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So, You 'Overpaid' Severance and Now You Want the Money Back?

by David Doorey February 25, 2009
written by David Doorey February 25, 2009

Did you catch the story in the papers the other day about how Microsoft ‘overpaid severance’ to some employees it had terminated?  The company has asked employees to pay money back!  This is an American story, so the law on this would be determined, I presume, by whatever the terms of the contracts provide in terms of notice, if they provide for any notice at all.  In the U.S., employment is ‘at will’–which means that there is no common law requirement for employers to provide notice of termination at all.
More interesting to us is how would this be dealt with in Canada.  I haven’t done any research.  However, a few things seem clear. If the contract itself specified the amount of notice required, and the employer pays more by accident, then the employer might be able to sue in contract based on notions of mistake.  Assume though that the contract is silent on notice of termination.   In that case, the Canadian employer is obliged to give both statutory and common law notice of termination. 
In Ontario, we have a statutory requirement to pay notice of termination. The amounts required are clearly defined in the Employment Standards Act and are based on years of service.  But these amounts represent only the ‘minimum’ amount of notice required.   There is also a requirement to pay common law “reasonable notice”, which is often greater than the minimum statutory notice period.  Neither the employer nor the employee knows for sure what that common law notice period is at the time of the dismissal, because courts decide based on the application of a bunch of factors.  By looking at past decisions, the parties can estimate what the notice will be, but they can’t know for sure how much notice a court would order without going to court. 
The point is that, in Canada, it will often not be clear whether an employer has ‘overpaid’ the employee’s common law notice entitlements.  Quite frequently, in fact, employers ‘underpay’ employees, knowing that they will not bother to hire a lawyer and sue them for more.  Remember Howard Levitt’s classic advice to employers to do just this!  So, just because an employer says it has ‘overpaid’ the employee’s severance package, it doesn’t mean they have, legally speaking.   They might have paid more than they wanted to, but that is the employer’s problem.  From the ex-employees’ perspective, the issue is whether they have received ‘reasonable notice’, and what is ‘reasonable’ is a quite flexible standard. If the amount the employer gives the employee is in the ballpark of what courts order as ‘reasonable notice’, I can’t see any legal reason why the employee would need to give it back. 
In any event, for you law students, assuming there is no contract term specifying the amount of notice required, what cause of action does the employer have to recover a payment given to an employee in error?  Can anyone think of a tort?

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David Doorey

Professor Doorey is an Associate Professor of Work Law and Industrial Relations at York University. He is Academic Director of Osgoode Hall Law School’s executive LLM Program in Labour and Employment Law and a Senior Research Associate at Harvard Law School’s Labor and Worklife Program. Professor Doorey is a graduate of Osgoode Hall Law School (LL.B., Ph.D), London School of Economics (LLM Labour Law), and the University of Toronto (B.A., M.I.R.).

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