WORKING NOTICE UPDATE – ASSESSING THE RISKS
I.
INTRODUCTION
It has long been established in British Columbia that, absent express agreement to the contrary,
the common law will imply that an indefinite term employment agreement may only be ended
with just cause or reasonable notice: Henderson v. Canadian Timber and Saw Mills Limited
(1906) 12 B.C.R. 294 (C.A.). For more recent case authority, see: Machtinger v. HOJ Industries
Ltd. [1992] 1 S.C.R. 986. Reasonable notice is a working notice period of reasonable length.1
Many, if not most, employers provide pay in lieu of reasonable notice when ending an
employee’s employment. Where the pay is by lump sum it is commonly called severance. Where
the pay is spread over the notice period, it is commonly called salary continuance. In this paper, I
ask why more employers do not provide reasonable working notice as is lawfully required?
Making a severance payment or providing salary continuance instead of providing working
notice is not an implied term of an employment agreement. This is explained by the Court of
Appeal in Dunlop v. B.C. Hydro and Power Authority [1988] B.C.J. No. 1963 (C.A) at p.3:
The implied term is a term to the effect that each party must give reasonable notice of
termination to the other. The implied term is not a term to the effect that the employer
may give pay in lieu of notice.
This means, employers who end an employment agreement immediately have wrongfully
dismissed an employee. An offer of payment, even a generous one, be it as a lump sum or over a
period of time, is merely compensation for damages. In the words of our Court of Appeal in
Dunlop, supra:
… when an employer gives pay in lieu of notice, he does so as an attempt to compensate
for his breach of the contract of employment, not as an attempt to comply with an implied
term of the contract of employment.
So, should employers choose to pay in lieu? Or, is it better to provide reasonable notice?
II.
WORKING NOTICE OR PAY IN LIEU
Before discussing the merits of providing notice, this paper briefly examines the alternative:
immediate termination in breach of the employment agreement.
The decision whether to provide working notice or to breach the agreement and pay
compensation in lieu of the notice is often driven by the operational requirements of the business.
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A. Considerations For Providing Pay In Lieu
As payment in lieu of notice flows from a breach of the employment agreement, it should only
make sense for an employer to breach and provide pay in lieu where it is furthers the business’
purposes.
Employers may wish to consider the following in deciding whether to breach the employment
agreement and pay compensation for damages rather than complying with the agreement and
providing notice:
Why the employee is being dismissed. If, for example, the employee is being dismissed for
poor work performance, providing working notice means enduring the poor work
performance for the notice period. It may be more efficient for the business to pay
compensation in lieu of notice.
Whether the employee’s position continues to exist. If, for example, the employee’s position
has been eliminated, there may not be a place to allow the employee to work out his or her
notice period [Query, however, why the employer did not give notice prior to the position
being eliminated].
As another example, if the employer has hired a replacement employee who is performing
the terminated employee’s duties, there may be no work for the terminated employee to
perform during the notice period. [In fact, the terminated employee’s presence may actually
be disruptive to the new employee].
Whether the employee poses a security risk during the notice period. For example, does the
employee have access to sensitive computer data, and if so, is the employee of a
temperament that he or she would try to sabotage this data?
Whether the employee poses a business risk during the notice period. In the movie Jerry
Maguire, Tom Cruise’s character returns to the office after being dismissed to spend the next
hour trying to convince the business’ clients to come with him on his new venture. In B.C.
similar conduct would be subject to considerations of fiduciary duties and conflict of interest,
however, an employer may still wish to ask whether an employee is likely to use the working
notice period to advance interests which compete with or are otherwise prejudicial to the
interests of the business.
Whether the employee’s working would negatively affect morale. Receiving notice of
termination is an emotional blow for most employees. Having in the workplace an employee
who is unhappy, angry, or otherwise negatively affected by the notice may decrease morale
for other employees.
Whether to provide notice or pay in lieu is the employer’s decision. After all, it is the employer’s
breach that is the condition precedent to a payment in lieu.
From an employee’s point of view, the employee generally prefers to be terminated immediately
and receive a lump sum severance as this allows favourable tax structuring through the use of
retiring allowances and places the employee in the position where he or she may receive a
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windfall by quickly finding new employment. However, the employee is usually a passive
participant in the employer’s decision to immediately terminate or provide reasonable notice.
Some employees will ask for a package, but (absent express contractual agreement to the
contrary) an employee may not compel a payment of severance.
I have had employees suggest they could behave poorly or antagonize management to maximize
the likelihood the employer would offer a severance package. However, this creates a risk for the
employee that the employer will discipline for misconduct, and may even terminate the
employee for cause prior to the end of the notice period.
B. Potential Problems With Immediate Termination
Given the foregoing, it may appear breaching the employment agreement by immediately
terminating the employee and making a payment in lieu of notice is always in the best interests
of an employer; such is not the case. Some of the disadvantages with making a lump sum
severance payment may include:
Losing the employee’s services during the notice period. By breaching the agreement, the
employer pays compensation for those services and receives no benefit from the employee in
return.
Allowing the employee to realize a windfall. An employee who mitigates quickly by finding
new comparable employment will suffer no loss of income and may realize a windfall
severance package. [I note two points: First, employers have tried to avoid the windfall issue
by providing pay in lieu as salary continuance and providing for an incentive or “balloon”
payment if the employee finds a new job. (Please see the next section for a discussion on the
option of salary continuance). Second, often employers will build into lump sum payments
discounts to account for the contingency of an employee mitigating].
Liability for non-salary losses. Most insurance plan coverage ends on the employee’s last
active day of employment. However, absent a release, employers may be liable for insurance
benefit losses incurred during the notice period by the employee: Prince v. T. Eaton Co.
(1992) 67 B.C.L.R. (2d) 226 (C.A.). This can be a significant liability. By giving the
employee working notice, an employer can continue insurance coverage and protect itself
from claims for loss of same.
Costs of lump-sum payment. A lump-sum payment is more costly to a business than smaller
salary payments over the notice period. If one adds to this the additional costs of retaining
legal counsel to assist negotiate the amount of the lump sum payment, the cost increases. For
businesses who are experiencing tight cash flow, a lump sum payment on termination may
not be an option.
Risk of immediate litigation. Once the employer breaches the employment agreement, the
employee can begin litigation forthwith. Defending litigation costs an employer time and
money. By providing notice, the employee risks repudiating the employment agreement by
bringing an action during the notice period. [This issue is discussed later in this paper].
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III.
THE OPTION OF SALARY CONTINUANCE
Salary continuance is where an employer ends an employee’s employment, but continues to pay
to the employee that employee’s regular salary and benefits during the notice period. Salary
continuance may be offered by an employer as compensation for its breach of the employment
agreement, imposed on a without prejudice basis pending negotiations about pay in lieu of
notice, or a combination of these two.
A. Salary Continuance Language
A simple form of a sample termination letter offering salary continuance is attached as Appendix
“A”.2
The sample termination letter provides for a “balloon” clause. These types of clauses are fairly
common in salary continuances and provide that if an employee finds a new job, salary
continuance payments will end, and the employee will receive an incentive bonus payment. This
incentive bonus payment is commonly set as a percentage of the balance of the salary
continuance payments left in the notice period (in the sample letter, it is set at 50 percent). In
effect, the employee’s new job triggers an immediate payment (i.e., the “balloon”) of a smaller
portion of the balance of the salary continuance.
The purpose of the balloon clause is to encourage the employee to find a new job; the faster the
employee becomes re-employed, the larger the balloon payment. Of course, the employer
benefits from the employee quickly finding a job as the new job mitigates any damages the
employee may suffer as a result of the ending of employment.
Although salary continuance does address several of the negative aspects of providing a lump
sum, it may not assist with the issue of benefit coverage during the notice period. Some insurers
insist that for coverage to continue, the employee must be actively at work (a term often defined
in the insurance policy).
In theory, and from an employer’s perspective, salary continuance combines many of the best
elements of immediate termination and working notice; it allows an immediate end to the
employment relationship, while spreading the cost of the termination over the notice period and
minimizing the likelihood of the employee realizing a windfall payment.
In practice, and as a result of several recent Court decisions, there are problems with salary
continuance.
B. Jurisprudence On Salary Continuance
In the 1990s, the British Columbia Courts issued several decisions which approved of salary
continuance: see, for example, Spooner v. Ridley Terminals Inc. (1991), 39 C.C.E.L. 65
(B.C.S.C.); Marshall v. Artek Group Ltd. (1993), 47 C.C.E.L. 229 (B.C.S.C.); Polak v. Surrey
Memorial Hospital Society [1996] B.C.J. No. 131 (S.C.).
The ratio behind these decisions was that even though an employer had breached the
employment agreement by ending the employee’s employment without notice, providing salary
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continuance was a bona fide form of damages available to compensate the employee for this
breach. In Marshall, supra, at p. 231, Meredith J. characterizes salary continuance as follows:
The plaintiff argues that “the defendant cannot deprive the plaintiff of the right to obtain
a judgment in a lump sum by paying him periodically”. I think the submission is in error.
It overlooks the fundamental aim of a damage award, that is to say, to put the plaintiff, so
far as is possible, in the same position as if there had been no breach of the contract.
Thus, the plaintiff should be awarded an amount resembling as closely as possible what
he would have received had he been given adequate notice and had worked out the period
of notice. In that case, if the notice period was adequate, the plaintiff would have received
his salary, pay period by pay period. It follows that if the employment of the plaintiff is
terminated, he will be fully, appropriately and adequately compensated if the defendant
continues to pay his salary.
In recent years, the British Columbia Courts appear to be resiling from the position that damages
paid out over a period of time will always adequately compensate an employee for a breach of
the employment agreement.
In Light v. City of Richmond [1998] B.C.J. No. 102 (S.C.), the Court rejected an employer’s
attempt to provide salary continuance following termination and failed negotiations about the
quantum of a lump sum severance payment. The Court held salary continuance is only available
where an employer offers it in the original termination letter. In this case, the City of Richmond's
termination letter had only offered a lump sum payment. The Court disallowed the employer’s
attempt to unilaterally begin salary continuance and ordered a lump sum award.
Further limitations on the availability of salary continuance as a method of compensating a
plaintiff for a breach of the employment agreement as a result of termination without notice were
imposed in Albach v. Vortek Industries Ltd. 2000 BCSC 1228. In Albach the defendant offered
the plaintiff (formerly a senior executive in the company), 18 months’ salary continuance. The
salary continuance offer contained a balloon clause which provided salary continuance would
end and the plaintiff would receive 50 percent of the balance of the payments as a lump sum.
The defendant also offered to continue the plaintiff’s health and welfare benefits, except for long
term disability. The defendant offered to pay an amount equal to the cost of the long term
disability premiums for the length of the notice period, or the actual cost the plaintiff incurred
replacing the long term disability benefits.
The Court in Albach accepted the plaintiff’s argument that the defendant’s offer of salary
continuance did not adequately compensate him for the breach of the employment agreement.
While recognizing that the use of salary continuance has been approved in British Columbia,
Brooke J. held that offers of salary continuance will not be automatically sanctioned by the
Courts.
Brooke J., citing Polak (and considering both Marshall, supra and Spooner, supra), held that the
Courts will consider two factors in assessing the appropriateness of salary continuance [at para.
16]:
(a)
“the conditions attached” to the salary continuance; and
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(b)
whether the salary continuance is for a period “reasonably equivalent to a lump
sum award in lieu of notice”.
Brooke J. further qualified the second condition by holding that the reasonable notice period for
which salary continuance is offered must be at “the higher end of the appropriate range” [para.
18]. The learned trial judge noted in obiter that if the defendant had offered 24 months (the
higher end of the notice range) instead of 18 months (the lower end of that range), he may have
approved the use of salary continuance.
In rejecting the defendant’s offer of salary continuance, Brooke J. commented as follows [paras.
20-21]:
It seems to me that salary continuance may be appropriate on termination where it is
expressly provided for by contract of employment or where it is offered and accepted
upon termination. An unaccepted offer has no contractual consequence. If, as in Polak the
offer of salary continuance is equivalent to a lump sum award in lieu of notice that may
discharge the employer's obligation. If it is not equivalent then in my opinion the court
should be slow to make what may be seen as the equivalent of a contract for the parties.
In the result I am satisfied that the notice was unreasonable, the dismissal is therefore
wrongful and I see no reason to depart from the principle that damages are awarded in a
lump sum once and for all.
In Moody v. Lafarge Canada Inc. 2000 BCSC 1847, the Court followed the Albach decision and
rejected the defendant’s offer of salary continuance. The Court ordered a lump sum payment of
damages based on the following reasoning [para. 25]:
I am not satisfied that a salary continuance is appropriate. Lafarge terminated the
plaintiffs’ employment which it was entitled to do. It did not however provide reasonable
notice of that. … The breach by Lafarge is in failing to give reasonable notice. The
plaintiffs’ claim for damages is based on a calculation of the notice period multiplied by
their monthly salary. There is no agreement to accept salary continuance in the event of
dismissal nor an acceptance by the plaintiffs, upon their termination of employment, of a
payment on a monthly basis for the appropriate notice period.
In Leung v. MDSI Mobile Data Solutions Inc. 2002 BCSC 1597, the defendant’s offer of salary
continuance provided payments to the plaintiff would be cancelled if the plaintiff found new
employment during the notice period. The Court, again following Albach, held that because of
this condition, the salary continuance was less valuable than a lump sum payment. The Court,
accordingly, refused to accept the salary continuance as an acceptable form of compensation for
the employer’s breach of the employment agreement. The Court ordered a lump sum payment of
damages.
C. Employer Considerations About Salary Continuance
An employer who wants to implement an effective salary continuance today must generously
estimate the notice period range and offer a salary continuance at the upper end of that range.
This could make an offer of salary continuance potentially more expensive than a lump sum
severance package or providing working notice.
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The employer is also restricted in the conditions it can impose on a salary continuance offer.
Preconditions such as termination of the salary continuance on the employee finding a new job
(even perhaps termination with a balloon clause) may result in a Court awarding lump sum
damages instead of upholding the salary continuance offer.
It is possible other common conditions on salary continuance offers would also serve to render
those offers insufficient compensation for the breach of the employment agreement, including
requiring an employee to:
report on his or her job hunting progress and efforts;
agree to restrictive covenants, such as non-solicitation or non-competition provisions; and
execute a general release in favour of the employer.
An interesting future issue is what happens where an employer does offer unconditional salary
continuance which is accepted by the employee, and the employee finds work during the notice
period. Is the employer obliged to continue the salary continuance? Will this not result in the
employee being double compensated for his or her original loss from the breach of the
employment agreement?
It appears salary continuance is considered to be a new offer following the breach of the
employment agreement. Accordingly, if it is made without preconditions, and the employee does
find new employment during the notice period, there appears to be a good argument that the
employer is required to continue the salary continuance payments.
Given the foregoing, is there any advantage to salary continuance for employers? While not as
useful as it once was, salary continuance still:
spreads out the cost of termination, which may help cash flow;
may allow for some benefit continuation, which would protect the employer from claims for
benefits which arise in the notice period;
may deter an employee from bringing an action as the employee is receiving income; and
is effective to discharge an employer’s liability for immediate termination of the employment
agreement, subject to a challenge in Court.
D. Employee Considerations About Salary Continuance
An issue for many employees is how to respond when an employer offers salary continuance.
On the one hand, the salary continuance offer is likely not to be as favourable as a lump sum
payment. It will probably have preconditions attached which result in a smaller total payout if
employment is found during the notice period. It may also be less favourable from a tax
perspective.
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On the other hand, the employee no longer has a job, needs an income, and will likely be
tempted to accept the salary continuance pending negotiations about a lump sum severance or
court action.
There is a risk to an employee in accepting salary continuance pending negotiations about
severance. A Court may find the employee, by his or her conduct, agreed or acquiesced to the
salary continuance offer.
Employee counsel may wish to ensure if the employee is continuing to accept the salary
continuance payments while negotiating or litigating the quantum of severance, that this
acceptance is on a without prejudice basis to the employee’s right to demand a lump sum
payment.
IV.
WORKING NOTICE
A. Giving Working Notice
Working notice must be clearly communicated to the employee. The notice must be specific,
clear and unequivocal such that a reasonable person would be led to the clear understanding that
his or her employment is at an end as of some date certain in the future: Kalaman v. Singer Valve
Co. (1997), 31 C.C.E.L. (2d) 1 (B.C.C.A.). The Court will examine the notice objectively and
consider all the circumstances of each case to determine whether the notice is sufficiently
specific, clear and unequivocal.
Mister Justice Wood, writing for the Court of Appeal in Gibb v. Novacorp International
Consulting Inc. (1990), 48 B.C.L.R. (28) (C.A.), described the requirement for notice as follows
[at p. 34]:
I do not think that in order to be specific and unequivocal, the notice given must
necessarily use the words “you are hereby dismissed effective …” or some such
equivalent. If the words used are such as would lead a reasonable person to the clear
understanding that his employment is at an end as of some date certain in the future, it
may well be that specific, unequivocal notice has been clearly communicated. It must in
every case depend on all the circumstances in evidence.
Notwithstanding Mister Justice Wood’s directions in Gibb, it appears good practice to clarify in
writing that the employee is “hereby dismissed” after a period of working notice and as of a set
date.
At the trial level in Kalaman, [1996] B.C.J. No. 814 (S.C.), the Court held that a notice which
suggested the employee may be rehired in a different capacity at the end of the notice period was
not sufficiently clear and unequivocal. Even though this finding was reversed on appeal on the
authority of Gibb, a clearer notice may have avoided this litigation.
In Elderfield v. Aetna Life Insurance Co. [1995] B.C.J. No. 1018 (S.C.), the trial judge held that
notice which suggested that the employee would receive a severance package or an alternative
position in the company did not constitute proper working notice. The Court of Appeal affirmed
this finding of fact.
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A sample termination letter offering working notice is attached as Appendix “B”.2
Although I am not aware of a common law requirement which specifically requires notice to be
in writing, it appears good practice to ensure that it is. Oral notices are subject to
misinterpretation and are less likely to be clear and unequivocal than written notice.
Further, if the notice is not in writing, the employer will not discharge its statutory liability for
termination pay. The Employment Standards Act, R.S.B.C. 1996, c.113, section 63, requires
notice of termination to be in writing; oral notice is not valid.
B. Working Beyond The Notice Period
Allowing an employee to work beyond the end of the notice period likely vitiates the working
notice at common law and certainly vitiates it under the Employment Standards Act.
Section 67(1)(b) of the Employment Standards Act provides that notice is not effective where an
employee works beyond the end of the notice period. For example, take an eight month notice
period which ends December 31, 2003. Even though this notice period is clearly in excess of
anything required by the Employment Standards Act, if the employee worked on January 1,
2004, the employee would be entitled to a new statutory termination notice period or pay in lieu.
At common law, an employer who allows an employee to work beyond the end of the notice
period risks creating confusion and uncertainty about the notice (e.g. did the employee’s
employment really end, or is it continuing?). If the notice becomes unclear and equivocal, there
is a risk a Court would hold that it is not valid.
Where the employer finds that it needs an employee to work a few days beyond the end of the
notice period, it appears better practice to enter into a new written employment agreement with
the employee which recognizes the employee’s employment has ended, and that the employer is
retaining the employee’s services on new terms and conditions for a set period of time.
C. Retracting Working Notice
Once working notice has been provided, an employer likely will not be able to unilaterally
amend or retract that notice.
The Court of Appeal in Elderfield v. Aetna Life Insurance Co. of Canada [1996] B.C.J. No. 1817
(C.A.) considered this issue. In Elderfield, the employer gave improper and invalid working
notice. The improper notice suggested the employer would provide a severance package or
provide alternative work. Prior to the notice expiring, the employer sought to give proper,
specific and unequivocal working notice. The employee refused to accept the latter notice and
brought an action.
The employer argued as its improper notice had not yet been accepted, the employment
agreement continued to exist for the benefit of both parties. This, the employer said, is in
accordance with the general principles of contract law, and allowed the employer to retract the
improper notice and issue proper, lawful working notice. The employer further argued the
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employee’s refusal to work during the notice period set out in the proper, lawful notice amounted
to a resignation.
Madam Justice Huddart agreed with the employer’s argument, but held that, on the facts, that the
employer by its conduct had otherwise repudiated the employment contract. The employee was
entitled to accept the employer’s repudiation at the end of the improper notice and to sue for
damages.
Madam Justice Newbury, writing concurring reasons, held that once notice has been given, an
employer may not unilaterally re-elect to provide additional working notice.
In Zaraweh v. Hermon, Bunbary and Oke [2001] B.C.J. No. 1896 (C.A.), the B.C. Court of
Appeal appears to have adopted Madam Justice Newbury’s reasoning in Elderfield. The Court in
Zaraweh, citing Elderfield with approval, held that in the absence of mutual agreement, an
employer is not entitled to unilaterally alter working notice.
Based on Zaraweh, the law today appears that notice, once given, may not be unilaterally
amended by an employer.
D. Illness, Pregnancy and Other Absences During the Notice Period
Under the Employment Standards Act, notice given to an employee has no effect if the notice
period coincides with the employee’s pregnancy or a leave or illness: Section 67(1)(a).3 The
Branch’s interpretation guidelines describe the statutory requirement as follows:
A notice period cannot begin while an employee is on vacation, jury duty, strike, lockout,
banked time, temporary layoff, or other leave (either employer-granted or as provided by
statute). If, after notice is given, an employee is on leave under Part 6, Leaves and Jury
Duty, strike or lockout, or is unavailable for work … for medical reasons, the notice
period is interrupted and resumes upon conclusion of the interruption. An employer
cannot require an employee to take vacation during the notice period.
Similar considerations appear to apply for common law notice. In Elderfield, supra, the Court of
Appeal recognized it was “common ground that the [plaintiff employee’s] period of notice could
not coincide with her vacation leave … or her pregnancy and parental leaves” [at para 13].
The law appears clear that time spent on pregnancy and parental leave will not count as part of
the reasonable notice period: Whelehan v. Laidlaw Environmental Services Ltd. [1998] B.C.J.
847 (S.C.); Winterburn v. Domtar Inc. 2002 BCSC 1418. The policy behind this is ostensibly to
prevent unscrupulous employers from giving working notice immediately prior to an employee
beginning a pregnancy leave.
It is less clear how a period of illness affects the reasonable notice period. Where an employee is
dismissed without notice, a subsequent period of illness will not affect that employee’s claim for
damages: Sylvester v. British Columbia [1997] 2 S.C.R. 315. In Sylvester, the Supreme Court
stated this principle as follows [at para. 9]:
The fact that an employee could not have worked during the notice period is irrelevant to
the assessment of these [wrongful dismissal] damages. They are based on the premise
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that the employee would have worked during the notice period. Therefore, an employee
who is wrongfully dismissed while working and an employee who is wrongfully
dismissed while receiving disability benefits are both entitled to damages consisting of
the salary the employee would have earned had the employee worked during the notice
period.
This reasoning suggests a period of illness would not count towards the notice period. To
conclude otherwise would result in the employee who received working notice receiving less
compensation than the employee who was wrongfully dismissed. In other words, the Court
would be putting an employee whose employment agreement was breached in a better position
than the employee whose employment agreement was honoured. This is contrary to the
principles of contract law and strongly indicates that periods of illness do not count as part of the
notice period.
Working notice issues with respect to pregnant or ill employees are usually further complicated
by human rights considerations. These considerations are beyond the scope of this paper.
However, even without human rights considerations, the foregoing reasoning creates a dilemma
for employers. This dilemma is well illustrated in the following examples:
Example A:
Employer A chooses to comply with the employment contract and gives
Employee X working notice. Working notice is 18 months. During the working
notice period Employee X is ill for an aggregate of four months and on pregnancy
leave for the final five months. Employee X demands nine months pay in lieu of
notice.
What are Employer A’s options given that, under Zaraweh, supra, Employer A
cannot amend of extend the notice period without Employee X’s consent.
Example B:
Employer B also complies with the employment contract and gives Employee Y
working notice. Working notice is six months. After receiving working notice,
Employee Y becomes depressed and stressed and takes medical leave for the
entire working notice period. At the end of the notice period, Employee Y
demands six months’ severance.
Providing Employers A and B continued the normal pay of the employees, notwithstanding that
these employees were off work and may not have been entitled to pay, likely would eliminate
subsequent liability. However, such action may also create an apparently incongruous result. An
employer may have two employees absent on sick leave concurrently. The employer may have to
pay the one who has been given working notice, but not pay the other who has not.
Perhaps the answer to the foregoing examples is that pay need not continue during an absence (if
the employee would not normally be paid), but that notice will be extended for the period of the
absence.
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I anticipate we will not have to wait long before a Court considers these issues.
These types of dilemmas and the jurisprudence underlying them have created uncertainty for the
employer who wishes to honour an employment agreement and give notice. It is ironic that the
same jurisprudence has created certainty, and thereby increased the incentive, for employers who
breach the employment agreement and pay damages in lieu of notice.
E. Employees’ Duties During The Notice Period
An employer has the right to expect an employee to make his or her services available during the
notice period: Suleman v. B.C. Research Council [1990] B.C.J. No. 2707 (C.A.).
In Suleman, the employer provided six months’ working notice. The employee, who was ill, did
not attend work, but brought an action for wrongful dismissal. The Court of Appeal held [p. 4]:
In other words, the contract of employment is not terminated until the end of the notice
period and during that period the employer has the right to the services of the employee.
It follows that the employee must remain ready and willing to carry out the contract of
service.
While the law appears clear that an employee must remain ready and willing to provide services
during the working notice period, at least one decision in British Columbia suggests that an
employee who has been given notice may divide his or her time between acting in the best
interests of the employer and seeking alternative employment: Elms v. Hywel Jones Architect
Ltd. [1997] B.C.J. No. 1084 (S.C.).
The apparent ratio behind Elms, although not yet expanded upon by other British Columbia
courts, has been addressed in New Brunswick. In New Brunswick, the Court of Appeal held that
the principle purpose of a notice period is to provide the employee time to find a new job. The
New Brunswick Court requires an employer to provide an employee the opportunity to seek
alternative employment during the notice period for the notice period to be considered valid:
Bramble v. Medis Health and Pharmaceutical Services Inc. [1999] N.B.J. No. 307 (C.A.).
A trend toward requiring employers to provide employees the opportunity during the working
notice period to job hunt raises a sociological question about notice periods: is a notice period a
judicially mandated social safety net following loss of a job and before the public safety net (i.e.,
employment insurance) takes effect?
If notice periods are social safety nets, then allowing time to job hunt appears imperative. If they
are not, there appears no basis in contract law to justify amending the employment agreement to
allow the employee to reduce his or her duties in favour of seeking alternative employment.
F. Effect Of An Action
An employee who brings an action for wrongful dismissal against an employer during the
working notice period risks repudiating the employment agreement.
Mr. Justice Hutcheon, giving his judgment in Suleman, supra, said [p.2]:
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It seems to me that the commencement of the action was either an acceptance by Mrs.
Suleman of a constructive dismissal, if she could establish that result, or a repudiation by
her of her contract of employment if she failed to establish that result.
In Podas v. Pacific Press Ltd. (1991), 61 B.C.L.R. (2d) 196 (C.A.) the Court held at page 199:
In Suleman, as here, there was a repudiation of the contract of employment by the issue
of the writ and statement of claim.
In C.A.I.M.A.W, Local 4, v. British Columbia (Director of Employment Standards Branch)
(1993), 48 C.C.E.L. (B.C.C.A.), the Court noted at page 176:
... having failed on the issue of constructive dismissal, the writ amounted to the
employee's repudiation of the contract of employment.
At the trial level in Zaraweh, (2000) 49 C.C.E.L. (2d) 77 (B.C.S.C.) the Court distinguished
Suleman, Podas and Hulme on the basis that the employees involved in those cases appeared to
have refused to do any further work for the employer. The Court concluded:
I do not consider that an employee who does no more than issue a Writ and file a
pleading alleging a wrongful dismissal when given working notice that is less than
reasonable is to be denied her remedy if she is prepared to continue working for her
employer and does so until the employer terminates the contract.
This finding was reversed on appeal where the Court in Zaraweh, supra, held [at para 21]:
On my view of the pleadings and the case law, I do not consider that [the trial judge’s]
view can hold, and I am of the view that the acts of issuing the writ and statement of
claim and serving them on the [employer] were conduct incompatible with continuation
of the contract of employment. Absent a prior repudiation by the [employer] which would
allow Ms. Zaraweh to elect to end the contract, or which alternatively could be viewed as
justifying her termination of the contract, such actions must be viewed as unjustified
repudiation by Ms. Zaraweh.
Accordingly, the law in British Columbia remains that an employee who brings an action for
wrongful dismissal during the working notice period will have repudiated the employment
agreement. An employer may accept the employee’s repudiation and end the employment
agreement summarily.
It should be noted, however, the Court in Zaraweh emphasized that not every action by an
employee against an employer will amount to a repudiation of the employment agreement. The
Court held [at para 22]:
… I refer only to the facts of this case which were issuance of a writ of summons and
statement of claim seeking general and punitive damages, some time before the end of
the working notice. It may be that not all actions by an employee against an employer are
of the same nature. For example, an action for a declaration as to a contract’s
continuance, or for an injunction … may have a character compatible with performance,
not breach, of a contractual obligation.
13
From an employer’s perspective, a restraint on an employee from bringing an action is a
tremendous advantage. There is a good chance the employee will mitigate his or her damages
during the notice period by finding a new job. The notice period and possible mitigation may
well reduce an employee’s claim to a point where it is no longer worth pursuing damages in
Court.
The restraint on an employee bringing an action is not necessarily unfair. If an employer
provides a reasonable working notice period or if the employee mitigates during the notice
period or both, the employment agreement is either honoured or damages are not suffered. In
such circumstances the employee continues to receive an income and the workload for the Courts
is reduced. The only disadvantage is the employee does not have the chance to realize the
windfall he or she would with a lump sum severance payment.
Plaintiff’s counsel who do not want to be fettered by waiting for the notice period to end may be
best served bringing an immediate action for a declaration as to the appropriate reasonable notice
period. Given the prohibition against employers unilaterally amending the notice period, a
finding that the reasonable notice period exceeds the notice provided likely will lead to a prompt
resolution of any dispute (subject to discounts for possible mitigation).
G. The Requirement To Provide Work
Historically, the English Courts, with certain exceptions, held that there was no obligation on an
employer to provide work during the working notice period: Freedland, The Contract of
Employment (Oxford, Clarendon Press: 1976). The exceptions set out by Professor Freedland are
[at pp. 24-25]:
(a)
Employees whose remuneration is based on commission or piecework and who, if
they do not work, earn no remuneration.
(b)
Employees who have specifically contracted for a specific job with specific
duties.
(c)
Employees who gain publicity or experience from employment, such as senior
executives and directors of companies, or actors.
With respect to this final category, Professor Freedland notes [at p. 25]:
In general, the cases where damages may be recovered for loss of publicity or experience
are very much the exception rather than the rule.
This line of jurisprudence was considered by the British Columbia Courts in Park v. Parsons
Brown & Co. (1989), 39 B.C.L.R. (2d) 107 (C.A.).
In Park, the defendant company gave the plaintiff, its President and CEO, 18 months’ working
notice. The defendant treated the plaintiff as still on the payroll and gave him access to his office
and parking space. The defendant took away the balance of the plaintiff’s duties.
14
The trial judge held “the suggestion that the Company had not relieved the plaintiff of his
function as Chief Executive Officer by inviting him to sit in his office and use his parking space
as usual can be no more than a pretence.”
The Court of Appeal recognized that historically there was no obligation to provide work. The
Court further recognized the exceptions to this principle. Hutcheon J.A. writing for the majority
held that the plaintiff as a senior manager fell within these exceptions. Southin J.A., concurring
on this issue, held that the terms of the plaintiff’s contract did not empower the employer to
provide working notice without work.
In Suleman, supra, Mister Justice Hutcheon summarized his reasoning in Park, as follows [at p.
143]:
In Park v. Parsons Brown & Co [citations omitted], I referred to long standing authority
that the employer’s obligation to keep an employee retained and employed does not
necessarily import an obligation to supply work.
This principle was also noted and followed in Spooner v. Ridley Terminals Inc. (1991), 39
C.C.E.L. 65 (B.C.S.C.) where Macdonald J. wrote [p. 70]:
… I accept that the law does not in most cases require an employer to provide work
during the notice period …
Accordingly, the current law in British Columbia appears to allow an employer to provide
working notice without requiring the employee to attend at work, absent the existence of one of
the above cited three exceptions.
There continues to be uncertainty on this issue due to a conflict between providing notice
without work and constructive dismissal. This conflict is discussed in the next section.
Not requiring the employee to attend at work during the notice period may be a benefit to the
employee. It provides the employee ample opportunity to seek alternative employment. If the
notice period is to provide the employee a chance to find a new job (as suggested in Elms v.
Hywel Jones Architect Ltd., supra), then surely an employer, by not requiring attendance at
work, is maximizing the notice period’s utility to its employee.
From an employer’s perspective, providing notice without having to provide work is a
tremendous advantage as:
It allows the employer to realize the benefits of salary continuance without the risks;
Working notice without work removes the employee immediately from the workplace,
thereby avoiding problems of negative morale, poor work performance, or compromises to
security or business interests;
It avoids a cash crunch by allowing the employer to make periodic payments to the
employee;
15
It eliminates the chance of the employee receiving a windfall payment as, if the employee
finds new employment, the employer can end the employee’s salary and benefits;
It may allow continued benefit coverage during the notice period. This will depend on the
actual terms of the contract between employer and benefit provider; and
It provides a disincentive for the employee to bring an action during the notice period, as the
employee risks a finding he or she repudiated the employment agreement by bringing the
action.
From an employee’s perspective, working notice without working is likely not as favourable as a
lump sum; the working notice removes the possibility of a windfall and is not subject to as
favourable tax structuring. For most employees, I would anticipate, it likely is preferable to
actually having to attend at work.
I have recently seen an expansion in the numbers of employers using working notice without
working. I anticipate as more employers adopt this technique, the Courts will be asked to
adjudicate on the merits and legality of working notice without work. In particular, I anticipate
the issue of reconciling working notice without work and salary continuance will arise.
Working notice without work appears substantively the same as salary continuance. The
difference is the date the employer says the employment agreement ends – the end of the notice
period for the former and the beginning of the notice period for the latter. For an employer to be
able to obtain an advantage by electing one method over the other appears to put form ahead of
substantive rights.
H. Working Notice As A Constructive Dismissal – Change Of Terms During Notice
An employer may not unilaterally alter an employee’s terms and conditions of employment
during the working notice period. A unilateral alteration of terms and conditions will amount to a
constructive dismissal and allow the employee to stop working and to bring an action for
damages: Farquhar v. Butler Bros. Supply Ltd. (1988) 23 B.C.L.R. (2d) 89 (C.A.); Suleman,
supra.
If there is no obligation to provide work during the notice period, removing completely an
employee’s duties would not appear to be a constructive dismissal. This was an issue in Suleman
where the employer replaced 50 percent of the plaintiff’s duties with other duties. The Court
found there was no constructive dismissal.
Likewise, in Podas v. Pacific Press Ltd. (1991) 61 B.C.L.R. (2d) 196 (C.A.), the Court rejected
the plaintiff’s argument that he had been constructively dismissed. The Court upheld the trial
judge’s finding that the plaintiff had retained the core functions of his employment and that 75
percent of his duties had not been removed.
So, why is the degree of job change during the notice period relevant if all duties can be
removed? The answer may be because even during the notice period a unilateral change to a
fundamental term of the employment agreement can result in constructive dismissal. Perhaps,
16
while a complete removal of duties may not be a constructive dismissal, a demotion with its
accompanying reduction in status and duties may be.
A concern for employers who provide working notice without working will likely be the
employee who claims removal of his or her duties is embarrassing or a reduction in
responsibility, and as such a constructive dismissal. An employee would make this claim to
secure a lump sum payment instead of notice. Employees who claim constructive dismissal and
lose are held to have resigned; this is the risk any employee faces when deciding whether to
claim constructive dismissal.
Another issue for employers who provide working notice without working will be the risk of not
being able to continue benefits. Many benefit providers refuse to provide benefit coverage to
employees who are not actively attending work. Accordingly, an employer who gives notice
without work may have to discontinue the employee’s benefits for the notice period. Depending
on the scope and value of the benefits, this discontinuation of benefits may amount to a
constructive dismissal.
I. Working Notice As A Constructive Dismissal – Insufficient Notice
Can the working notice itself be a constructive dismissal?
This was the question for the court in Zaraweh, supra. In that decision, the trial judge found
reasonable notice was 10 months. The employer had given three months’ notice (which the
employer had later unilaterally extended to four months).
The plaintiff argued that since providing reasonable notice was a term of the employment
agreement, she had been constructively dismissed when the employer breached that term and
provided less than reasonable notice.
The employer relied on Suleman, supra, for the proposition that the employment relationship
was not terminated until the end of the notice period. It argued provision of notice which is less
than reasonable cannot therefore amount to an act of termination.
The employer also argued that the principle that an employee's employment is not terminated
until the end of the notice period, regardless of the amount of notice provided by the employer,
was confirmed by both the majority and those in dissent in C.A.I.M.A.W., Local 4 v. British
Columbia (Director of Employment Standards Branch) (1993), 80 B.C.L.R. (2d) 337 (C.A.).
Chief Justice McEachern, delivering the dissent, said [page 179]:
Termination of employment, whether at common law or under the terms of a collective
agreement or statute, takes effect not at the date of notice, but rather on the maturity date
of the notice unless previously withdrawn.
The Suleman Court reached its decision on this issue based largely on the English case of Hill v.
C.A. Parsons & Co. [1972] 1 Ch. 305.
The Court in Zaraweh reviewed both Suleman and Hill and concluded [at para 27]:
17
Thus, the Suleman case, while saying that the contract of employment is not terminated
until the end of the notice period, did so in a theoretical framework which posed the
possible repudiatory act of the employer as being a constructive dismissal.
The Court then went on to find that the employer’s provision of three (or four) months’ notice
was a breach, but not a repudiation of the employment agreement. Given the Court’s finding that
the employee repudiated the contract by suing for wrongful dismissal, the Court was left to
establish an appropriate remedy.
The Court held the plaintiff’s remedy was the difference between the reasonable notice
entitlement and the working notice provided; in the case of Zaraweh, the difference between the
10 months found to be reasonable by the trial judge and the three months given by the employer.
The Court does suggest that there may still be instances where notice is so unreasonable it
amounts to a repudiation. In Zaraweh the Court found there was no intention by the employer to
repudiate the agreement and that its offer of three months was “an honest misapprehension” as to
its obligations.
V.
REFLECTIONS ON ZARAWEH
I conclude this paper by considering the implications of Zaraweh on employment law, and in
particular on the provision of working notice.
Zaraweh balances the equities involved in ending the employment relationship by creating the
following incentives for employers and employees:
An employee is basically obliged to work out a notice period (assuming no other repudiatory
conduct by the employer, including provision of a wholly unreasonable notice period).
Refusal to work during the notice period is a resignation.
Assuming the notice period is not so unreasonable as to be a clear repudiation of the
employment agreement (e.g. a two week notice period for a 20 year employee), an employee
has an incentive not to bring an action for wrongful dismissal until the end of the notice
period. Bringing an action for wrongful dismissal is likely a repudiation of the employment
agreement which would allow an employer to accept the repudiation and end the
employment agreement summarily.
An employer has an incentive to provide notice periods in the range of reasonable notice.
Provision of a lesser period exposes the employer to an action for damages. Provision of a
wholly unreasonable notice period may amount to a constructive dismissal.
Overall, the result of Zaraweh appears to be that those employers who do choose to provide
notice should provide notice in the reasonable notice range (or very close to it). Employees will
have every incentive to work out the notice period, ideally finding alternative employment prior
to the end of the notice period. Actions will be kept to a minimum given the employer’s
compliance with its contractual obligations and the risk to the employee of repudiating the
employment agreement.
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APPENDIX “A” – SALARY CONTINUANCE LETTER
<Company Letterhead>
<Date>
Private and Confidential
<Employee name>
<Employee address>
Dear <Employee>:
It is with regret that we must inform that <Company> has decided to end your employment
effective immediately. We made this decision as <Reason for termination>.
Kindly return all company property, including your office keys and company credit cards to us as
soon as possible.
The company wants to provide you every assistance in your career transition to a new
organization and should you require a reference letter or other assistance locating alternative
employment, please do not hesitate to ask.
As a severance package, and to assist you financially until you find a new job, the company will
pay to you your regular salary, less required deductions, for a <Number> month period, until
<End date>, subject to you finding alternative employment. If you find and start alternative
employment, prior to <End date>, the company will pay you a lump sum payment, less statutory
deductions, equal to fifty percent of the salary you would have been entitled to receive from the
date you start your new employment to <End date>.
<Address benefits issues.>
The company is pleased to be able to offer you what we believe is a generous severance package,
and one that exceeds what is required by employment standards legislation. You may wish to
seek professional advice in this regard.
Kindly sign and return the enclosed copy of the Release to confirm that you understand and
accept the terms of this offer in full and final satisfaction of any and all claims you may have
against the company by no later than <date>.
The company wishes you every success in your future endeavours and hopes the transition
period to your new organization is a short one.
Yours truly,
<Signature>
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APPENDIX “B” –WORKING NOTICE LETTER
<Company Letterhead>
<Date>
Private and Confidential
<Employee name>
<Employee address>
Dear <Employee>:
It is with regret that we must inform that <Company> has decided to end your employment
effective <End date>. We made this decision as <Reason for termination>.
The company will provide you a reference letter to help you find new employment. While the
company requires you to actively attend at work until <End date>, the company will
accommodate your reasonable requests for time off to attend job interviews during the working
notice period.
During the working notice period, we require you to take vacation time currently owing. Our
records show you have <number> days of vacation. Please contact <Person> to arrange for
when you will take vacation.
Your full salary and all benefits will continue until <End date>, or until you begin alternative
employment, at which time salary and benefits will end.
Yours truly,
<Signature>
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END NOTES
1
Unless stated otherwise, all references in this paper to employment agreements are to agreements of indefinite
term without express conditions about their termination.
2
Letters in this paper are provided for discussion purposes only. As with all precedents, these letters are
inherently generic and should not be used without modification reflecting the specific issues of an individual
case. For example, employers should consider whether to mark the letter “Without Prejudice”. Such
considerations are beyond the scope of this paper. These letters are not meant to be legal advice and readers
should seek legal advice before using these forms of letters.
3
Section 67(1)(a) also invalidates notice given during a strike or lockout. As strikes or lockouts only affect
unionized workers, I have not considered these circumstances.