More than just money

By Jeffrey R. Smith

There are a lot of reasons an employer can decide to terminate someone’s employment. Usually, it’s easier to terminate someone without cause and provide sufficient reasonable notice or pay in lieu of notice rather than try to assert cause for dismissal. Because once the employee is out the door and the funds owed to her are paid, the employer is done with the worker for once and for all, right? Well, not always.

The concept of reasonable notice exists in Canadian employment law as a way to offset the disadvantage workers have in the employment relationship. They depend on their employment to pay the bills, put food on the table, pay for their homes — not to mention that for many people, their job is part of who they are as a person. So for many workers, losing their job can be catastrophic — or at least a huge change in their life. Reasonable notice of dismissal exists to give workers a good shot at finding another job before they suffer too much from being unemployed.

Most of the time, employers choose to provide pay in lieu of notice rather than working notice — how productive is a worker going to be if she’s been fired but most continue to show up during the notice period? Pay in lieu of notice is simply paying the employee the money she would have earned had she continued to work during the notice period. And it can also allow the employer to sever ties with the worker more quickly.

But often those ties aren’t completely severed so quickly and this may catch some employers off guard. Since reasonable notice is meant to help bridge the gap to new employment, it should provide the same protection as if the employee continued to work during the notice period. An employee who is still working usually doesn’t just get her salary, but also any benefits offered by the employer. Which basically means the worker should continue to enjoy the protection of benefits during the reasonable notice period as if she were still at work — unless the worker finds new employment before the reasonable notice period has elapsed.

Many employers have been caught by this and only provided pay in lieu of notice calculated from salary only. I’ve come across several cases where this has happened. And a failure by an employer to realize this can also cause problems in employment contracts.

Employers are entitled to draw up employment contracts with termination provisions that specify workers are only entitled to termination pay equal to the minimums stipulated in employment standards legislation. This allows them to avoid paying much more significant sums that come with common law notice. However, there have been instances where an employment contract specifically mentions “salary,” while employment standards include benefits as well. As a result, such a provision would be less than employment standards minimums and be rendered void. And when a termination provision is invalid, then common law notice can come into play.

It can be tricky for employers to manage benefits for dismissed workers during the reasonable notice period, especially since many third-party benefits providers won’t provide such coverage. Often, the easiest way to manage this is for the employer to continue paying premiums for the worker’s benefits coverage during the notice period — it can be a lot cheaper than paying a service normally part of the benefits if something happens to the worker during the notice period.

Benefits are usually as much a part of the worker’s compensation package as salary — a part that must be considered when providing reasonable notice of dismissal.