Can reduce a company’s severance payments

By Howard Levitt and Rob Lilly

As we have written before in these pages, severance is akin to an insurance policy, not a windfall for employees. It is a bridge to securing new employment. If an employee finds a job during the severance period (which can be upwards of 27 months for long-serving employees), employers are generally allowed to offset that new income from what they owe the employee. Few situations in employment law exist where this principle does not apply.

Ergo, aiding an employee — by providing a reference letter or forwarding job similar postings — may help the employee secure employment sooner and, in turn, reduce an employer’s severance obligations. It is a proverbial win-win, albeit somewhat optimistic considering that not all dismissed employees find work quickly, despite their reasonable efforts to look for work in line with their duty to do so.

What about employees who are not inclined to return to work or do little to nothing to seek re-employment? Some employers believe that they do not have to do anything to help such an ex-employee find work. That is, they think if the employee does not act reasonably, the court will automatically reduce an employee’s severance award. While this rings true for some provinces, especially the Western ones, it does not for Ontario.

A recent Ontario case involving PRGX Canada Corp. reminds employers that if they wish to attack an employee’s job search efforts, they must be prepared to prove why the employee should have found a similar job. To succeed, the employer must prove that the employee not only failed to take reasonable steps to look for work, but also that she would have been expected to find comparable work had she acted reasonably. Because of the second requirement, an employee who sits on her hands in her job search will not be punished unless the employer leads convincing evidence of actual re-employment opportunities. As confirmed by the court, “This onus is not ousted or reversed simply because the employee did not take the mitigating steps. The onus remains with the employer.”

You read that correctly: in Ontario, an employee can take no steps to look for work, yet still potentially receive full severance.

In the PRGX Canada Corp. case, the court rejected the company’s argument that their former employee should be penalized for initially failing to apply to jobs in his niche industry. It held, regardless of whether the employee acted reasonably, PRGX did not lead any evidence of comparable jobs available. “In my view, PGRX was not interested in genuinely helping (the employee) avoid any losses due to his termination,” the court said. “Rather, PGRX was prepared to use what it saw as a gap in (the employee’s) mitigation effort as a means to limit his damage claim. Citing a previous Ontario decision, the court warned that if an employer intends to argue a failure to look for work “it would be well advised to present evidence of assistance that was offered to the terminated employee during his or her job search.”

Our advice to employers is to genuinely assist an ex-employee in her job search. There are myriad ways to accomplish this. If the employee has any positive attributes or accomplishments, put them in a reference letter. If not, even a neutral letter confirming the employee’s duties and length of service will help. If you can afford outplacement counselling services, offer them to the employee. Do not make any of these contingent on the employee signing a release.

If your human resources department is large enough, send the employee job postings every week or two for current similar jobs. Do not indiscriminately send postings without first vetting for comparable qualifications, education, compensation and location. Doing so will raise the ire of the court making you appear more contrived than helpful. Plus, if the jobs are, in fact, comparable as we recommend, the employee will be more inclined to apply (and hopefully get the job) for fear of not acting reasonably. Helping an aggrieved employee find work is not oxymoronic. Your efforts could result in re-employment, thereby reducing your severance payments, or at least bolster an argument that the employee should receive less severance because she did not reasonably look for work.

But if you have failed to do all of this, at least you might consider hiring an executive search consultant as an expert witness at trial. If you have no evidence that jobs are readily available, any mitigation argument will fail, even if the employee did nothing at all.