Working Notice v. Payment in Lieu of Notice
Conceptually, pay in lieu of notice and working notice are two different things. The former more closely resembles compensatory damages for breach of contract, while the latter is viewed as an implied term of the employment contract. However, as the Ontario Court of Appeal demonstrated in Taylor v. Brown1, there is no functional difference at law between the two.
Taylor does not depart from previous decisions on pay in lieu and working notice. In Taylor, the Court reinforced that the quantum to be paid to an employee in lieu of notice is to be calculated based on reasonable notice. That is, if an employee is entitled to 18 months reasonable notice – as was the case in Taylor – then the employee should receive the equivalent of 18 months pay and benefits, if applicable, in lieu of that notice. At law, the employer is not permitted to reduce the reasonable notice period owed to an employee upon termination simply because it intends to pay an up-front, lump sum amount.
Facts of the Case
For 21 years, the respondent law firm, Dyer Brown, employed the appellant, Karen Taylor, as a law clerk, working primarily with one of the partners, Mr. Holmes. On October 19, 1999, two partners of the firm informed Ms. Taylor that her employment would be ending in 18 months time.
On October 23, 1999, Mr. Holmes died unexpectedly. On November 17, 1999, Ms. Taylor received formal notice of termination, which provided her with 18 months working notice (“first notice”). The combination of these events resulted in Ms. Taylor going on sick leave for stress on December 2, 1999 at the advice of her physician.
On December 6, 1999 Ms. Taylor received a letter providing for her immediate dismissal with six months pay in lieu of notice and immediate termination of benefits (“second notice”). The termination of her benefits meant that Ms. Taylor could not continue with the therapy she was seeking while on sick leave.
Ms. Taylor was able to secure a part-time position as a legal secretary in September 2000 but did not find a second part-time job until February 2002.
At trial, Justice Patterson of the Superior Court of Justice, considered whether the employer firm was able to offer Ms. Taylor 18 months working notice and then, three weeks later, unilaterally replace that offer with 6 months pay in lieu of notice.
Justice Patterson found that only the first notice was valid and that Dyer Brown was consequently estopped from giving the second notice. He found that 18 months working notice was a reasonable period of notice but awarded – without reasons – 12 months payment in lieu of notice starting on her last day of work, December 3, 1999. Ms. Taylor appealed the award.
Ms. Taylor brought an appeal to the Ontario Court of Appeal on several grounds, one being that Justice Patterson erred in awarding a notice period of 12 months pay in lieu of notice after determining that 18 months working notice was a reasonable notice period. A unanimous Court approached the notice issue by initially addressing whether “there is a functional difference in law between [working notice and pay-in-lieu of notice] warranting the provision of a shorter notice period”2for the latter.
The Court made a succinct distinction between the two, declaring that “proper notice of termination [i.e., working notice] is an implied term of the contract of employment; payment in lieu of notice is not.”3 Adopting the decision of the British Columbia Court of Appeal in Dunlop v. British Columbia Hydro and Power Authority,4 the Court explained that payment in lieu of notice is “seen as an attempt to compensate for [the employer’s] breach of the contract of employment, not as an attempt to comply with an implied term of the contract of employment.” Essentially, payment in lieu can be seen as damages for the employer’s breach of contract. The terminated employee is therefore entitled to be compensated with the amount that she would have received had she been given working notice.
That said, however, the Court made it clear that while their purposes may differ, “there is no functional difference at law between working notice and payment in lieu of notice”5 (my emphasis). As such, the Court turned its attention to whether Dyer Brown was entitled to unilaterally reduce the notice period after the first notice. They found that there was no evidence at trial to support Justice Patterson’s conclusion that the employer was estopped from reducing the notice period and that it was not necessary to consider the argument in the disposition of the appeal.
Instead, the Court upheld Patterson J.’s finding that the first offer of 18 months working notice was reasonable. As such, it was unreasonable for Dyer Brown to later offer Ms. Taylor 6 months notice in the form of pay in lieu since “there was no objective change in any of the relevant factors for determining reasonable notice in the short three week period between the first and second notices that would justify the amendment.”6 Therefore, the quantum for pay in lieu of notice was to be calculated based on the reasonable notice period of 18 months.
What This Means
Initially, Taylor appears as simply an instance of determining the proper notice period owed to an employee upon termination. However, Taylor offers more than that in the form of a clarification of the calculation of pay in lieu of notice. Being that, at law the quantum of pay in lieu of notice is the same as the amount that would have been earned during reasonable, working notice. As the Court acknowledged in Taylor, the wording of the Employment Standards Act7 supports this expression. As such, it is important for employers to remember that offers of pay in lieu of notice do not relieve them of their obligation to provide an employee with a reasonable notice period. While some employees may accept a lower lump sum, unless a release is signed the employer is not relieved of its reasonable notice obligation.
1 O.J. No. 4650.
2Supra at para 13.
3Supra at para 15.
4(1988), 32 B.C.L.R. (2d) 334.
5Supra note 1at para 14.
6Supra note 1 at para 20.
7R.S.O. 1990, c.E.14, s. 61(1).