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Working notice versus pay in lieu of notice

QUESTION: My job has been outsourced to Mexico and last week I got a letter saying that I am terminated four months from now with a severance package to follow. A co-worker told me that the company gets credit for my working notice and that it reduces the total package I am entitled to. Is that true? How can it be part of a package if I have to work during that period of time?
ANSWER: Unfortunately, it is completely true. You will have heard people refer to the cash settlements employees get on being terminated as pay in lieu of notice. Most employees get a financial settlement without having to work for it because they did not get working notice.
When the law requiring employers to give reasonable notice of termination to employees based on their age, seniority and level of responsibility evolved in Britain over a century ago, the whole idea was advanced working notice. It was considered unreasonable for your butler of 11 years to suddenly find himself out of work without anything in hand but his outstanding wages.
As things have evolved, most employers do not keep people around once they have been told that their employment is coming to an end. Angry employees  are considered dangerous to have around. I see two exceptions in my practice. One is non-profit organizations where all or part of the organization is closing down as a result of funding issues. The other is a situation like you are in where a company is closing down its operations in whole or in part.
In both cases, there is clearly nothing remotely personal about the termination and employers feel less leery about having you continue to work for them notwithstanding that you know your end date is coming.
While employers do have the right to reduce the severance package that you would otherwise have been entitled to by the amount of working notice you are given, many employers either don’t do so or don’t give themselves the whole credit for the working notice period.
The reason you were given working notice is that there is still work to do. If you are a totally bitter employee, chances are you are not going to do it particularly well during those depressing end days. Most employers will tell you that if you continue to give a 100% effort to the job until the last day of employment you will get either what is called a “staying bonus” or a generous financial package. Whichever it is called, the end result is that, when combined with the working notice, it is more than the reasonable notice that a judge would award based on your age, seniority and level of responsibility.
They want to encourage you to stay and keep working productively until the last day the plant is open so that their plans for transitioning production will run smoothly.
This strategy works far better in times when jobs are hard to find than when they are more plentiful. If there are no jobs to go to, you are more likely to stay to the end.
But let’s face it, if you get offered a job three months before you are supposed to finish working for the old employer and that job may very well feed you and your family for years to come, you are going to leave even if it means losing a significant “staying bonus” or severance package by not working until the last day. 
If you do have to leave early, there may be a way to get the severance pay required by the Employment Standards Act, if you not your full package. Let’s assume that you have been employed for seven years and your employer has a payroll of over $2.5 million. Because of that payroll, you are entitled to not only seven weeks’ termination notice under the Employment Standards Act but also seven weeks’ severance pay
Let’s say that you were in a management position and your full reasonable notice, inclusive of the termination and severance pay I talk about above, is eight months. The employer gives you a letter saying that you are finished in three months and then you will get five months pay in lieu of notice if you work to the end. You get a job offer that starts six weeks before the end of that three-month working notice period. You give two weeks’ notice in writing and your last day of work is within that seven weeks that end the working notice period. You get the new job and seven weeks’ pay even though you lose the rest of the five months.
If the job offer comes and can’t wait and you have to leave before the last seven weeks before the end date, there is nothing you can do about holding on to the severance money.
I know it hurts to have to leave behind a wind-fall that you appropriately feel is your entitlement after so many years of service, but if you turn down the new job and end up unemployed long after your severance package runs out, you will have cut off your nose to spite your face.
As published in The Hamilton Spectator, August 8, 2011
Ed Canning
Ed Canning
P: 905.572.5809