Redress Risk Management (post until May 31/19)
Employment & Labour

Three ways to minimize termination pay

By Doug MacLeod

As readers of this blog are aware, many wrongful dismissal actions are now being decided by way of summary judgment motions.

This blog summarizes a recent successful summary judgment motion involving a former IBM Canada employee.

The facts

Ms. Leeming, a 60-year old employee, was terminated by IBM without just cause after eight years of employment. The only issues to be decided were how much notice of termination she was entitled to receive, and whether she failed to mitigate her damages when she started up her own business after only looking for employment for three months.

How much notice of termination should IBM have provided the employee?

IBM argued Ms. Leeming was entitled to about 16 weeks termination pay because she signed an employment contract which referred to a termination policy that was found on IBM’s intranet. She did not read this policy and the trial judge found that the policy was not enforceable.

Ms. Leeming argued she was entitled to 16 months notice of termination however the trial judge concluded she should have received 10 months notice of termination. In coming to this conclusion he noted: “While not an unrestricted, unregulated, or arbitrary determination, deciding what is a reasonable notice period is perhaps more legal art than legal science.”

Was it reasonable for the terminated employee to start her own business?

In the three-month period following the termination of her employment, Ms. Leeming applied for 22 jobs and was interviewed for two positions but she did not receive an offer of full-time employment. Thereafter she started a franchise that provided digital marketing solutions for small and medium-size businesses. She did not have any experience or training in this business. When concluding that her decision to start her own business was reasonable, the trial judge quoted with approval from a Court of Appeal decision which stated: “The respondent’s establishment of a new consulting business was clearly a means of mitigation. The fact that the early years of the respondent’s self-employment did not live up to his monetary expectations does not mean that this was an unreasonable attempt at mitigation.”

Lessons to be learned

1. Require all employees to sign an employment contract, which includes a termination clause. In this case, IBM could have limited Ms. Leeming’s termination pay to 12.36 weeks (because she received four weeks working notice of termination) instead of the 43.33 weeks it was ordered to pay her. For more information on the benefits of using employment contracts, click here.

2. If an employee is terminated without just cause, offer to provide the employee with a reference. It can help the employee secure new employment faster, which is in the employer’s financial self-interest. In this case the trial judge noted: “IBM did not provide Ms. Leeming with a letter of reference. It provided her with a two sentence letter verifying her employment with IBM.” Although the judge did not state that he increased the notice period because IBM did not provide a reference it is possible that he did.

3. If an employee is entitled to receive reasonable notice of termination then consider offering the employee outplacement counselling which can help the employee secure new employment more quickly. This is also in the employer’s financial self-interest.

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