Don’t confuse notice of dismissal with severance pay

By Stuart Rudner

I often encourage employers to consider working notice when they must dismiss an employee without cause.

While there are many situations in which having an individual continue to attend at work after they have been advised of their dismissal is not viable, it’s worth at least considering whether you can get some “value” for your money, rather than simply providing pay in lieu of notice and getting nothing in return.

A recent decision of the Ontario Small Claims Court provides a helpful reminder that employers should not confuse notice of dismissal, or pay in lieu thereof, with severance pay. By way of background, all employment standards legislation in Canada includes minimum amounts of notice that must be provided in the event of dismissal without cause. They typically provide that the employer is free to provide pay in lieu notice. Some, like the Ontario Employment Standards Act, also require severance pay be paid to the employee in specific circumstances.

In addition, the common law has established employers must provide “reasonable” notice of dismissal. However, this obligation can be modified or eliminated through contract.

Furthermore, it’s important to remember the amount of notice a court might find to be appropriate, in the specific set of circumstances, will include statutory notice and severance pay. In other words, if an individual in Ontario was employed for seven years, they would be entitled to seven weeks’ notice, or pay in lieu thereof, as well as a potential seven weeks’ severance pay (assuming all requirements are met). If a court were to determine reasonable notice was six months under the circumstances, that would include the statutorily required seven or 14 weeks.

Here’s the complication: If an employer decides to provide working notice of dismissal, that does not eliminate the requirement that severance pay be provided. In the recent case of Mattiassi v. Hathrow Management Partnership, a 26-year employee was provided with 54 weeks’ working notice, plus an additional lump-sum payment equivalent to about two months of regular pay, for a total of 62 weeks of working notice/pay in lieu.

The employee then sued in small claims court for her statutory severance pay. The employer argued the total amount of notice and pay in lieu of notice provided exceeded the statutory notice and severance requirements and the employee was not entitled to further payments. However, the court rejected this argument. The court considered the fact notice can be provided by way of working notice or pay in lieu. However, the Employment Standards Act requirement of severance pay is separate and distinct from the notice requirement and is, by default, to be paid as a lump sum. The employer was ordered to pay severance pay.

I still recommend that employers consider working notice where appropriate. However, employers should be mindful of the fact that if severance pay is required, it may have to be paid in addition to the working notice that is provided to the dismissed employee.

Stuart Rudner is a partner with Miller Thomson LLP in Ontario, specializing in employment law. He provides clients with strategic advice regarding all aspects of the employment relationship, and represents them before courts, mediators and tribunals. He is author of You’re Fired: Just Cause for Dismissal in Canada, published by Carswell. He can be reached at (905) 415-6767 or [email protected]. You can also follow him on Twitter @CanadianHRLaw, join his Canadian Employment Law Group on LinkedIn, and connect with him on Google+.