Does Paying Severance Undermine Just Cause?

Employers often face a dilemma when they terminate an employee for just cause; should any severance pay be provided to the employee? In some cases, despite the employee’s breach of the employment agreement, an employer may feel some compassion for the employee’s circumstances.

In the past, Saskatchewan law suggested an employer should overcome such feelings and provide no severance. It was the employee who breached the agreement so the employer had no lawful obligation to provide any severance. Further, if the employer did provide some severance to the employee at the time of termination, it could be prejudicial to the employer. Such an act could be interpreted as a condonation or waiver of just cause for dismissal. This opened the possibility of the employee seeking further money in Court and the employer losing the ability to rely on the defence of just cause.

A decision of Mr. Justice Danyliuk in Parkinson v. Kemh Holdings Ltd., [2013] S.J. No. 296 (Sask. Q.B.) seemed to change the potential harshness of this approach. In this case, the plaintiff employee was terminated for just cause. It was in issue at the trial and Justice Danyliuk found that there was cause due to the employee’s insubordination and refusal to perform certain work.

When the defendant employer terminated the employee, the employer told the employee that he was being terminated for cause. However, immediately following termination, the employer contacted the Labour Standards Office for advice on his options and he came away from this discussion with the belief he had an option to provide the employee with some money after termination. As such, the employer did pay the employee 6 weeks’ pay so the employee would have some money to live on as he looked for a new job. At trial, Justice Danyliuk considered the issue of whether the employer providing this pay to the employee removed from the employer the ability to rely on just cause as a defence.

Justice Danyliuk held that payment of severance at the time of termination, termination for just cause known to the employer, is not an automatic bar to the employer later relying on a defence of dismissal for just cause. The important factor is the employer’s intention at the time of termination. If the employer knows there is just cause, but still pays some severance gratuitously out of reasons of generosity and compassion, this is not inconsistent with later raising the defence of just cause if the employee sues for more money. Therefore, in the case before him, Justice Danyliuk found that the employer could rely on just cause as a defence.

This is a significant decision as it mitigates the harshness of the previous practice. In situations where the employer believes there is just cause and communicates this to the employee, the employer may still provide some severance for humane reasons and not be prejudiced by this later. It is a welcome and sensible development in the case-law.

It is important to point out that this decision is not a revival of the “near cause” concept. If an employer is uncertain as to whether there is just cause and does pay some severance at the time of termination, Justice Danyliuk’s decision will not be of assistance. An employer in this situation will likely be seen to have conceded there was no cause when severance was paid and may not be able to rely on the defence of just cause for termination. This employer may still be open to greater liability to the full extent of common law damages for wrongful dismissal.

As a result of Mr. Justice Danyliuk’s decision in Parkinson v. Kemh Holdings Ltd., an employer, troubled by the impact a bona fide termination for cause may have on an employee’s personal circumstances, may provide some compassionate severance to assist the employee, without prejudicial repercussions to the employer, should the employee be dissatisfied and sue for more.