Employer's notice obligation when terminated worker finds new work right away
Question: In a termination agreement, can the amount of pay in lieu of notice provided be less than common law notice or statutory minimums if the terminated employee finds new employment before the notice period ends? Can there by a clause stipulating pay in lieu of notice stops immediately in such circumstances?
Answer: Under employment standards legislation, an employee’s entitlement to statutory notice of termination is not affected by his mitigation efforts. As a result, even if an employee immediately secures new employment, the employee is still entitled to the prescribed statutory notice of termination, or pay in lieu, if he has been dismissed without cause. Practically speaking, if working notice of termination is provided, an employee obtains new employment and cannot work out the notice period, the employer’s obligation to provide working notice is extinguished. But if statutory notice is provided in the form of pay in lieu of working notice, it is payable even if the employee starts new employment during what would otherwise be the “working notice” period.
Parties to an employment contract are not permitted to contract out of the minimum protections of employment standards legislation and contracts that attempt to do so are invalid. However, as long as the minimum statutory notice of termination is provided under a contract, the parties are free to negotiate any other terms respecting severance at termination that surpass the minimum entitlement. For example, an employment agreement can stipulate that an employee is only entitled to the statutory minimum notice at termination. An agreement can also stipulate that if notice of termination or pay in lieu above the statutory minimum is provided at termination, those payments will be reduced, or will cease entirely, if the employee finds new employment during the notice period.
Again, from a practical perspective, it will only be possible to cease paying severance during the notice period if the severance payment is paid in instalments, or as salary continuance, rather than as a lump sum. However, if a lump-sum severance is paid at termination, it is quite common for the parties to negotiate a discounted amount for the lump sum payment, to account for the fact that the employee’s duty to mitigate will not be taken into account.
Alternatively, the parties may negotiate that the employee can elect to accept a smaller lump-sum severance payment, or a larger salary continuance payment with a corresponding duty to mitigate. For example, an employee may be given the option of accepting a lump sum equal to six months’ salary at termination, or of accepting salary continuance for 10 months on the condition that payments will cease, or be reduced, if the employee obtains new employment during the notice period.
