment at that time, being a percentage of the amount remaining on the salary continuance. This is done to account for the fact that even though the individual may have new employment, the level of compensation may not be equivalent to their compensation at their previous job. It is also an incentive for the employee to look for work, as there are some individuals who prefer to stay at home and collect salary payments rather than seek new work right away, if they know that the salary payments will end as soon as they find a new job.
The situation is slightly different if the employee had a termination provision in their employment contract. If there is a termination clause that is enforceable, then that will determine the amount of notice, or pay in lieu, to be provided. Furthermore, in accordance with a recent court decision, unless that termination clause specifically provides that payments will be subject to mitigation, then the employee will be entitled to the full amount even if she does find new employment or self-employment during the notice period.
In one of my very first trials, as a student at law, I represented an employer in a wrongful dismissal case. The plaintiff, who was unrepresented, had clearly not been advised about the impact of mitigation and the duty to seek new employment. When I cross-examined him, I was able to show that he did not have a single piece of evidence demonstrating an effort to find new work. As a result, the judge found he had not met his obligation to make reasonable efforts to seek employment, and his entitlement to notice was substantially reduced.
If you are an employee who has recently lost his job, you should be mindful of the duty to mitigate and ensure that you keep detailed documentation of all of your efforts, whether they be formal applications, informal inquiries, online searches, or anything else. And for employers, it is always advisable to be aware of your former employees' status, since new employment may reduce your obligation.
In many cases when I work with employers, we actively document potential employment for dismissed employees and provide that information to the employee or their lawyer. This can be quite helpful in either reducing the employer's obligation by helping the individual find new work, or demonstrating that they failed to make reasonable efforts to find new work, as I may be able to cross-examine them and demonstrate that even when these potential jobs were provided to them, they made no effort to pursue them.
Stuart Rudner is a founding partner of Rudner MacDonald LLP in Toronto. Follow him on Twitter @CanadianHRLaw
. He can be reached at firstname.lastname@example.org