What is the importance of a severance package?
A person’s job represents something fundamental to their day-to-day life and sense of purpose. When employment ends, especially if terminated without cause, it naturally leaves the employee in a position of uncertainty about what lies ahead. The first step for many employees who have their employment terminated is to assess the severance package their employer has offered. Severance packages typically include termination pay and severance pay, which together compensate for the loss of employment and the notice period owed.
Understanding severance pay and termination pay
It is important to distinguish between termination pay and severance pay.
Termination pay compensates an employee for the notice period they should have received before their employment ends, often referred to as pay in lieu of notice or salary continuance.
Severance pay, on the other hand, compensates long-service employees, who have 5 or more years of service with the employer. Under the ESA, the number of weeks of severance pay are based on the number of years worked and go up to 26 weeks. However, common law typically looks at reasonable notice and calculates severance based on years of service, age, position, and other factors.
In Ontario, for example, termination pay can be up to eight weeks under the ESA, while severance pay can be up to 26 weeks. Combined, many employees may receive up to 34 weeks of pay under statutory minimums. However, common law severance entitlements can exceed these minimums significantly, sometimes reaching up to 24 months or more in severance payment.
How employment lawyers can help assess severance packages?
Employment lawyers play a crucial role in assessing whether a severance package is fair and legally owed. They begin by reviewing the employee’s written employment contract to determine if it specifies severance entitlements upon termination. A thorough review also evaluates whether the contract’s termination clause is legally enforceable, as many contracts contain clauses that do not follow the ESA, which may make the clause, and therefore the contract, unenforceable.
If the contract does not specify severance entitlements, or if the language is unenforceable, lawyers will assess the employee’s common law severance rights. This assessment considers factors such as length of employment, age, position, availability of comparable employment, and individual circumstances. These factors, known as Bardal factors in Canadian common law, help determine an appropriate reasonable notice period or severance amount.
How severance pay calculators work and their limitations?
Severance pay calculators estimate severance packages based on key factors like years of service, age, and job type. Our firm’s severance pay calculator uses these factors alongside past court decisions to predict a fair severance package for individuals in Ontario. This tool can be helpful as a starting point for understanding severance entitlements.
However, severance pay calculators cannot assess contract enforceability, the presence of severance clauses, or specific clauses such as confidentiality or non-compete provisions. They use common law severance entitlements, which may be more than statutory minimums. Only an experienced employment lawyer can provide a comprehensive review and negotiate a full severance package that reflects both statutory and common law rights.
Common law severance vs. statutory severance
While statutory severance pay under the ESA provides minimum severance amounts, many employees are entitled to common law severance, which is often significantly higher. Common law severance pay takes into account the employee’s age, length of employment, position, and ability to find comparable employment.
For example, long service employees or those in specialized roles may be entitled to months or even years of severance pay under common law. Courts may award severance payments covering salary continuance, benefits, bonuses, and other compensation components. Employers who fail to provide adequate severance may be liable for wrongful dismissal claims.
When is severance pay mandatory and who qualifies?
Severance pay is generally mandatory for most employees terminated without cause who meet certain criteria, such as having a minimum length of service. Under the Employment Standards Act in Ontario, employees with five or more years of service and whose employer has a payroll of $2.5 million or more are entitled to severance pay. However, some employees may be exempt, such as those who resign, are terminated for just cause, or work under specific contracts.
Even if severance pay is not mandatory under statutory provisions, many non-unionized employees may still be entitled to severance pay under common law. It is important to obtain legal advice to understand whether you may be entitled to severance pay beyond the minimum requirements.
How much severance pay can you receive?
The severance amount depends on several factors including years of service, age, position, and the availability of similar employment. While statutory severance pay in Ontario can reach up to 26 weeks, common law severance can be much higher, sometimes amounting to 24 months or more.
Severance packages may be paid as a lump sum, salary continuance over a set period, or a combination of both. Severance payments are considered taxable income and may affect eligibility for Employment Insurance benefits.
Challenging severance offers and obtaining legal advice
Many employees receive severance offers based only on ESA minimums or partial calculations that do not reflect their full legal rights. Initial severance offers are often negotiable, and severance agreements may include clauses such as release of claims, confidentiality, and non-disparagement provisions.
Before accepting or signing a severance package, it is crucial to obtain legal advice to ensure the severance offer is fair and legally compliant. An employment lawyer can negotiate better terms and help you understand your full severance entitlements, including common law notice periods and additional pay.
What to do if you suspect wrongful dismissal?
Wrongful dismissal occurs when an employee is terminated without receiving the severance pay or notice they are legally owed. Employees generally have up to two years to file a wrongful dismissal claim, which may result in additional compensation beyond the severance package offered.
If you believe your employer has failed to provide a full severance package or has terminated your employment without proper notice, seek legal advice promptly to protect your rights.
How can Whitten & Lublin assist with severance package assessments?
By understanding the complexities of severance packages, including termination pay, severance pay, common law entitlements, and statutory minimums, employees can better navigate their rights during employment termination. Obtaining professional legal advice is essential to ensure fair compensation and to avoid pitfalls associated with severance agreements and wrongful dismissal claims.
If you have recently been let go from your employment position and are unsure about your severance package entitlements, we encourage you to seek legal advice to better understand your rights beyond what a severance calculator may initially indicate. At Whitten & Lublin, we provide insight and advice tailored to your specific circumstances.
Our experienced employment lawyers review severance offers, assess employment contracts, and negotiate severance agreements to ensure you receive the full severance package you are legally owed. Contact us online or by phone at (416) 640-2667 today for a confidential consultation.
