Severance Law for Canadian HR Professionals

[00:00:00] Terminations are hard enough as it is. It's emotional for everyone involved. It's stressful. And then when you add in this element of how much do we pay, suddenly you're also navigating the legal minefields of severance. And it can cost you a lot of money if you get it wrong and cost you a reputation.

[00:00:18] I'm Andrea Adams and this is The HR Hub. Today I'm talking to Brady Farmer. He's a partner at Matthew Dinsdale in Calgary. And this Matthew Dinsdale is one of Canada's leading labour and employment law firms. Brady advises employers on all kinds of things related to employment law. But today we're talking severance. Hello, Brady. How are you? I'm good. Thanks for having me. I'm excited to be your first podcast ever.

[00:00:44] There you go. Awesome. Well, you know, your expertise in my podcast, they line up. We're talking about severance. So I've actually done a severance episode in the US, but in Canada, I want to start at the beginning. What's the difference between statutory and common law severance? And why does the distinction matter so much in Canada?

[00:01:06] Yeah, no, it's a great question to get us started. So in Canada, statutory law for employment law purposes is employment standards legislation. And it's minimum legislation. Each province and territory in Canada has its own. And it sets minimum standards. So the base floor for things like vacation, hours of work, leaves of absences.

[00:01:29] And it also sets that base floor and the minimum that has to be given to an employee on the termination of their employment. And depending on the jurisdiction, that's going to roughly equal maybe one to eight weeks notice depending on employee's length of service. And it's always important to check the specific jurisdiction where that employee is being terminated to confirm if there's any special or unique provisions that have to be accounted for.

[00:01:58] But that's the idea is it's minimum amount has to be given to an employee on termination under employment standards. Where it gets complicated is we also have common law and common law is judgment law. It's developed over time through court decisions and it kind of fills in gaps left by legislation or maybe builds on it in certain ways. And when it comes to termination, we have what's referred to as common law and common law.

[00:02:27] And so where the statutory law provides that base floor, common law can provide the ceiling for one employee, the maximum that an employee might get on the termination of their employment. And so where we have that employment standards legislation providing, say, one to eight weeks of notice depending on the jurisdiction circumstances.

[00:02:49] Common law, on the other hand, might entitle an employee to months of termination notice upwards of 24, even more months of notice. So the difference is very, very large. And that's why it's important to keep in mind both of the employment standards and common law. And because they both kind of work with each other at the same time and there's quite a large difference between them.

[00:03:14] Yeah. Is the common law is where this rule of thumb that, you know, comes up all the time in HR is like one month per year of service? Yeah. And that's a great question. And so that rule of thumb has it doesn't apply as an actual formula of any sort. And the courts have specifically said that's not the exact case, but sometimes it can be helpful as a thought process for an employer to keep in mind when you're terminating someone,

[00:03:44] and especially a long service employee that generally speaking, that might be the case. Because common law and how you determine what a certain individual might be entitled to is based on four factors. And it's the employee's age, the position they held when they were employed, the availability of similar employment, and their length of service. And in reality, it's not a science. It's more of an art form. There's no specific formula. Yes.

[00:04:11] And that, in many cases, the length of service ends up being probably the most important factor. It's not the case every time, but it's really going to be important in the sense that, generally speaking, the longer someone's been employed, the more notice that they're going to be entitled to under common law. But that doesn't mean the other factors aren't important.

[00:04:35] I mean, if someone is older and near retirement, that's where the factor relating to age might come into play. Because even if they don't have many years of service under their belt, maybe they're going to have more difficulty finding new work simply because they're older, they're closer to retirement. So that might indicate that they should get more notice on termination. And kind of same thing would apply to the nature of the employee's position.

[00:05:04] Because if they're in a specialized position or high level, that might indicate as well that it's more difficult for them to find new work. Yeah. I want to ask about that one specifically. You said that, you know, the chances of them finding similar work. Are we talking similar pay or similar work? Yeah, it's a great question.

[00:05:31] So in a general sense, it should be something somewhat similar in pay. But that obligation, that's where the fourth factor as well, availability of similar employment comes into play. And it relates to the employee's age, the type of work they had. But really, that's where the concept of mitigation comes into play. Mitigation is that obligation on employee once they've been terminated. And it only rests a common law.

[00:05:59] So a common law, they have an obligation to try to find new work. That doesn't apply to employment standards. Again, employment standards, base minimum has to be given. So even if they're entitled to six or eight weeks under employment standards and they find work the very next day, they still get that six or eight weeks. But a common law, because we're dealing with much greater sums potentially or much greater amounts of notice when we're talking about months.

[00:06:26] The idea is that the employee has to try to mitigate and find new work. And courts have recognized that not necessarily in every case is an employee going to be able to find the exact same level of pay or higher pay. And so it's always going to be fact specific. But there is going to be an obligation to at least consider perhaps taking on work that may not pay as much as the job that the employee previously had.

[00:06:55] And if you find yourself all the way in a civil claim, maybe going to court or maybe you've just received a demand letter from a lawyer on behalf of an employee who was terminated, that'll come into the picture. The fact that maybe after a month or two, they found work, but it's paying a fair bit less than that previous job they had with your company.

[00:07:18] Well, the way that might be taken into account is to say, OK, well, we're saying that based on this employee's length of service and their age, they should have got roughly six months of common law reasonable notice. Now, they found work in two months. So you've got to do a little bit of math, which isn't my strong suit, I'll be honest with you. But it's doing that math and taking it into account because the idea is that you're bridging that gap. And that's where that mitigation would come into play.

[00:07:47] Yeah, it seems to me, though, that the mitigation is only relevant if it actually goes to court. So when you're the employer sitting in your office trying to figure out how much to pay, mitigation is not is not going to be something you're considering. But certainly once it gets and starts being litigated, it would be. And that's actually it's a great question. But one of the ways I would actually take it into account, even at the time of termination.

[00:08:15] And it might be something we get into talking about if there's a contract in place with the termination provision. But if we're just assuming that there's no contract in place, the individual is entitled to common law notice. Where that mitigation come into play is not just assuming right from the get go on termination that say it's a long service employee. Maybe you calculate they could be entitled to 12, 14, 15 months of notice.

[00:08:41] I wouldn't necessarily recommend that you simply just right at the outset, provide the employee with that entire amount. What you might want to do is think about, OK, so this individual, maybe for whatever reason, we need to end this employee's employment because we're restructuring. We don't have enough work. But the industry is booming and we know that there's tons of jobs for this individual in this industry, in whatever city center or other area you're in.

[00:09:09] Well, you can bring that to the employee's attention if they whatever you offer on termination, they come back with a lawyer or on their own saying, hey, I worked here for 12 years. You owe me 12 or 14 months of reasonable notice. You might want to at that point say, actually, we've already taken a look on Indeed and LinkedIn. Here are 20, 30 different jobs that you could apply to.

[00:09:36] And we're expecting that you are going to do that as part of your obligation to mitigate. And so it's a great question, a great comment, because I'm always going to recommend to a client that, especially if they come to us sooner than later on termination, somebody, and whether it's your lawyer or HR, somebody internally is constantly whatever the reasonable notice period might be.

[00:10:01] So at the start of it and throughout, you are consistently checking job posting, job ads for positions that that individual might be able to apply to and take on. Because, well, it's a complicated system where mitigation is the obligation of the employee to try and find new work.

[00:10:22] But if, to your point, you end up down the road at a civil trial and you're in front of a court, it's actually the employer's onus to prove that the employee failed to mitigate. And so at that point, you have to show that not only did they not try hard enough, but secondly, there was actually jobs for them to apply to. So that gets a high bar. And if you don't have anything to show that there were jobs during that time period that they could apply for,

[00:10:51] you might be out of luck in showing that the individual failed to mitigate, even if they didn't, because it's on the employer to show that. So it's a really good question, good comment, but you can, depending on the circumstances, bring it into those earlier negotiations and discussions. So I want to talk about termination clauses in employment contracts. I've spoken with employee side lawyers who delight in breaking them. So how much protection do they actually provide? It's a great question.

[00:11:20] And I have no doubt that you've spoken to some employee side counsel who do delight in that. At the end of the day, a well-drafted termination provision, candidly, almost always with the assistance of legal counsel, can provide an employer with a lot of protection and minimize liability when it becomes necessary to terminate an employee's employment.

[00:11:46] However, as you pointed out, I mean, the area around termination revisions is always evolving and it's hotly contested. Counsel for employees are consistently, as you said, trying to find inventive ways to invalidate and challenge termination provision. So there's no absolute guarantee that we can necessarily provide that it will be upheld and challenged.

[00:12:11] But that being said, if a termination provision truly follows all of the current best practices, there is a chance that if counsel for an employee were to review it, they might inform that employee that this is a really solid termination provision. And then you're going to avoid a long, drawn-out fight regarding whether or not the individual is entitled to common law and how much.

[00:12:36] And maybe if that's, you know, they still try to challenge it, it still might be able to use it as some sort of leverage for a bit of a smaller settlement. You know, if there's one little nitpick that perhaps counsel for an employee is trying to challenge, but you're still quite confident that it's a good provision, it's going to hold up. You might be able to say, we disagree with that interpretation. We're very confident that it's going to be held up.

[00:13:02] But, you know, to try to avoid a much longer, drawn-out fight, going to court and starting a civil claim, maybe we'll settle for, you know, X amount, a little bit smaller. Certainly that may be the maximum at common law that might be provided. So they're still very helpful. It's just, it's impossible to guarantee. And there's still, you know, no matter what you put in there, it's always possible you're going to end up with a ban letter, a civil claim, some sort of fight, depending on the circumstances. Yeah.

[00:13:32] I find they help because I do, you know, I confess this, I do quite a few terminations. And they're just helpful in, you know, establishing the playing. I shouldn't even call it a playing field because it's important to people. But they sort of, the boundaries. And yes, you can get an aggressive lawyer who's going to sue anyway, but I do find they're very helpful.

[00:14:01] So we've talked about the factors, the four factors. Can you tell me, though, how employers and HR consultants like me can stay on top of what's being awarded for what element? Like, how much do we give for service? How much do we give for the job market? Like, how should we stay on top of it? Yeah, no, absolutely.

[00:14:28] I mean, at the end of the day, and it's not a very satisfying answer, but there is no, you know, again, because it's that art form, there's not going to necessarily be, unfortunately, a case that'll come out that'll give us a formula that's going to help. So you can always try to, you know, podcasts and sites like yours, HR Hub, staying up to date with those, or any other type of law firm that maybe has some sort of blog posts and bulletin, you know, including my firm, Matthew Dinsale Clark.

[00:14:59] You know, we're going to be providing updates on unique cases that might be pushing the envelope a little bit here and there. But those four factors have stayed fairly consistent for decades now. And so that's where, at least from a starting position, I think it's easiest to look at the length of service as your starting point.

[00:15:20] But then always trying to think of that the age, this type of role, and the availability of similar employment, and those and how they work together to try and think of whether or not this is going to be a circumstance where it's really, really difficult for that person to find new work. Or will it actually be possible that maybe they're finding new work in a week or a month or something like that?

[00:15:44] That, I think, is the way to look at it is that that length of service is kind of the starting point. And then are there some unique circumstances that might tip the balance one way or another? And that's usually going to be around how easy or difficult it might be for that person to find new work. Yeah. I might confess to something that I shouldn't confess to.

[00:16:10] But when a termination has risk factors, and it might not be related to any of those things, but there's risk factors that, regardless of the facts, you might get sued. I often advise to pay more. Yeah. Just because that's going to get you the release that's going to prevent you from being sued. Insurance.

[00:16:34] You know, it's a fair comment because to what you were saying, it's serious stuff. You know, we have terms to describe it like playing field or other things like that. It is serious. It's termination. It's going to likely impact someone on a personal level. But the reality is, in most cases, and maybe it's not every case, but in most cases,

[00:16:55] the only real way we have to address it and assist that individual we're moving for is a certain amount of notice or pain lube notice. And so it is a dollar figure. And so if there's a, you know, some sort of other risk factor that you're trying to take into account, you know, oftentimes that might be part of the conversation is, you know, listen, this is maybe in regular circumstances what the individual might get. But, you know, we have this X factor here.

[00:17:24] So maybe I'm going to recommend offering a little bit more in exchange for a release. And that's something as well that I would always discuss with a client where when we go back to that employment standards minimum, the employment standards minimum, one to eight weeks, whatever that might be. And there's severance in Ontario and federally as well on top of termination paid in some circumstances. But those base minimums, they have to be given.

[00:17:50] You can't ask an employee to sign a release or anything for those amounts. They just have to be given. But when you're talking about those extra amounts, that's the give and take. You can say, here's your base minimums, but we're going to offer you whatever it might be. Maybe it's an extra week. Maybe it's an extra five months, depending on the circumstances. But if you are going to accept that extra amount, we're going to request that you sign a release, essentially saying, you know, the relationship is over.

[00:18:20] You're not going to be suing us or bringing any type of claim against us, whether it's civilly or human rights or employment standards. And it allows both parties to hopefully move on and hopefully for the employee to give them a bit of cushion, a cushion to go find the new work that they're going to be looking for. Yeah, that gets into the actual mechanics of the termination, the difference between the termination letter and the release.

[00:18:50] Do you want to actually, it's probably an oversight on my part that I wasn't even planning to ask you this question. Do you want to, though, quickly summarize what goes into the termination letter and what goes into the release? It's a without cause termination letter. In many cases, you just want to state that the employee's employment is being terminated that day, usually in accordance with if you've had a meeting with the employee to discuss the termination.

[00:19:17] And you just want to reiterate that it's without cause and that it's happening, assuming on that date. And you very clearly state that the termination is going to take place that day. And then you would want to lay out there that they're going to get any outstanding pay, vacation pay, holiday pay, anything they haven't been paid yet that they've earned. They're going to get that. And you'd also want to very clearly state what employment standards amounts they're going to get for notice of termination or pay in lieu.

[00:19:47] So that extra, you know, one to eight weeks, whatever it might be, you'd want to lay that out. And you want to very clearly if they have any benefits, health and dental, long term disability, life, really clearly lay out when those benefits are being terminated. And that's an important one to discuss with counsel because different jurisdictions have different rules regarding when those benefits can be terminated. Right.

[00:20:13] And you also want to ensure that if any of those benefits can be converted to an individual plan, sometimes they can, especially for something maybe like life insurance that you inform them how they can do that. You know, maybe what insurance carrier to call so they can discuss that if they'd like to. And then some housekeeping items as well about when you're going to issue the ROE, you know, maintaining confidentiality, returning company property,

[00:20:42] just a few housekeeping items like that you'll want to lay out in the termination letter. And then if you are going to offer something in exchange for a release, usually I would recommend that you would offer that on a without prejudice basis, meaning that it is just between the company and that employee. And that if they don't accept that particular offer,

[00:21:08] the employee doesn't get to come back later saying, well, you did offer me X amount extra. It's made on a without prejudice basis. And so it can't be used against the employer later, say, if a civil claim is started and you find yourself in court. The employee can't say, well, they did actually offer me four extra months on termination anyway. That is it's without prejudice. And so it is just simply for the purpose of trying to resolve things right at that point at the time of termination.

[00:21:37] And so you'd clearly state in addition to all those other things we're providing you and that we have to provide you, we're also going to offer you, yeah, whatever it might be. As I said, it could be a week. It could be two. It could be months. And to get that extra amount, you have to sign a release in favor of the company, essentially saying that you won't bring any type of claim against the company.

[00:22:02] You know, civil claim for wrongful dismissal, human rights, whatever it might be, or employment standards for overtime or something like that. And so you try and get that resolution at that point, which, again, helps both parties move on, hopefully. But it's also not the end of the world if the employee doesn't accept it. It's common. You know, it's not, you know, a big deal. It can be addressed. And sometimes there is just some back and forth.

[00:22:29] And sometimes things that aren't strictly monetary get brought up. Maybe there's a question about a letter of reference or maybe something about benefit continuation is addressed as well or outplacement services and that type of thing. And that's where, again, you can also start discussing mitigation. What? Okay, you've come back asking for 12 months. Well, we're only two weeks out of you being terminated.

[00:22:55] So you actually have 11 and a half months here to still try and find new work in that time period. You know, let's think about that. And we just did a search on, indeed, here's 30 jobs that you could actually apply for because our industry is booming. And there's tons of different opportunities in our industry. So you might want to bring that up as well during those negotiations. Yeah. Okay. We're getting to the end of this.

[00:23:22] I guess my final question is, while you're not maybe an expert on U.S. labor law, can you briefly describe the difference between what happens in Canada and what happens in the U.S. as best as, like, you know, as you understand it?

[00:24:09] Absolutely. How long the employee has been employed there, the relationship can just end without any notice. And that's, again, just my very high-level understanding. But it does create some confusion when either maybe a Canadian company is operating in the U.S. or a U.S. company is operating in Canada. We see it all the time with U.S. clients where there is some surprise when we discuss how much notice has to be provided.

[00:24:38] And when we discuss, there's two different systems between employment standards legislation and common law. And they're rightfully asking, why is that? And we, you know, we go through that whole discussion that we just had around what that means and how to address it, how to approach it. So that's just my, again, very high-level understanding of that. Actually, the final question is, where should people find you? Well, my contact information can be found on my firm's website.

[00:25:05] So that's Matthews, Dinsdale, and Clark LLP. And we have offices all across Canada. I'm in the Calgary office. And so you can give us a call or shoot us an email at any time. And again, that's the Matthews, Dinsdale, and Clark LLP website. Well, thanks, Freddie. That was great. I do actually do quite a few terminations. And even I learned some things in that. So that's super helpful. I referred to that episode I did on Syrins in the U.S. And a link to that is right there or in my list of episodes.

[00:25:35] Thanks for watching out there and see you next time.