How will COVID-19 affect B.C. severance pay?

The effect of COVID-19 on fair severance pay in B.C. depends on the type of employment. For a job delivering meals or working in a long-term care facility, severance pay will either be unaffected or decreased. On the other hand, for a job like manicurist or maître d’, or any other sector where COVID-19 has made it harder to find comparable employment, severance pay should be increased.

 

The reason for this is that under B.C. Law, employees (and dependent contractors) are entitled to working notice prior to dismissal; however in practice, most employers pay severance in lieu of notice. But how much notice is reasonable?
If the employment contract is silent on how to calculate notice, reasonable notice will be determined under common law based on the following factors:

1. length of service;
2. age of employee;
3. character of employment;
4. health or disabilities;
5. manner of termination;
6. specialized training or qualifications;
7. mass lay-offs;
8. was the employee lured away from another job;
9. unusual economic conditions, such as those created by COVID-19; and
10. other factors (this list is not closed).

 

Many of the above factors are based on historical assumptions about what factors will affect how long it takes to secure comparable employment. The list of other factors is left open. Generally, factors that do not affect the employees ability to secure comparable employment are irrelevant; for example, the employer’s financial hardship or the employees job performance history are generally irrelevant. Relevant factors are generally things that make it harder for the employee to find comparable employment. For example, if 100 mill workers get laid off in a small mill town, the sudden competition for jobs will make it harder for any one person to find a new job and will justify a longer notice period for all laid off employees. By analogy, the effect of COVID-19 on notice periods (and therefore severance pay) will depend on whether COVID-19 has made it more difficult to secure comparable employment, or easier. Consequently, if an employee is dismissed at a time when it is known that COVID-19 will make it more difficult to find new employment, notice periods and severance pay should be increased.

 

If the employment contract does contain a specific formula for calculating notice upon termination, that formula will supersede the above common law factors, and almost certainly that formula will not have anticipated a pandemic like COVID-19. For example, union contracts always include termination clauses, and so the above factors generally will not apply to unionized workers. However, any termination clause that provides less than the minimums specified in the Employment Standards Act will be invalid, and will result in the employer being entitled to common law reasonable notice based on the above common law factors.

 

Note, however, that reasonable notice is based on information that was available at the time of dismissal. COVID-19 should not affect reasonable notice if an employee was dismissed before COVID-19 was known to be an issue.
Also note that while unfavorable economic conditions at the time of dismissal generally justify greater notice periods, the reverse is generally not the case. Favorable economic conditions generally do not justify shorter notice periods… although favorable economic conditions may justify lower severance offers because of the duty to mitigate which we will discuss next.
Dismissed employees have a legal duty to mitigate their loss of employment income by actively seeking new employment.

 

Because of this duty to mitigate, severance offers typically do not reflect payment in lieu of the full notice period but are instead discounted to reflect the possibility that the employee will secure comparable employment before the end of the notice period. If severance pay covered the whole notice period then employees would be getting a windfall of double income if they find a new job quickly. To avoid this windfall, employers should discount their initial severance offers based on how quickly they estimate the employee should be able to find new work. If a dismissed employee is successful in securing comparable employment, their damages will be reduced as a result of their success securing alternative employment. If a dismissed employee fails to actively seek new employment their claim for damages will be reduced as a result of their failure to make reasonable efforts to secure new employment. Only in the rare case where an employee fails to secure comparable employment despite making reasonable efforts to secure comparable employment would the employee be entitled to damages in lieu of the full notice period. Therefore, in the case of jobs that are in high demand due to COVID-19, a larger discount is appropriate. On the other hand, in sectors that have had massive job losses, settlement offers should be closer to being payment in lieu of the full notice period.

 

COVID-19 is only one factor that affects reasonable notice and fair severance, and not the main factor. Every situation is unique. At the time of writing, there has been a case where an employee who was dismissed before COVID-19 became a pandemic, was successful in using COVID-19 to explain their failure to mitigate. There are not currently any known decisions in B.C. involving employees who were dismissed after COVID-19 became a pandemic. However, based on the current law we anticipate that:

 

• In sectors where demand for workers has increased due to COVID-19, severance pay will be slightly reduced.
• In sectors where many people have lost jobs due to COVID-19, severance payments in lieu of notice will increase by 10% to 30%.
• COVID-19 will have no effect on severance pay where employment contracts contain termination clauses with express formula for calculating notice periods.