This is a question that I often get asked in severance package review meetings. The answer is that your statutory severance (under the employment standards act) will never be reduced if you are terminated without cause but your common law reasonable notice maybe can be. Numerous contracts of termination include a so-called “balloon clause” which includes a separation payment that will be paid to you in the event that you find another job. Normally what is included (or what I include when I draft termination precedents) is that you will be paid 50% of the remainder of your severance if you find another job. For example, if you are paid 12 months notice and six months into your notice you end up finding another job then you will be paid the remainder three months notice normally in lump sum. This is incentive for you to find another job and double up on your income as well as incentive for your former employer to pay less severance to you and get you off the books.
If there is no balloon clause in your termination contract then term of reasonable notice (common law part of your severance) should not be reduced simply because you obtain new employment after dismissal. Damages do not stop because you have found alternate employment within the reasonable notice. This is been set out in numerous cases such as Schumacher v. TD Bank and Meyer v. Jim Pattinson industries Limited. Reasonableness of notice is determined at the date of your termination – the point at which your entitlement to notice arises. The efforts of the employee to obtain alternate employment are more properly related to the question of mitigation, and should be addressed in calculating the actual damages versus damages thereafter. In short, the severance paid to you is calculated when you’re terminated and once that severance is agreed to by both parties is to be paid no matter if you find another job.