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Pay in Lieu of Notice by Salary Continuance Deemed Implicit Right

The Ontario Superior Court of Justice recently ruled in Bowes v. Goss Power Products Ltd., that a fairly standard termination provision in an employment contract implied the right to provide pay in lieu of notice by salary continuance.  The employer wanted to rely on this right so as to set off any mitigation by the employee during the notional notice period.

The employment contract provided as follows:

30. The Employee’s employment may be terminated in the following manner and in the following circumstances:

(c) By the Employer at any time without cause by providing the Employee with the following period of notice, or pay in lieu thereof:

Six (6) months if the Employee’s employment is terminated prior to the completion of forty-eight (48) months of service”

The court held that nothing in this paragraph provides expressly that “pay in lieu of notice” had to be by way of a lump sum, and that salary continuance was the closest approximation to pay during working notice.

Not discussed in the decision is the potential interaction with the Employment Standards Act (ESA).  The ESA does not expressly provide for salary continuance; indeed, it is technically a breach of the ESA to pay an employee’s termination pay and/or severance pay by salary continuation without his or her express consent.  Moreover, employees are not required to mitigate their ESA minimum entitlements and to set off mitigation in that way would violate the ESA.

The Ontario Labour Relations Board discussed this issue in Nash v. Pan-Oston Ltd. The Board held in that case that although salary continuance without consent was a technical violation of the ESA, it would not interfere with the practice – so long as considerations like mitigation did not result in a violation of the ESA.

Thus, even though courts may permit an employer to rely on an implied right to provide pay in lieu by salary continuance, it is important to ensure that any mitigation by the employee during the notional notice period does not reduce their payout to less than the ESA minimums.

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