When giving advice to employers in cases in which an employee has been terminated without just cause, lawyers often start by assessing what a reasonable notice period might be (after first determining that there is no written employment agreement with a valid termination clause). Of course, determining what might be “reasonable notice” in any given case requires the exercise of judgment as it involves consideration of a number of factors which generally include the employee’s age, years of service with the employer, position and level of compensation, each of which may affect the availability of similar employment. Given the degree of uncertainty, employers usually express their assessment of reasonable notice in terms of a range (e.g. six to eight months) that might be expected if the parties were to take the dispute to trial.
The range of reasonable notice may represent the maximum liability for the employer but that does not mean that the employer is required to simply pay out the highest amount in the range. A number of considerations go into the design of a package which may be offered to the employee. These include:
i) the employee’s obligation to mitigate his or her losses by finding reasonable alternative employment or business income;
ii) the minimum statutory payments to which the employee is entitled under applicable employment standards legislation;
iii) the legal costs to the parties in the event that an agreed resolution cannot be reached and litigation is undertaken by the employee; and
iv) the various circumstances which are unique for each of the parties (e.g. appetite for litigation, ability to withstand delay of resolution etc.).
So, in designing an offer the employer must make a realistic assessment whether an employee will find alternate employment and, if so, when. Perhaps more important is the employee’s assessment of that issue. The greater the opportunity for mitigation, the less the employer’s potential liability and the smaller the offer needs to be. In most cases, the parties attempt to find a resolution when mitigation has not yet occurred.
For this reason, many employers try to maximize the incentive for the employee to mitigate while providing some cost-savings in the event that the employee is successful in doing so. One common strategy is to offer some continuation of compensation up to the end of what has been assessed as the reasonable notice period. Should the employee find alternate employment during that time, the compensation will be discontinued but some fixed percentage of the remainder will be paid to the employee. The employer realizes some savings and the employee has an additional benefit beyond the income from the new employment.
Finally, because mitigation by the terminated employee reduces liability, it is always helpful to provide the employee with as positive a letter of reference as the employer can truthfully write. Additionally, depending on the relative costs and risks involved, outplacement counselling paid for by the employer may ultimately be a benefit to both parties.
Next instalment – The Impact of Legal Costs