Salary continuance is can be used in place of giving an employee reasonable notice of dismissal, but if it’s handled incorrectly it can present a minefield of complications
The issue of salary continuance for a dismissed employee is fraught with complication, but, if handled correctly, it can ease the pain of being fired. Employers use salary continuance, which involves paying an employee’s salary for a specified time, in place of reasonable notice of dismissal.
Typically, salary continuance packages:
are offered after the employment contract has been ended;
offer pay in basic forms, not typically in all forms;
contain a formula to claw back pay where the employee finds replacement employment; require the employee to agree with the package and sign a release form.
Where the employee does not agree with the offered salary continuance package, the employer will often pay the continuance payment anyway, causing new issues to arise.
A dismissed employee can encounter numerous problems with salary continuance. For example, the length of time over which salary is offered can be significantly less than the reasonable notice period that he or she is entitled to. Also such benefits as bonuses, stock options, pension benefits and commissions might not be included in the salary continuance offer. The offer’s wording relating to alternative employment can be vague or unfairly worded for the employee. The employee might be required to explain and prove to the employer that reasonable steps in searching for alternative work are being taken, and where the employer decides the efforts fall short, the employer may cut off salary continuance payments.
Often the employer attempts to sneak new contractual conditions into the picture through the salary continuance agreement, such as non-compete or confidentiality clauses.
There are also taxation disadvantages for the employee who receives salary continuance payments instead of a lump sum payment. Finally, the employee must wait for payment made over time, instead of receiving one lump sum. Unless it’s stated specifically in the employment contract, an employee is not required to accept a salary continuance proposal. The employee is also entitled to reasonable notice at dismissal, unless otherwise stated in the employment contract.
Provision of reasonable notice to the employee can be made by the employer:
as reasonable working notice;
as payment of a lump sum of money equivalent to what that employee would otherwise receive during reasonable working notice;
as salary continuance equivalent to what that employee would otherwise receive during reasonable working notice;
But, as mentioned above, the employer rarely offers reasonable notice.
When a salary continuance offer falls short of reasonable notice and is accepted by the employee, a new agreement comes into place. The employee has thereby agreed to the payment in place of what was otherwise due and has likely given up the right to reasonable notice.
A wrongful dismissal occurs when an employee rejects a salary continuance offer that falls short of reasonable notice. The employee then has the right to start a wrongful dismissal action. When an employee rejects a salary continuance offer that falls short of reasonable notice, but the employer continues to pay the salary continuance, a wrongful dismissal has still occurred. The employee again has the right to start an action for the wrongful dismissal, but the damages owed by the employer are being reduced by the payment of the salary continuance.
In this case, the employee may be entitled to have the court order that the reasonable notice be paid in a lump sum and not by salary continuance. For example, if reasonable notice is 20 months and the salary continuance period offered by the employer is 15 months and the employer is paying monthly at the time the claim comes to trial, then the court may convert the balance of the reasonable notice payable into a lump sum payment.
Being fired is painful but an employee usually ends up holding more cards than he or she might realize.