Employers, help your terminated employees find that next job! Seriously.
When a company decides to terminate an employee without cause for just about any reason, the focus is usually on the amount of reasonable notice (or pay in lieu) and what elements make up the package. In other words, how much is it all going to cost? Of course, other factors play a role in termination planning but cost is usually a key consideration.
But why are terminations so expensive? Well, it stems from the fact that employers are required to terminate an employee in accordance with employment legislation, the common law, and if applicable, any enforceable termination clause that may exist. The strategic focus is usually all about limiting liability of how much the employer has to pay out in the package or through subsequent challenge in the litigation process if lawyers get involved. And nowadays, they do get involved. Frequently.
What some employers forget is that there is another brilliant way to limit liability with a different focus. Namely, helping the employee get another job so as to decrease the value of their reasonable notice period. The monetary cost of this to employers is minor and when a newly terminated employee turns around and finds alternate employment sooner rather than later, the value of any potential claim against the employer may put a pin in their wrongful dismissal balloon. I know this might seem counter intuitive to many employers, especially if the employee was not well liked or a problem. However, in any without cause termination situation, employers should take a close look at ramping up this side of the termination package to assist that employee to new employment.
As most employers and HR managers know, just as an employer has a duty to terminate in accordance with the law when terminated, an employee has a duty to mitigate. This means the employee has a duty to look for comparable alternate employment to replace lost income. The threshold to meet this duty is low. However, when the employee has mitigated, the value of any claim for reasonable notice against the employer goes down. This might seem counter intuitive to many employers but the payoff can be significant.
Let me explain.
For example, say a terminated employee brings a wrongful dismissal action for 12 months valued at $120,000. The employee turns around and finds a job making the same amount of money 6 months after being terminated and maintains that position for the 12 month notice period. At trial, if a judge were to determine that the reasonable notice period was 12 months then that employee’s wrongful dismissal claim valued at $120,000 is now worth at best $60,000 because a judge would have to deduct all mitigative income the employee earned during the reasonable notice period from the damages owed by the employer.
Employers should take this principle into account in the appropriate without cause terminations to avoid the courtroom altogether. If a terminated employee is able to find comparable employment quickly with assistance from their previous employer, then that employee may be more averse to commencing legal action in the first place because the costs may outweigh the monetary benefits.
Employers can capitalize on mitigation in structuring their termination packages by providing a brief substantive reference letter, offering to provide a verbal reference if required, and by offering outplacement counselling. The letter costs the employer nothing and the cost of outplacement counselling is usually nominal in the overall circumstances. As the employer would be paying for the outplacement counselling, it also provides an effective piece of evidence to determine whether in fact the employee has taken reasonable steps to mitigation.
Capitalizing on mitigation can be an easy no fuss way to get everyone to move on to the next chapter of their lives, and hopefully minimize wrongful dismissal costs down the road.