The truth on severance pay, corporate investigations, mitigation earnings
Both sides of the employer/employee relationship should know these laws
By Howard Levitt
Here are some questions (and answers) from the front lines of Canadian employment law.
Should an employer allege cause for discharge?
If an employer alleges cause (difficult as that often is) successfully, the employee is deprived of any severance pay. But the company does so at its peril, as two possibilities arise if it is unsuccessful:
— Since an allegation of cause makes it more difficult for an employee to find new work, if you are unsuccessful, the court will increase the severance accordingly. It will not matter that you believe you had cause, if you are ultimately unsuccessful. There is another aspect as well. As I constantly remind my clients, judges are people too. As the same judge who decides there is no cause will be the one to go on to determine the amount of the award, the first finding will directly affect the second.
— If a court finds the employer knew that it did not have cause and alleged it did in bad faith, as leverage, the court will award additional damages — called Honda damages — to compensate the employee for the false allegation. In particularly egregious circumstances, the court can also award punitive damages or damages for mental distress, called aggravated damages.
An allegation of cause puts the employee in a terrible predicament. In any job interview, when the employee is asked the reason for their termination, they must honestly reply that cause was alleged. That is generally that interview’s effective end. If hired and the new employer finds out, even years later, it will be cause for discharge from the new employment as result of that dishonest statement during the initial interview.
How should an employee deal with an interview by corporate investigations?
Normally, unlike for poor performance or bad judgment, which is dealt with through a performance improvement plan or performance appraisal, allegations of misconduct are usually dealt with through an interview of the employee or even a formal investigation. Employees are generally caught by surprise when the interview begins, unaware until then as to the subject of the meeting. There is nothing improper in that. Employers are entitled to an ingenuous, rather than a prepared, response to their questions. Employees who find themselves being suddenly and unexpectedly investigated for workplace misconduct often stumble and make statements that are a product of their anxiety. In my experience, that fear results in many throwing themselves at their employer’s feet, making admissions that they would not have made if they were more prudent and well advised.
Employees in such circumstances should, to the extent it is possible and accurate, defend their positions since, if the court (or employer) determines that the employee believed they were acting properly, even if they were mistaken, it becomes an issue of competence, not honesty. Of course, dishonesty is cause for discharge, possibly even a counterclaim. Incompetence almost never is.
If the employer engages a lawyer to conduct their investigation, the employee is well advised to demand legal representation for themselves before participating. If an employer does not use legal counsel to conduct the investigation, the employee is then required to answer all questions directly and truthfully and have no right to legal representation during the interview. Dishonest responses or refusing to answer the employer’s questions can be cause for dismissal, particularly if the employee is warned of that at the outset.
Is income earned following dismissal deductible from wrongful dismissal damages?
A 2017 case of the Ontario Court of Appeal, involving Esther Brake and P.J.-M2R Restaurant, a McDonald’s franchisee, found that it may not be. Brake, a restaurant manager for 20 years, was forced out of her job after being “set up to fail,” as the judge noted, at one of the worst-ranked restaurants in the country. She was unable to find comparable work, ultimately taking a frontline part-time position with Home Depot. The Ontario Court of Appeal found that mitigation earnings during the statutory period of termination and severance pay are never deductible as mitigation income. In a concurring decision, Justice Feldman held that, if a wrongfully dismissed employee is effectively forced to accept a significantly inferior position because no comparable position was available, the amount they earn in that new position may not be deducted from the amount the employer must pay. The other two judges on the panel did not opine upon that issue but it is now something that employee counsel can reasonably argue in every similar case.