How do you know if the severance payment offered to you is fair?

We understand that one of your first questions after being terminated may be “have I been provided enough severance? Will this be enough to help me why find another job?” If you have been terminated,our employment lawyers can spend the time with you to review your severance package and ensure you that have been treated fairly.

Do not sign any termination documents under pressure

In Ontario, you are fully entitled to accept a severance package without legal advice, but this can turn into a costly mistake if your employers offers you less than a reasonable deal. If you accept a termination package without consulting an employment lawyer, you will not be able to change your mind after you sign a full and final release. We strongly encourage our clients to get their severance packages reviewed with our employment lawyers to make sure that they have been provided with the proper severance pay – and a good exit deal.

If you have been terminated, it’s important that you understand that you do not have to sign any documents or severance packages under pressure. More often than not, employees are not fully aware of what they are entitled to by law. If you accept your employer’s termination offer without legal advice, you may risk accepting less then you are entitled to.

The following below are a few things that should be reviewed with an employment lawyer.

Termination Pay and the Employment Standards Act

By law, if your non-union employment relationship has been terminated by your employer, you are entitled to notice of your termination, or pay in lieu of notice in accordance to minimum employment standards.

The parties (you and your employer) cannot contract out of any minimum standards entitlements – such as notice of termination or pay in lieu, severance pay, continued payment of benefits premiums during the statutory notice period, and payment of vacation pay on termination entitlements.

In Ontario, if you been terminated without cause, the Employment Standards Act mandates that when an employer decides to end the employment relationship, the employee, if continuously employed for over three months, must be given either written notice of termination, termination pay or a combination of both. An employee who does not receive written notice of termination is required under the employment standards act to be given termination pay in lieu of such notice. The amount of termination pay is legislated by the employment standards act found here.

Termination pay is calculated as a lump sum payment equal to an employee’s regular wages over a work week that he or she otherwise would’ve been entitled to during the written notice.

Severance Pay

Employees often mistake severance pay as termination pay or separation pay. Severance pay is a separate form of compensation that is paid to an employee. It’s not the same as termination pay, nor is a calculated the same way during a termination or dismissal.

Severance pay is owed to an employee, if an employee is

  • terminated or dismissed
  • if an employee is deemed to be constructively dismissed (constructive dismissal) or constructively terminated
  • if the employer lays the employee offer 35 or more weeks in a period of 52 consecutive weeks
  • if the employer lays the employee off because all the business at an establishment closes permanently
  • An employee only qualifies for severance pay if their non-unionized employment has been severed, they have worked for the employee for five or more years, the employer must have a payroll of at least $2.5 million or the employer has severed the employment of 50 or more employees in a six-month period because all or part of their business permanently closed.

Minimum standards legislation requires the employer to pay the employee a fixed amount of severance pay determined by their years of service with the employer.

Severance pay cannot be provided as working notice. It must be paid as a lump sum (though, in Ontario, the employee may elect to receive his severance pay in installments).

A termination clause should either explicitly provide that required severance pay will be paid, or factor severance pay entitlements into any formula to be used in calculating termination entitlements. A formula which results in an employee receiving less than required legislative severance pay, or which attempts to provide some severance pay as working notice, will likely be unenforceable.

Termination and Health and Dental Benefits

In Ontario, minimum standards legislation requires the employer to continue making whatever benefit plan contributions which they are required to make in order to maintain the employee’s benefit plans during the statutory notice period, regardless of whether the employee is provided with working notice or is terminated immediately and provided with pay in lieu of notice.

In review your contract, we must review for potential minimum standards violations, among other things. A termination clause that fails to account for these continued payments may be unenforceable for contracting out and being non-compliant with Ontario’s Employment Standards Act, 2000.  Given the vulnerable position of employees versus employers at the outset of employment, courts emphasize that contracts should be drafted clearly enough for an employee to know what her termination entitlements will be based on a reading of the contract. For example, a termination clause might provide for a fixed amount of notice which meets or exceeds the minimum notice requirements in the first five years of employment, but provides less than the minimum once the employee has more than five years of service. This clause would likely be unenforceable from the outset of employment, rather than becoming unenforceable only after the employee had reached five years of service.

If a Court finds that my contract is not compliant with minimum standards, will it simply invalidate that specific clause in my contract?

No, not typically. If a termination clause is invalid because it provides for less than the required statutory notice of termination, courts will typically refuse to apply a severability clause to save any portion of the clause that does not offend the statute. The entire clause will simply be void and the employee may be awarded common law reasonable notice.

Reasonable Notice and Severance Packages

At common law, an employee terminated without cause is owed “reasonable notice” of termination. If the employer does not provide reasonable notice, the employee may sue for wrongful dismissal, and a court may award damages for compensation that would have been earned during the reasonable notice period. Such awards can exceed 24 months of notice.

Can my employer and I contract out of reasonable notice?

Yes, unlike statutory minimum termination pay, you can certainly contract out of reasonable notice. As a substitute for common law reasonable notice, you and your employer might have agreed at the outset to any amount of notice or pay in lieu of notice that is equal to or above the statutory minimum.   Courts will enforce an agreement to restrict notice or pay in lieu to the minimum amount unless the termination clause is otherwise void or unenforceable (for example, due to minimum standards violation, ambiguity, due to unconscionable pressure on the employee, and so on)

What is notice and pay in lieu of notice?

Notice –  is the amount of time in advance of termination that an employee will be informed that the employment contract will be terminated. This is also referred to as “working notice”.  If the parties agree that an employee will receive notice, the benefits he is entitled to under contract must be continued throughout the notice period. If employment is terminated prior to the end of the notice period, the employee may claim damages equivalent to the earnings he would have received in the remainder of the notice period. An employer may wish to provide notice where it requires the employee’s continued services before termination.

Pay in lieu of notice –  is an amount of pay equivalent to what the employee would have earned had he worked through a notice period. This will include all forms of the employee’s compensation. Depending on the terms of the contract, this amount may be paid as a single lump sum or over time as salary continuance. An employer may wish to provide pay in lieu of notice where it is prefers that the employee does not remain in the workplace after being informed of termination.

How reasonable notice periods are typically structured

More often than not, employees that are presented with severance packages do not understand the difference in the methods of structuring severance pay.

Typically, there are three ways in structuring an employee’s notice. Your termination letter should set this out quite clearly. An employee may be terminated by being provided working notice, a lump sum payment, or a salary continuance. Employers are not required by law to provide notice in all the same form. There could be a mix of working notice and lump sum payments, working notice in salary continuance, no working notice and a lump sum payment covering part of the notice – followed by salary continuance. The methods of termination could be blended a variety of different ways.

Working notice – an employer may choose to give an employee working notice of the termination of his or her employment. The termination letter would expressly provide a final termination date which reflects the end of the working notice. Employers could end the working notice at any point by providing additional pay in lieu of notice. With working notice, the employee would remain at his or her place of employment until the active notice is complete. Employers are mandated to provide work to employees who are provided with working notice.

Salary continuance – employers may choose to provide continuation of payments in addition and in excess to statutory minimum requirements. Salary continuance is simply what it means – the employment relationship is ended, but notice is provided by continuing the employee’s salary and benefits to the end of a specific notice period. Often times there are clawbacks that are put into place with salary continuance terminations. For example, it is not uncommon for an employer to offer salary continuance with a clawback to reduce its liability in the event that the employee becomes re-employed with an alternate employer. In other words, the employer would provide a lump sum payment to the employee of a certain percentage of the remainder of the notice. If the employee finds another job. When the employer offer salary continuance of the clawback, the employee continues to receive his or her regular salary until the end of the notice or the date the clawback is triggered.

Lump sum payments – if the employer’s cash flow permits, it may offer the employee to pay in lieu of notice, a lump sum amount. Typically, lump sum packages are not structured with a reduction for mitigation income earned during the notice period.  Lump-sum packages are typically offered on the condition that the employee executes a full and final release for amounts over his minimum standards or contractual entitlements. The employer cannot require that the employee execute a release for statutory termination pay or severance pay.

Severance Package Review Lawyer Hamilton

If you been terminated, our Hamilton employment lawyers can help review the structure of your termination package to ensure that you are paid appropriately.  It’s important that you do not sign any termination agreement, termination paper, severance package, full and final release or any other documentation prior to reviewing with an employment lawyer. It’s important that you understand and fully appreciate what you have been offered and what you’re entitled to – otherwise you may be barred from bringing future lawsuits against your former employer for claims of any type, be a termination or human rights. Our employment lawyers are based in Hamilton and have served employees all over southern Ontario. Fill in a contact form or call us at 905-333-8888 to schedule your severance package review today. If your matter is time sensitive, we can do our best to work with you to ensure your severance package is acceptable

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