Can Employers Pay out Notice Entitlements in Instalments Rather Than Lump Sum? Yes. And No. Maybe.

Thanks to the folks at Stringer Brisbin, a management-side labour law firm in Toronto, for making me aware of a recent case decided by our old friend Kevin (now His Honourable Justice) Whitaker of the Ontario Court of Justice.  The case raises another complexity on the sometimes confusing interrelation between the common law regime of contract law and the statutory regime of the Employment Standards Act, which I have discussed before.
The Common Law Issue
The issue in Bowes v. Goss Power Products was whether an employer could pay out the employees’ contractual notice of termination entitlement in weekly instalments, rather than as a one-time lump sum.  Bowes was dismissed after about 3.5 years service without cause. The written contract included a notice of termination clause that required the employer to give Bowes 6 month’s notice of termination or pay in lieu of notice.  Bowes very quickly found a job after only 12 days, earning the same salary he earned with Goss Power.
Bowes sued Goss Power.  The employee argued that he should have been paid the full 6 months notice at the time he was dismissed, rather than receive the notice in instalments over the subsequent 6 months, and that he was not required to mitigate his losses during that period. In other words, even though Bowes got a new job almost immediately, he wanted the full 6 month’s notice pay from his former employer.  For my new employment law students, “the duty to mitigate” means a legal requirement to try to minimize your losses caused by being fired.  That means looking for a new job.  If you find a new job that pays the same as your former job, then your loss from being fired stops, and your former employer may be entitled to benefit from your new hiring by paying you less notice.
The Court in Bowes v. Goss Power ruled that nothing in the contract prevented the employer from paying notice in instalments rather than a lump sum. Moreover, since the employee had a duty to mitigate his loses,  Goss Power was entitled to benefit from Bowes’ successful job search.  In other words, since Bowes got a new job after 12 days that paid the same, he did not actually suffer any wage loss beyond those 12 days.  Although the court does not directly say this, I assume this means that Goss could then stop paying the instalments. If anyone reads or understands this differently, let me know.
The Employment Standards Issue
As the Stringer folks note, there is a potential snag though.  The ESA also requires notice (and sometimes ‘severance’ pay in addition), and it does not permit it to be paid out in instalments.  The notice and severance pay requirements in the ESA are also not subject to a duty to mitigate.  The employee is just entitled to them, whether or not they get another job.

Section 61 of the ESA says that, if an employer elects pay in lieu of working notice, it must “pay in a lump sum” the amount the employee would have received had he worked the notice period.
Section 66 of the ESA says that severance pay can only be paid in instalments with the employee’s consent or approval by the Director (the government).

This would seem to mean that an employer may pay out contractual notice in instalments, and reduce those amounts if the employee successfully mitigates by finding alternative employment during the notice period (Bowes v. Goss Power).  However, paying out the minimum statutory notice (and severance, if applicable) in a lump sum and reducing the amounts due to mitigation by the employee are violations of the ESA.
Employers are aided with this particular confusing state of affairs by the Labour Board’s apparent willingness to ignore Section 61 and 66 provided the employer actually satisfies its requirements to pay the notice and severance pay.  See the case referred to in the Stringer summary called Nash v. Pan-Oston, where the Board said that paying notice and severance in instalments rather than the required lump sum is a mere “technical breach” of the legislation!  (Query why that language is there if employers can just disregard it).
Clear as mud?