Severance 101 – Working Notice, Salary Continuance, Lump Sum Payment

Following a termination from employment without cause, many British Columbia employers provide some form of severance or pay in lieu of notice, to the dismissed employee. However, some employers may provide working notice while others may choose salary continuance or a lump sum payout instead.  So what is the difference between working notice, salary continuance and lump-sum severance pay in lieu of notice?  Let's take a look.

Working Notice

Working notice occurs when the employee continues to work through the notice period.  For working notice, the employee's job continues and he or she will continue to work until the end of the notice period. Under Section 63 of the BC Employment Standards Act (ESA), working notice of termination must be given in writing and equivalent to the number of weeks for which the employee is eligible under the ESA.  This is the minimum entitlement of every employee in BC.  In situations where the employee is entitled to more than ESA notice, the length of any kind of notice, working or otherwise, would also have to satisfy the terms of the contract or the implied term of reasonable notice.

Please note that a dismissed employee can be given a combination of working notice and salary continuance or lump sum pay in lieu of notice.  For example, if an employee is entitled to four weeks of notice, he or she may receive two weeks of working notice with two weeks of salary continuance or lump sum payment.

Salary Continuance

Salary continuance occurs when an employer terminates the employment relationship, but continues to pay the employee's regular pay and benefits until the end of the notice period without requiring the employee to perform any work.  The severance is paid out over time.  In most cases, the dismissed employee receives his or her regular salary and benefits coverage during the salary continuance period.

For a salary continuance, it is very common for employers to structure a payout commonly known as a "balloon clause", which is triggered when the employee obtains employment or self employment.  With the balloon clause, the salary continuance ceases when the employee obtains new employment or self employment, and the employee receives a percentage (often at 50%) of the balance left as a lump sum.  This is designed to encourage the employee to find comparable employment swiftly.

Lump Sum Severance Payment

Lump sum payment in lieu of notice occurs when the employer provides equivalent severance pay instead of working notice, or in combination with salary continuance.  The employee receives one lump sum severance payment in the amount of notice owed. It is worthwhile to note that the dismissed employee's entitlements go beyond basic wages, and entitlement to payment in lieu of benefits and perquisites, such as bonuses and commissions, should be carefully considered.

There are both advantages and disadvantages to working notice, salary continuance and lump sum payment.  If you have been recently dismissed by your employer, please contact our team to assist you with your severance package review.

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