There are certain circumstances in which the duty to mitigate does not arise. The first is where there is a termination clause in an employee’s employment agreement which does not expressly require an employee to mitigate their damages during the applicable period of notice. The second is with respect to an employee’s minimum statutory entitlements under employment standards legislation, including an employee’s entitlement to notice/Termination Pay and Severance Pay, which an employee is entitled to receive regardless of their mitigation efforts.
It is a question we have received consistently from employers: will “severance pay” qualify as “eligible remuneration” for purposes of the Canada Emergency Wage Subsidy (the “CEWS”)?
While everything about the CEWS is new, and the more difficult questions have not been answered by any court or tribunal, the answer to this question would appear to depend on how the separation package is being paid. The legislation governing the CEWS specifically excludes certain types of lump sum payments that may be paid to an employee upon the termination of their employment, including a retiring allowance and severance pay. However, the legislation does not explicitly exclude salary continuance payments. We do not have an authoritative decision on this point, but that distinction suggests that salary continuance would qualify.
As we have outlined in previous written and video posts, the CEWS is a complex program with a lot of moving parts. It is available to a qualifying entity in respect of eligible remuneration paid to an eligible employee in a week during a qualifying period up to a maximum of $847 per week. We know that eligible remuneration will generally include compensation payable to an employee for which deductions are normally withheld. This includes, among other things, salary, wages, taxable benefits, fees, and commissions.
Employers who are otherwise eligible to receive the CEWS should carefully consider the option of salary continuance when dismissing staff, as the subsidy could drastically reduce the financial impact of the termination on the employer, which may be substantial. We recommend that employers consider salary continuance even where they do not qualify for the CEWS, as it also allows employers to include a clawback in the event that the employee finds new employment during the salary continuance period. This can significantly reduce an employer’s financial obligations if an employee is able to mitigate their damages relatively quickly.
If you are thinking about proceeding with dismissals in the near future, speak with one of our team so that we can ensure that you understand your obligations as an employer and how to best structure any potential package on dismissal.