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Calculating Severance During COVID-19

Trevor R. Thomas

Co-Founder + Partner
June 10, 2021

How does the pandemic affect severance calculations?

In this week’s blog post, we consider the following question: If, as a result of COVID-19, an employee voluntarily reduces his hours, and is subsequently dismissed, should his common law severance be based on his average earnings at his normal hours or at his reduced hours? This question was recently addressed in the British Columbia Supreme Court decision of Ehman v. Preston Chevrolet Buick GMC Cadillac Ltd., 2021 BCSC 1033.

Guidance from the Court:

Mr. Ehman was hired in June 2007 as a service dispatcher. In 2018, he agreed to reduce his workload from five days per week to three days per week. In March 2020, B.C. declared a state of emergency due to Covid-19. After March 23, 2020, Mr. Ehman began working one day a week on a temporary basis, because of concerns about physical distancing requirements associated with preventing the spread of Covid-19. On April 20, 2020, Mr. Ehman was temporarily laid off. On August 21, 2020, Mr. Ehman’s employment was terminated. He subsequently sued Preston for wrongful dismissal.

 

At the trial, Preston argued that the calculation of Mr. Ehman’s severance should be based on what he expected to earn during the notice period (i.e., the length of time he is entitled to severance, commencing the day after the termination). Given that Mr. Ehman was working only one day per week at the time of dismissal, Preston argued that such an arrangement would have continued for the notice period and, therefore, his severance should be calculated based on one day of work per week.

 

Fortunately, for Mr. Ehman, Preston’s argument was not adopted by the court. Mr. Ehman had a contractual right to work three days per week at the time of termination. If Preston had unilaterally extended the one day per week schedule beyond a temporary period, Mr. Ehman could have alleged constructive dismissal. Here is the court’s decision and reasoning on this particular issue:

 

[48]      However, I do not agree that Mr. Ehman’s damages should be calculated on the basis of income from working one day per week.  Rather, I agree with Ms. Schlagintweit’s submissions that, at the point Mr. Ehman’s employment was terminated, he had a contractual right to work three days a week.  Working one day a week was never intended to be more than a temporary arrangement to give Preston time to put the necessary arrangements in place to protect its employees from Covid-19, and Mr. Ehman did not agree to it on a permanent basis.  A reduction by Preston of Mr. Ehman’s employment from three days per week to one day per week would itself have been a breach of contract.

 

This decision provides helpful guidance on calculating severance during the pandemic; it must be fair within the context and with regard to the particular details of the parties’ understanding and agreements.

For more information on how to calculate severance, contact us!