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Reasonable notice: The whole package

Employees may be entitled to more than just regular pay in lieu of notice when dismissed without cause

By Jeffrey R. Smith

It’s common knowledge that when employers dismiss an employee without cause, they must provide reasonable notice of termination or, if they want the employee gone immediately, pay the employee the equivalent of what the employee would earn during the notice period.

The amount of reasonable notice varies depending on factors such as the length of the employee’s service, the employee’s age, the importance of the employee’s position and the likelihood of the employee finding similar work.

Employment standards legislation provides for the minimum notice of termination required, but unless there is a contract specifically outlining this as the employee’s entitlement, usually there is an additional amount of common law notice as well. Though it’s been refuted by some courts that there is a “rule of thumb” that employees should expect about one month’s pay for every year of service, this can often serve as a rough estimate as to what amount to which a dismissed employee is entitled.

But employers can run into trouble if they don’t take care to calculate what an dismissed employee should receive in lieu of notice. Some might simply extrapolate the employee’s salary for the period of reasonable notice and pay it out. However, it’s been established that dismissed employees are entitled to the equivalent of all compensation they would receive during the notice period. This includes not just salary, but also benefits such as car allowances, medical coverage and pension contributions, as well as any bonuses that are normally part of the employee’s compensation. Failure to include any of these things could lead to a lawsuit.

This exact situation happened to an Ontario employer that dismissed an employee after one-and-a-half years of employment with a termination letter that stipulated the employee would receive two weeks’ salary, but it also offered an enhanced separation offer, open for one week, consisting of four weeks’ salary plus car allowance “as a sign of good faith and in order to assist you while you seek alternative employment.” The employee declined the enhanced offer and was only paid two weeks’ salary.

Two levels of Ontario courts found the termination was void because it only provided for payment of two weeks’ work of the employee’s salary, without including pension contributions or a car allowance that was a normal part of the employee’s compensation. Employment standards minimums included benefits such as these, so the payment of just the salary didn’t meet the legislative minimums. See Miller v. A.B.M. Canada Inc., 2015 CarswellOnt 6977 (Ont. Div. Ct.).

In another Ontario case, an investment professional who received bonuses as a significant part of his compensation was fired in March 2011. A year earlier, the employer had implemented a policy that only employees who were actively employed at the time the bonus was paid out were eligible, so it didn’t pay the dismissal employee an annual bonus that was normally paid out in April for the previous calendar year.

A court ordered the employer to pay the dismissed employee the bonus because he had earned it during the previous calendar year and it was an integral part of his compensation package. Because it was a part of his compensation, the employee was also entitled to other bonuses that would be paid out during the reasonable notice period. In addition, the change to the bonus policy a year before the employee’s dismissal was a material change to the employment agreement to which the employee did not consent, said the court. See Lin v Ontario Teachers’ Pension Plan Board 2015 CarswellOnt 7878 (Ont. S.C.J.).

So employers have to remember that when deciding whether to dismiss an employee without cause, they have to factor in not just what the employee’s regular pay is, but the entire compensation package – because everything the employee receives when working is what the employee is entitled to during the reasonable notice period.

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Jeffrey R. Smith

Jeffrey R. Smith is the editor of Canadian Employment Law Today, a publication that looks at workplace law from a business perspective.
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