Pay-in-Lieu of Notice: Understand the Restaurant Environment When Estimating Possible Damages

In the employment law world, wrongful dismissals eventually come down to a question of money. Looking at how much money a wrongful dismissal might cost in damages, before you leap into firing, is a good strategy for any employer.

Understanding the employment context in which the firing took place is a good first step towards estimating the possible damages.

Chapple was a restaurant manager employed by Umberto Management Ltd. which operates the Trattoria and Il Caminetto restaurants at Whistler. She had been employed, initially as a food server and later as a manager, between 1994 and 2007.

When Chapple’s position was terminated, she sued for wrongful dismissal and was awarded 15 months’ pay in lieu of notice. It was the calculation of the resulting damages which was notable.

As a restaurant manager, Chapple earned a base wage and also had two sources of tips. Her gratuities came primarily out of a so-called “house gratuity” and she also received some tips directly from customers.

The house gratuity was funded by the employer, was based on gross revenues taken in during a shift, and was split between the restaurant’s managers and hostesses. The calculation of the house gratuity fluctuated between 2% and 2.5% of gross revenues.

Chapple’s evidence was that she could expect to receive more than $55,000 in tips annually. She hadn’t, however, been in the habit of reporting all of this income for tax purposes.

Both the Supreme Court of B.C. and, subsequently, the B.C. Court of Appeal upheld Chapple’s evidence regarding her earnings from tips.

Normally, when we talk about pay-in-lieu of notice, we tend to focus on salary or wages. But, the concept of damages for wrongful dismissal is intended to capture all entitlements lost by the individual as a result of having been deprived of a reasonable working notice period.

In the restaurant context, that calculation of damages must take into account that a substantial portion of the dismissed employee’s income may have arisen from gratuities. In Chapple’s case, her annual base salary was just over $50,000 and so her additional income from tips exceeded her base salary.

The bad news for her former employer, Umberto, was that she was owed 15 months’ worth of those gratuities. In Chapple’s case, that added up to an additional $71,375 in damages.

That meant that, prior to any mitigation earnings being deducted, the gross amount payable to Chapple in lieu of notice exceeded $134,000. That’s a big chunk of money for any business.

As I say, wrongful dismissals eventually come down to a question of money. Sometimes, if the employer looks before it leaps, and sees how much money is at risk, less expensive alternatives may become more attractive.

Reprinted with permission from Robert Smithson. Smithson is a lawyer in Kelowna practicing exclusively in the area of labour and employment law. For more information about his practice, or to view past “Legal Ease” columns, log onto www.pushormitchell.com. This subject matter is provided for general informational purposes only and is not intended to be relied upon as legal advice.