Less Money for Dismissal in Tough Economic Times?

Should a dismissed employee be entitled to less severance when the employer is facing tough economic times?  This was the question facing an Ontario Superior Court judge recently in Gristey v. Emke Schaab Climatecare Inc, a case released on March 20, 2014.  According to the trial court judge, the answer was yes.

The plaintiff had worked in residential gas installation for 12 years for the defendant.  He was earning an income of approximately $55,000 annually, though it fluctuated depending on the availability of work.  He was dismissed after 12 years of service on a “without cause” basis.  A number of other employees were also dismissed at the time.

At the time of dismissal, the defendant offered to pay the plaintiff a total of 8 weeks’ pay, which was the minimum that would have been owed under the Ontario Employment Standards Act.  It asked for a signed release.  The plaintiff refused and brought a claim for wrongful dismissal.  The defendant paid out the 8 weeks’ pay.

At trial, the defendant argued that business was slow.  It took the position that the plaintiff would have have worked a very small number of hours if he had not been dismissed and that his damages would have been reduced to a very nominal amount.  The trial judge rejected the argument that there was sufficient evidence to draw this conclusion.  In other words, the court concluded that the plaintiff still would have earned an income if he had not been dismissed.

However, the trial judge expressly accounted for tough economic times in assessing the notice period.  First, the judge concluded that the appropriate notice period should have been 12 months.  This is probably a reasonable conclusion, based on all of the common law factors.  The plaintiff was 52 when he was dismissed.  Looking at all of the common law factors, including length of service, position, age, availability of comparable work and other relevant factors, a 12 month award would have made sense.

Justice Conlan then proceeded to reduce the plaintiff’s award by four months’ pay because of the “market and economic health of the [defendant]” at the time of dismissal.  In doing so, the court relied on the decision of Bohemier v. Storwal International, (1982) CanLii 1764 (Ont S.C.J.), a decision that had been affirmed by the Ontario Court of Appeal in 1983.

The Bohemier decision held that a notice period should be fair to both the employee and the employer.  However, as it has been interpreted subsequently by other court decisions, it did not say that the plaintiff’s notice period should be eviscerated because the employer is facing tough economic times.  In fact, if times are really tough, the dismissed employee will have a more difficult time finding alternate employment and could require a longer notice period.

It may be that Justice Conlan was swayed in this particular case by the fact that the plaintiff’s hours fluctuated and there might have been less work over the notice period.  Or perhaps the court was not fully convinced of the plaintiff’s mitigation efforts, even though the court expressly concluded that the plaintiff had mitigated his damages satisfactorily.  In any case, the court concluded that 12 months’ severance was too much for the plaintiff and reduced it to 8 months, expressly relying on the fact that the defendant was facing difficult economic times.

It remains to be seen whether the plaintiff will appeal this decision.  the amount at stake would be approximately $20,000.  There could also be significant legal costs at stake, depending on what types of offers to settle, if any, were exchanged between the parties before the trial.  The Ontario Court of Appeal does not like to “tinker” with notice periods if they are in a “reasonable range.”  However, the plaintiff could try arguing that the court made an error in principle by placing an overly significant emphasis on the economic challenges facing the defendant.

If this decision stands, it would be a very helpful piece of ammunition for defendants facing tough times.  Defendants can use this argument to limit severance liability in tough economic times.

For plaintiffs, it can be a real double whammy.  The employee is let go in difficult economic times, where it may well take longer to find work. Then the plaintiff faces a reduced notice period because of those same difficult economic times.  There seems to be a problem with this logic…

We will watch to see what happens with this case and how (if at all) it is applied.

Steps to Take When You’re Fired

No one likes the word “fired.”  It seems to somehow connote an “at fault” dismissal.  But realistically, under Canadian law, whether you have been downsized, restructured, dismissed, let go or “rightsized,” it all really adds up to the same thing.  Your employment has been terminated and you will no longer be working for your employer.  Here is a list of some things to consider if you are in that position:

1.  Remain Calm and Professional

This is one of the hardest things for many people. That is quite understandable, particularly if the termination has been handled poorly or is a bad faith termination.  For many dismissed employees, it will simply be a short meeting with the boss and an HR representative, or perhaps, just your supervisor.  Often, these meetings are very short and little is said.  Perhaps you are not even provided with a reason for the dismissal other than “the company is making a change.”  In any case, it is rarely helpful to argue or debate the issue.  It is almost always an irreversible decision and you will now have to move forward in the best way possible.  You should avoid the urge to do anything rash or impulsive.  Nasty emails sent around to company personnel or clients are almost never helpful, although a short and sweet goodbye note may sometimes be appropriate, if acceptable to the employer.

2.  Review the Termination Letter But Don’t Sign

Dismissals in Canada will generally be “with cause” or “without cause.”  If you are being dismissed “with cause,” you may not be offered a severance package.  If you are offered one, it may be one that is greatly reduced as compared to what you might have been entitled to receive in a without cause situation.  If the dismissal is “for cause,” it may be helpful to try to ask questions at the dismissal meeting about the allegations that are being made, the basis for the allegations and other related questions.

If the dismissal is “without cause,”  you will almost certainly be provided with a severance package.  In most cases, the employer will ask you to sign a release or some other agreement accepting the package.  You should never sign this type of document immediately.  You may well be entitled to significantly more than you are being offered by the employer.  If the termination letter references an “employment contract” that you signed when you first started, you should ask for a copy of it if you do not have ready access to it.   The employment contract may well set out the employer’s severance obligations and you may or may not be able to challenge this type of contract.  If you can’t find it, you may want to get a copy from HR, especially if it is referenced in your termination letter.

Whether a dismissal is for “cause” or “without cause,” it can still be considered a wrongful dismissal if you have not been given full proper compensation.

3.  Avoid Publicizing Immediately and Help Yourself

Although it might be tempting to immediately announce your departure on Facebook, LinkedIn and other social media, you should tread carefully.  It is usually not helpful to begin telling everyone immediately that you have been fired.  Consider contacting some close former colleagues or supervisors who may be prepared to provide you with a helpful reference or ideas about suitable job openings.  Consider some other contacts who may have ideas about the types of positions that would best suit you going forward.  Of course if there are people close to you, a spouse or partner, close friends, parents or others, it can be very helpful to share everything with these people, discuss your feelings and emotions and get support.  If you feel that your health has been affected, you should not hesitate to speak with your physician or, if appropriate, other health care providers such as a psychologist or psychotherapist.  Some people may find comfort in confiding in clergy, many of whom can be very empathetic.  Others may find it helpful to ramp up an exercise routine.  Whatever works best for you, take steps to keep yourself on a solid emotional footing.

4.  Meet With a Lawyer

Whether you have been dismissed for cause or without cause, this is still important.

If your dismissal is for cause, this may be something that you can challenge.  You may be entitled to significant compensation, even though the employer has claimed that it has “just cause.”  The law in Canada is quite favourable to employees.  It is very difficult for employers to succeed with a just cause defence, particularly if the defence is based solely on poor performance.

If your dismissal is “without cause,” you may well be entitled to significantly more than the employer has offered.  Have a look at what is included in the severance package.  There may be items missing such as bonus, benefits, outplacement or the severance may simply be too low.

Most employment lawyers will charge a consultation fee for this type of review.  The fee is tax deductible and often employers will pay it.  This advice may be quite valuable.  After a proper review, if you are advised that everything is in order and the package is reasonable, this may be money well spent.  Some lawyers offering a “free consultation” will avoid providing detailed advice and will try to get you to commit to providing a large deposit without really providing a proper assessment of what you should expect.  With a proper legal consultation, you should leave the meeting with a good sense of the likely range of improvement in your package if you proceed, the anticipated legal fees and an understanding of relevant legal issues.  You should not commit to anything other than a reasonable initial consultation fee for a first meeting with a lawyer.

If you had a non-competition or non-solicitation agreement in place with your former employer, this is also something that should be reviewed with legal counsel so that you can understand your rights and obligations going forward.

5.  Outplacement and a Resume

If your severance package includes outplacement assistance, you should verify whether or not it is being provided unconditionally.  If so, you should get in touch with the outplacement provider early on in the process.  Don’t hesitate to ask questions.  Will the meetings be confidential?  Will the outplacement provider be reporting back to the employer?  Does the outplacement provider have experience in your field?  If you are not satisfied with the answers, you should consider asking the employer to permit you to use a provider of your choice.  If the outplacement assistance is only being provided conditional on a signed release, you should discuss the best strategy with your legal counsel.

6.  Employment Insurance

In most cases, you should contact HRDC to file for Employment Insurance as soon as possible.  Even if you have been dismissed for misconduct or other “just cause,” you may still be entitled to EI.  Sometimes you may have to go through an appeal process to ensure your entitlement.  If you are being provided with severance, you may not receive any EI payments until two weeks after all of the severance payments have been paid.  Nevertheless, you should still register early.

7.  Health, Dental and Insurance

Your severance package may continue benefits for some period of time.  You should make sure that you and/or your family members, if applicable, are up to date with dental care, health prescriptions, eye glasses, and other items that may be covered by your extended dental plan.  If your life and/or disability insurance coverage are going to be terminated, you should consider getting quotes as quickly as possible.  In some cases, you may have 30 days to convert over your life insurance policy from a group policy to an individual policy.  This may be important if your medical tests are problematic.

8.  Be Forward Looking

Being dismissed is never easy.  This will usually involve a significant life change as you will now have to shift careers.  But most people go through this transition successfully.   You will need to do your best to stay positive, consider the types of roles that you envision yourself in and put together a personal transition plan.  You should make sure that your resume is professional, free of any errors, and eye catching.  When attending job interviews, you should remain positive and avoid bad mouthing your previous employer or boss.  You should consider dealing with the that fact that you were dismissed upfront and summarily.  Honesty will almost always be the best policy even though that does not mean telling potential employers about all of your weaknesses.

9.  Keep Track of Efforts

It will be helpful and often legally required for you to track your job search efforts.  Put together a spread sheet listing all activities. This should include formal and informal contacts.  Include lunch meetings, phone calls and discussions with friends, colleagues and former co-workers.  Track dates, people contacted, positions applied for, interviews and outcomes.  Keep this file up to date.  It may be important in proving “mitigation” if your severance entitlement has not been resolved quickly.  Or it may be required for EI purposes.  It will also be a useful part of tracking your personal progress.

10.  Carefully Consider any New Contract

When you have been offered a new position, you may well be given an offer letter or employment contract.  Don’t assume that the contact is a standard form or that it is non-negotiable even though you may really want to take the position and move on.  The proposed employment contract may limit or reduce your legal rights significantly.  Make sure you understand all of its terms properly.  You might consider having it reviewed by an employment lawyer.

These are some of the key points to consider. Certainly there are many career transition books that are quite helpful.  People often recommend What Color is Your Parachute?  Another favourite, on a lighter note, is Dr. Suess’ “Oh The Places You’ll Go.”  

There are also numerous job search websites and resources of every kind available on the internet.  Brush up your linked in profile with details of your work, references and endorsements.  Try to remain positive.  For many people, a dismissal may well lead to opportunities or new situations that might even be better for you that the role you have just left.

 

Severance Packages and “Clawback” Provisions

In wrongful dismissal situations, many employers provide dismissed employees with severance packages that consist of a salary continuation.  Of course employees would usually prefer to be paid a lump sum, but usually, they are just not entitled to a lump sum under Canadian law.  Dismissed employees are entitled to be paid the minimum amounts under the Ontario Employment Standards Act, 2000, which include termination and severance.  The rest of the damages that they are owed are paid “in lieu of” reasonable notice.  This means that dismissed employees are only entitled to the payments, strictly speaking, if they have not found other work.  If they do find work and they have not yet settled with their former employers, the employers are entitled to credit for any amounts earned by the former employee during the notice period.

Most employers (and employees) do not want to wait and see how long it might take to find other work.  They want things resolved and out of the way.  So employers will often provide a salary continuance arrangement that provides some incentive for the employee to look for work and find a new position.  Usually, it is 50% of the remaining severance amount that they might have been paid. This is considered a reasonable provision and many employers will refuse to delete these clauses.  Nevertheless, most employees view these incentive payments as a “clawback” on the amounts that they are “owed” and become very upset with these provisions.  Some employers simply are very insistent on including these provisions as part of any severance arrangement.

Nevertheless and with that in mind – here are a few things you can consider when faced with a salary continuance proposal:

1.  The Length of the Notice/Severance Period:  Just because an employer has chosen some arbitrary number as the number of weeks or months that it will provide as a notice and/or severance period, that number may not be written in stone.  It may be quite flexible.  Sometimes employers will low-ball employees, hoping that they do not take any further steps.  Employees are often more likely to get the notice period increased than to get the “clawback” removed.  Many employers will increase proposed severance packages after receiving a letter from legal counsel.

2. Definition of Mitigation:  Some employers will state that the 50% payout will be triggered if the employee finds any work – even part time, consulting or temporary.  Empoyers are often willing to negotiate changes to these clauses so that the 50% will only come into effect if the employee has found a reasonably comparable employment or self-employment opportunity.

3.  What’s Included?:  Sometimes employers will offer a salary continuation on the basis of base salary alone.  Employees are entitled to be provided with benefits continuation, pension contributions, bonuses and other amounts that they would have earned if they had continued to be employed – even the severance arrangement is a salary continuation package.

4.  Other Items:  Employees should be able to get some other items included in their severance packages – like outplacement assistance through a decent agency and reasonable legal fees to have a package reviewed.  As well, some employers will provide a helpful reference letter though they cannot really be forced to do so.

The items listed above are items that employers will often consider changing, adjusting or adding.

It is fair to point out that, despite anything I have said above, some employers will be open to removing the salary continuation provision and paying out a lump sum.  They will usually want some concession in exchange – for example a lower overall amount or the agreement not to pay some of the “extra items” listed above.  But it is often  worth trying.

Other employers will not budge on anything and will tell employees to take the package or bring a lawsuit.  Employees then have to make a decision as to whether it is worthwhile to start a legal claim.  This can be a difficult decision, especially since neither the employer, the dismissed employee or the lawyer know how long it might take the employee to find new employment.

Nevertheless, in situations where employers have provided low-ball offers and are not willing to budge initially, dismissed employees will often come out ahead by proceeding with a Statement of Claim (i.e. filing a lawsuit in court).

 

What To Expect in a Severance Package in Canada

Canadian employees who are dismissed “without cause” are usually entitled to a reasonable severance package.  This may not be the case if the employee signed an enforceable employment contract that contains a termination clause, though sometimes these contracts can be challenged.  Most other employees can usually expect severance arrangements based on “reasonable notice.”  The actual definition of “wrongful dismissal” in Canada is simply a failure to provide that reasonable severance package.

Here are some of the key things to look for as part of a “reasonable” severance package.

Severance Pay or Salary Continuation:  It goes without saying that the most important component is usually the severance itself.  Employers can choose to pay over time, with or without some kind of claw back (or “mitigation”) clause, or in one or more lump sums.  In most cases, this is the most important part of the severance package and in many cases, different components are negotiable.  The severance must, at a minimum, include compensation for the relevant provincial employment standards amount.  For example, in Ontario, the severance package must provide for notice pay under the Ontario Employment Standards Act and severance pay, if applicable.   Beyond the employment standards amount, employees can negotiate the length of time, the trigger for mitigation, the payment schedule or other terms.  This is all aimed at ensuring that the employee is compensated as required by Ontario common law, which itself, can vary wildly for each employee.  This is the area on which appropriate legal advice should generally be obtained.  The period of time for which the employee is being compensated is generally called the notice period or severance period.  

Bonus:  Dismissed employees should usually be compensated for accrued bonus for the current year (if there has usually been an annual bonus), as well as bonus for the severance period.  Many employers are quite reluctant to include the prospective bonus as part of the severance package.  If the employee has been getting the bonus every year and can show that he or she would have continued to get a bonus if employment had continued over the severance period, the bonus should be payable.  There may be wording in the original employment contract that overrides this entitlement, but it is often worth trying. 

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