The Issue: In a judgment released recently, Ontario’s Court of Appeal was asked to decide whether an employee can collect termination pay from an employer at the same time he is earning income from a new employer. Read Judgment
The Facts: In this case, Mr. Bowes was entitled to six months notice of termination or pay in lieu of this notice under the terms of his written employment contract. He was terminated without any notice. He found another job during the six months following his termination earning the same income and his former employer stopped paying him termination pay.
The Decision: The Court of Appeal concluded that Mr. Bowes could collect termination from his former employer and income from his new employer until six months after his termination.
This decision is not earth shattering for a number of reasons:
1. The employer wrote the contract and it is not uncommon for the courts to read contractual language strictly against the party that writes the contract.
2. The contract did not address the issue of what happens to any income the employee earned during the six months after his termination. The court was not prepared to speculate on what the parties intended – if they intended anything at all.
The Implications of this decision: Employees are seldom provided with working notice of termination; they usually receive pay instead of notice. And it is not uncommon for an employee to obtain a new job shortly after being terminated.
Accordingly, an employer should make sure that the termination clause in the employment contract explicitly addresses this issue of what happens to any income the employee earns during the agreed upon notice period.
There are a number of options: The termination pay can stop when the employee commences alternative employment, self-employment, comparable employment, or employment that pays him a percentage of his pre-termination salary. [Note: At a minimum, the employer must provide the employee with at least the minimum notice of termination and severance pay he is owed under Ontario’s Employment Standards Act.]
The contract can also provide that the terminated employee receive a lump sum payment equal to a percentage of the monies that he would have received if he didn’t obtain a new job. This results in a win/win result in that the employee receives a financial windfall and the employer does not pay termination pay throughout the agreed upon notice period. This kind of provision is common in severance packages.
