THE QUESTION
I was recently laid off and got a good severance package from my company, equivalent to six months of salary. I was able to find another job pretty quickly, and I’m wondering what impact starting that new job would have on my potential severance payout. Do I have any legal rights to still collect my severance while starting a new job?
THE FIRST ANSWER
Rahul Soni, employment lawyer, Soni Law Firm, Toronto
It depends. Often, severance package settlements are completely silent on your obligation to repay money based on income earned from your new job. If that’s your case, your new job will have no impact on your ability to collect your severance package. You will collect both your new job’s paycheques and your full severance package. This is your ideal situation.
Other times, severance packages are structured so that your former employer can deduct, or claw back money you earn from your new job. This is done to prevent you from double-dipping. If this is your situation, the first step is to figure out how many days overlap between your severance package and your new job.
After identifying the overlapping days, you will need to review your severance package to find out what the clawback provision is – whether it’s dollar for dollar, 50 cents on the dollar, or some other rate.
With a dollar-for-dollar clawback, your severance package entitlement would be reduced by a dollar for each dollar earned from your new job for the overlapping days. This approach provides former employers with the most benefit and can act as a disincentive for employees to find alternative work.
A growing trend has been for employers to offer a 50-cents-on-the-dollar clawback, where every dollar you earn from your new job provides your former employer with a 50-cent credit for the overlapping days. This approach incentivizes employees to quickly find alternative work. Also, it provides employers with a partial deduction on what would otherwise be paid for the severance package’s overlapping days.
Have your severance package reviewed by an employment lawyer to better understand your obligations. You may be able to negotiate for more favourable terms, including a lower or no-clawback provision.
THE SECOND ANSWER
Sophie Purnell, employment and human-rights lawyer, Purnell Employment Law, Calgary
Congrats on your new job. The answer depends on whether your severance pay is subject to mitigation. Severance pay is meant to cover you for loss of earnings during a reasonable period. An employee who is let go has an obligation to minimize (or mitigate) their losses by taking reasonable steps to find comparable work.
Statutory notice is the minimum amount of notice that an employer must provide to an employee who is let go. It is against the law for an employer to deduct mitigation earnings from an employee’s statutory termination pay. Some employees who are let go are entitled to receive severance pay above and beyond the statutory notice pay.
If the severance pay is not subject to mitigation, you do not have to return the severance pay if you find new work during the severance period.
If the severance pay is subject to mitigation, you stop receiving severance pay when you find new work. Sometimes employers will provide the severance pay in monthly instalments. To receive the monthly payment, the employee who was let go must notify their former employer that they have not found new work and, in some instances, provide proof that they made reasonable efforts to look for work (for example, copies of job applications). If the terminated employee finds new work, but the job pays significantly less, an employer may agree to make up for the difference during the remaining severance period.
If you receive a job offer while you are in the process of negotiating a higher severance with your former employer, talk to an employment lawyer as this may affect your right to collect the full severance.
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Andrea Yu