Employer Advice for Providing Pay in Lieu of Notice

Paying an employee the correct Employment Standards Code termination notice is the employer’s minimum requirement to avoid an employment standards complaint.

As an employer, whenever you terminate an employee’s contract, you are required to give them proper notice.  This article is about the termination notice an employer must provide to a typical employee under Alberta’s Employment Standards Code.

You are required by law to give an employee some time to prepare for the termination and hopefully start trying to find a new job. It makes sense to use that time to allow the employee to finish their current deliverables or turn their responsibilities over to the one taking over their position. Write up a formal notice clearly stating your intention and make sure the employee receives it.  

You can also terminate an employee without providing actual notice, but in that case you have to provide them with pay in lieu of notice. 

What is Pay in Lieu of Notice?

Pay in lieu of notice is pretty straightforward. It’s simply the amount you pay an employee upon termination to serve as compensation for the lack of proper notice.

Here are the minimum required notice periods for most employees in Alberta under the Employment Standards Code:

The amount of pay in lieu of notice should be equivalent to the wages they would have earned in the notice period if they had worked through it.

Think about it like this: let’s say that based on the table above, you should have given your employee at least a week’s notice.  But for some reason, you chose to fire them today. The law says that to compensate for the sudden termination, you should give them a week’s worth of regular wages. Why? Because that week of notice is intended as a base protection to compensate the employee financially for termination, and if the employer chooses not to give them actual notice they are still required to give the employee that financial compensation.

Before we get into calculating the required pay in lieu of notice, it is important to note that termination pay under the Employment Standards Code is not the only amount an employer can be forced to pay a terminated employee.  In many cases, a terminated employee is able to bring a lawsuit for “wrongful termination”, where an employer can be required to pay them a longer period of notice under the common law, called “reasonable notice”.  Typically, when someone talks about getting a severance package, in proper legal terms they are actually talking about getting paid reasonable notice.

The amount of reasonable notice (severance) an employer may be required to pay in each case is different, and it is based on many factors including the number of years the employee has worked there, the age of the employee, the type of job the employee had, and all other factors relevant to how long it might take them to get a new job.  Predicting what a court might order an employer to pay in reasonable notice is tricky, and professional legal advice on that is crucial.

How to Calculate Pay in Lieu of Notice

Here is a simple example of how to calculate how much you should pay an employee in lieu of notice under the Employment Standards Code.

Let’s say an employee earns $200 per day. They’ve been working in your company for a little over 4 years now, and for whatever reason you need them to leave immediately or before completing the 4-week notice period.

When you let them go, you should pay them $4,000 in lieu of notice.

There are also instances where a combination of notice and pay in lieu can be given to an employee. Using the same situation above, let’s say you are able to give that employee two weeks’ of actual working notice. Following the same formula, that means you will now only owe them $2,000 pay in lieu of notice.

Termination of Employment

As an employer, you can terminate an employee with or without cause. You have the right to fire your employee for things like a significant breach of contract, grave misconduct, or poor performance. 

If your employee has some minor infractions, you could choose to warn them first. Talk to them and give them time to improve or fix their mistakes. 

If the employee’s poor performance or misconduct is bad enough, you may have “just cause” for termination of their employment.  If you warn them and they show no improvement or simply refuse to listen, you may also have just cause.

You can even fire an employee for no reason at all.  Maybe you woke up one day and decided you do not really need them on your team anymore. Or maybe you just felt like doing it. As long as you give them proper notice (or pay in lieu), you are good to go.  If you fire an employee and you do not have a very good reason, this is called firing them without cause.

There are some reasons you are not allowed to terminate an employee for.  

You cannot fire an employee for things they have no control over like religion, sex, gender, race, ethnicity, place of origin, family status, pregnancy, mental of physical disability, etc., because these are protected human rights of all employees. 

You are also not allowed to withhold their pay or force them to quit.  Even if they resign on their own, that can still be considered constructive dismissal which the courts treat the same as if you had terminated their employment. In a constructive dismissal, you would still have to pay them termination pay and reasonable notice, but you risk having to pay even more and looking bad while you do it.

Additional Resources

As you might have noticed from the table earlier, you are not required to give Employment Standards Code notice or termination pay to someone who has worked for you for less than three months.

The same goes for fixed-term contractual employees. When the contract ends, your responsibilities as an employer typically end as well. You do not have to give them notice as their definite work period is already clearly stated in the contract.

You also do not have to pay an employee who voluntarily resigns. Just as you have the right to fire them, they have the right to resign anytime. However, make sure you get a resignation letter and give you proper resignation notice too.  Employees are usually required to give one or two weeks’ resignation notice.

And lastly, if you have terminated an employee for just cause, you are off the hook from paying them or giving them enough notice. Just make sure you have enough evidence to prove that you had just cause for firing them, because if you claim you have just cause to terminate and either employment standards or a court disagrees, this can have serious consequences.

Employment Law

Pay in lieu of notice is not so hard to understand, is it? The legal jargon may be a bit overwhelming, but the concept its

elf is simple.

Paying an employee the correct Employment Standards Code termination notice is the employer’s minimum requirement to avoid an employment standards complaint, but it is often not enough to avoid a lawsuit for reasonable notice of termination at common law.  

If you want to make sure you are taking the right steps when firing an employee, get in touch with an employment law specialist. This is the best way of ensuring your best odds of a favorable outcome.

To recap, here’s what you need to know as an employer about providing pay in lieu of notice under the Employment Standards Code:

• You can fire someone with or without just cause, but if you do not have just cause you will need to pay them termination pay.
• You are not allowed to terminate an employee for something protected under human rights.
• Before firing someone, make sure you give them proper and enough notice. The time you give them mainly depends on how long they’ve worked in the company.
• If you cannot give them enough time, you are required by law to pay them in lieu of notice. The amount should be equivalent to the notice they should have been given.
• You are not required to pay someone or give them notice when they’ve worked for less than three months in your company. It is also not required when they are fixed-term contractual employees with a definite work period.
• If they resign on their own, you are not required to give them termination notice or pay.
• If you have just cause (strong, valid reasons for firing them), you’re off the hook from paying them or giving them notice.
• And lastly, keep in mind that employers can be required to pay severance amounts beyond those in the Employment Standards Code if the employee sues in court for wrongful dismissal.