By Daniel Lublin* – December 2022
Any form of permanent layoff or restructuring resulting in the loss of your job is technically a termination without cause. This requires employers to comply with employment standards statutes, which provides workers with a minimum period of notice of termination and in some cases additional severance pay. The amounts are calculated based on your tenure and range up to eight weeks’ notice or pay for most workers, although in Ontario this can be as much as 34 weeks’ pay.
Increasingly, workers are signing employment agreements that purportedly operate to limit their entitlement to severance. Courts will adhere to these contracts, but only if the agreement is properly drafted, fairly implemented and worthy of being enforced. Only a handful of contracts will meet this test. If your former employer is relying on anything you signed that allegedly limits your severance, ensure you have an expert take a close look. Companies routinely rely on clauses that are illegal or should not be enforced.
Workers in Canada without a contract that defines severance are entitled to a severance package that goes beyond the basic statutory amounts. There are various factors that are taken into consideration, including your tenure, your age, the position you held and relevant court precedents. Older age and longer tenure translate to more severance. Similarly, senior, high-level or unique and skilled workers have greater severance entitlements than workers where comparable jobs are more readily available. Severance packages generally can range as high as 24 months for the most senior or long-tenured employees. But even short-term employees can be entitled to a severance package that greatly exceeds the statutory amounts.
How does being terminated during a labour shortage, or conversely during a recession, affect your entitlement to severance? The availability of comparable employment is an important factor. If there is a general downsizing in the industry or mass layoffs, finding other work is made more difficult and this should increase your entitlement to severance. Alternatively, if you work in a field or profession where other employment is plentiful and easy to find, then this would naturally reduce your need for a lengthy payout.
If a number of employees were let go as part of the same mass restructuring, it does not mean that they are all entitled to the same severance package. The amount and terms of any severance should always be based on your individual circumstances, such as your age and tenure, and often has nothing to do with what others may or may not have received or agreed to.
A severance package is supposed to bridge you to when you should be able to find another job. But what if you find other work before your severance period expires? Legally, an employer is normally allowed to deduct some of the income earned through other consulting or employment from the amounts you may be owed for severance. This is why there are clauses in most severance packages that require you to disclose when you find other work, and in some cases there is a reduction of the remaining amount of severance. However, these clauses can be negotiated.
Most severance packages should be calculated based on all of the compensation and benefits you earned while employed. This includes commissions, regular bonuses, profit-sharing payments, perquisite allowances, benefits, incentive programs or any other tangible and consistent payment beyond your base salary. This is one of the main areas where many severance packages are deficient. Employers will sometimes discontinue or discount some element of your total compensation in an unreasonable way. For example, if you have regularly received a bonus at the end of a calendar year, you may be entitled to payment in lieu of that bonus despite your dismissal.
The manner in which a company behaves toward dismissed employees should not be overlooked. Several recent court decisions have heavily criticized employers for playing “hardball” with former employees. For example, employers should not withhold or threaten to withhold any unpaid wages or statutorily required terms. Also, employers who unjustly or strategically come up with performance or misconduct allegations can be ordered to pay additional compensation on top of any severance.
What should workers do if they were recently dismissed? Here is a simple pocket guide:
Daniel is a nationally recognized workplace law expert and a partner at Whitten & Lublin (www.toronto-employmentlawyer.com), where he represents both individual and corporate clients. Daniel frequently writes and appears in the media as a commentator for workplace legal issues. Since 2008, he has been named as one of Canada’s top employment lawyers.
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