What To Expect in a Severance Package in Canada

Canadian employees who are dismissed “without cause” are usually entitled to a reasonable severance package.  This may not be the case if the employee signed an enforceable employment contract that contains a termination clause, though sometimes these contracts can be challenged.  Most other employees can usually expect severance arrangements based on “reasonable notice.”  The actual definition of “wrongful dismissal” in Canada is simply a failure to provide that reasonable severance package.

Here are some of the key things to look for as part of a “reasonable” severance package.

Severance Pay or Salary Continuation:  It goes without saying that the most important component is usually the severance itself.  Employers can choose to pay over time, with or without some kind of claw back (or “mitigation”) clause, or in one or more lump sums.  In most cases, this is the most important part of the severance package and in many cases, different components are negotiable.  The severance must, at a minimum, include compensation for the relevant provincial employment standards amount.  For example, in Ontario, the severance package must provide for notice pay under the Ontario Employment Standards Act and severance pay, if applicable.   Beyond the employment standards amount, employees can negotiate the length of time, the trigger for mitigation, the payment schedule or other terms.  This is all aimed at ensuring that the employee is compensated as required by Ontario common law, which itself, can vary wildly for each employee.  This is the area on which appropriate legal advice should generally be obtained.  The period of time for which the employee is being compensated is generally called the notice period or severance period.  

Bonus:  Dismissed employees should usually be compensated for accrued bonus for the current year (if there has usually been an annual bonus), as well as bonus for the severance period.  Many employers are quite reluctant to include the prospective bonus as part of the severance package.  If the employee has been getting the bonus every year and can show that he or she would have continued to get a bonus if employment had continued over the severance period, the bonus should be payable.  There may be wording in the original employment contract that overrides this entitlement, but it is often worth trying. 

Wrongfully Dismissed? Six Points to Consider.

Wrongfully Dismissed? Six Points to Consider.

Thousands of employees are restructured, dismissed or downsized across Canada each week. In some cases, these dismissals are related to the company’s economic performance or to some legitimate “restructuring plan.” In other cases, it is a matter of an employer deciding that an employee is no longer a “good fit.” Sometimes, the dismissal is for “cause,” though that constitutes a relatively small number of Canadian dismissals.

If you have been dismissed, you may be entitled to significant compensation. This can include severance pay, outstanding bonus, compensation for bonus during the severance period, benefits, pension contributions and other amounts. You might be able to get outplacement assistance paid for by the employer and some employers may even pay for your reasonable legal fees to get everything worked out. If you have been given a severance package or a termination letter, here are a few points to keep in mind:

1. Don’t Sign Anything!

Some employers will ask you to sign a severance proposal on the spot, possibly even while also making some threats about what might happen if you don’t sign. Fortunately, most employers are not that unreasonable and would prefer to allow you some time to consider an offer. Take the offer, say very little and let the employer know you will get back to them. Even if you are in a difficult economic position, you will rarely benefit from signing something on the spot at the time of dismissal.

2. Be Professional

Resist the urge to attack the employer, launch an email missive directed at company personnel or say things you might later regret. Such statements or emails are rarely helpful or productive. If you are being investigated for cause and you are being asked about certain allegations, you may have an obligation to respond. But once you have already been dismissed, there is rarely anything that you might say at a termination meeting that will help with your severance negotiations or with your future references.

3. Find Your Original Employment Contract

One of the first things you should do is find a copy of your original employment contract or offer letter. There may be a “notice clause” or a “severance clause” in the document. If your employment contract or offer letter does have this kind of clause, it may limit your entitlement to severance or notice. You might be stuck with a very limited severance payout. There are some ways around these types of agreements, but not always. This can be very technical and will almost always require professional assistance.

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