Working notice is the most economical way to terminate an employee

What choices do companies have in those circumstances, and, even for businesses in less dire straits, what can be done to reduce severance costs?

Too many lawyers simply tell employers how much they will need to pay rather than strategizing alternatives, such as:

1. Notice

Providing an employee with advance notice of their impending dismissal (also known as working notice, since the employee must stay in their job in the interim) is seldom used in this country. Some employers simply do not know of the option, while others are concerned about its impact on morale or confidentiality, or of potential sabotage while a terminated employee remains in the workplace.

In many circumstances though — especially if the employee understands the company’s financial circumstances and therefore does not personalize the need for their dismissal — working notice is the most economical way to terminate an employee. The time worked replaces, dollar-for-dollar, the amount of wrongful dismissal damages an employer would have to pay, requiring only the payment of the minimum statutory severance in those provinces where statutory severance is required.

Unlike in a wrongful dismissal case, where an employee is motivated to remain unemployed to increase their damages, employees on working notice are motivated to find other work as quickly as possible, since they must work anyway.

2. Lump sum versus bridging severance

An employee may be theoretically entitled to, say, 12 months’ wrongful dismissal damages. In reality, however, they are only entitled to their lost income, which is usually only their length of unemployment, again subject to the statutory minimums in those provinces where such exist. Therefore, employees will often take considerably less than their potential legal entitlement in return for an upfront lump sum settlement.

If, for example, that same employee entitled to 12 months in court was offered six months instead, they would have a chance of securing a job in less than six months and of actually earning a profit — which they would not earn if a court provided only their actual damages over the 12 months.

Therefore, if an employee believes they can find work quickly, they may opt for a much-reduced payment. From the employer’s perspective, this would provide certainty and save considerable monies over what it might potentially owe otherwise. I often recommend clients provide employees with a choice — either a longer payment subject to reduction if they find other work or a much shorter lump sum amount payable immediately.

3. Negotiate low for a quicker settlement

Having done this work for a few decades, I can assure you that no employee wants to be involved in court proceedings and every one wants to get on with their lives. They want to avoid the years of judicial embroilment, not to mention the legal fees.

For that reason, whatever their theoretical legal entitlement, some employees will take considerably less in exchange for a quick settlement.

If an employee does not accept the offer, it is inadvisable for an employer to state, as too many are tempted to, that they will therefore drag the proceedings out for years, since most employees already know of this risk and a court will punish such a statement in bad faith damages at trial.

An employee might accept a surprisingly low severance amount if it is offered quickly and unconditionally, and if they have no reason to believe that it is simply a starting position for further negotiations, but rather understand that it is all you are prepared to pay.

4. Find the employee a job

Other than the minimal statutory minimums, all an employee is entitled to is their actual losses following dismissal. Furthermore, they are required to mitigate those losses which means making reasonable efforts to find comparable employment.

Often the employer is in the best position to know its industry and what companies might be looking to hire. If you can find the employee another job quickly, that will end your legal obligations to them, again subject only to statutory minimum payments.

Barring finding them new employment, I always recommend that my corporate clients conduct their own job search to prove to a court that comparable positions are readily available so as to reduce the employee’s claim. And it is not a bad idea to share some or all of this search with the employee. If they do not apply to those comparable jobs, you will have an argument at trial that they could have obtained employment and thereby reduce their claim.

If they do apply and manage to secure employment, that ends their damage claim as of that date. And it is not merely what might happen at trial. The fact that these arguments will be made will reduce any settlement.

5. Explain your circumstances

If there is a genuine risk of insolvency by the time the matter reaches trial, many employees will not invest in a legal action and no lawyer will take it on contingency.

If that is your circumstance, it makes sense to level with the employee, show them your books and make them understand that you cannot afford any more severance than the relatively minimal amount you are able to offer. If your circumstances appear dire, they may decide not to invest resources in what appears to be a fruitless exercise.

These are examples of the types of strategies that clients should be advised of rather than simply paying what a court might award.