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.   If you are Federally regulated employee (someone who works in a bank, telecommunications company, tv network etc.,) the Canada Labour Code would apply instead of the provincial legislation.  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.  If there is wording in an employment contract or agreement that deals with the bonus, this will be something that needs to be properly assessed and considered. Commissions and Variable Pay:  For dismissed employees with fluctuating pay, the test is what the employee would have reasonably earned over the severance period.  Of course all accrued amounts are owed to the employee, subject to the terms of the employer compensation plan.  Going forward, most dismissed employees should be paid severance on the basis of overall estimated earnings, not just base salary for the entire notice period.

Benefits, RRSP and Pension Contributions:  Severance packages should include arrangements that compensate employees for all components of their compensation.  Generally, all benefits, including extended health benefits, STD and LTD insurance, RRSP contributions, pension contributions, and other perquisites should be continue during the notice period – or the employee should be compensated for the value of any items that are not being compensated.  For example, most insurers will not allow employers to continue LTD insurance plans.  Employees should request compensation for the loss of this employment benefit.  Many employers will agree to include that compensation in the severance package.  Pension losses can be a huge component of a severance package, particularly if the employer had a defined benefit pension plan.

Car or Mileage Allowance:  If the employee had the use of a company vehicle, the general rule is that the employee is entitled to be compensated for the personal use component of the vehicle.  In other words, if the employee used the vehicle for personal use 30% of the time (and showed that on his or her taxes), employers can be required to provide compensation for this loss during the notice period.  Some employers will be more flexible in this area and will either provide employees with the use of a vehicle over the notice period or pay a reasonable estimate of the real costs of the vehicle.

Outplacement or Retraining:  Strictly speaking, an employer is not necessarily required to provide outplacement or retraining as part of a severance package.  However, an employer can be required to pay for the employee’s reasonable costs of “mitigation” if the employee incurs costs in trying to find other work.  As a result, many employers will provide direct outplacement arrangements at their expense.  Dismissed employees may be able to negotiate the type of arrangements that are being provided, the organization, location, and value of such services.  As well, dismissed employees can often arrange to have an employer pay for some upgrade or retraining courses if that will help the employee find new employment.  Though some of this may sound expensive for employers, overall, providing these arrangements may help the employer reduce the time period that it will take the employee to find new work and that might save the employer some money.

References:  Employers are not strictly required to provide helpful references though some judges may look at this down the road and award extra damages for an employer’s failure to do, even if the judge does not state that expressly.  Employees should ask for a mutually agreeable reference and an agreement that any reference requests will be answered in a manner that is consistent with the reference letter or summary provided.

Legal and/or Accounting Fees:  Most employers should be prepared to make some kind of reasonable contribution towards the legal fees of a dismissed employee.  Once a lawsuit has been commenced, the employer can be required to make these contributions if the lawsuit had merit.  Employers will often try to avoid a lawsuit by including payment for some of the legal fees in a negotiated severance package.

Waiver of Non-Competition Clauses:  Some employers may be prepared to waive or modify certain non-competition terms or clauses that were contained in a dismissed employee’s employment contract.  This can often be a tricky conversation.  It is usually more likely that employers will agree to modify a non-competition clause (that might have been unenforceable anyways) than to modify a non-solicitation clause, that may actually protect the employer’s business.  Telling an employer that you would like to go and take their clients’ business is not usually the best way to get a great severance package.  But telling an employer that you won’t be able to find any work because of an overly broad non-competition clause may be viewed as reasonable.

Other Perquisites:  Employers will sometimes provide for items like health club memberships, personal cell phone costs, professional memberships, private annual physical examinations, employer discounts and other items.  These items should be reviewed and considered individually.  Employees will also need to weigh the value of pursuing an item that may not be significant in comparison to the other items.

General Damages:  Most wrongful dismissal damages are fully taxable as if they were income.  The withholding rate may be lower (i.e. 30% if the amount is over $15,000) but at the end of the year, the employee will have to pay tax on the full annual marginal tax rate.  An exception is if there is a basis for some of the damages to be paid as “general damages,” which are non-taxable.  This, fortunately, is not applicable for most dismissals. I say fortunately because it would be a harsh world indeed if every employer who dismissed someone had also acted in a way that would warrant general damages.  Nevertheless, conduct that violates human rights legislation or  other “bad faith” conduct can warrant payment of general damages. It is very rare that employers will actually negotiate and pay these damages without an actual lawsuit or human rights complaint but it does sometimes occur.

These are some of the items to look for in a severance package, though entitlements to these items will really depend on the terms of the person’s employment, the length of service, the type of position, the existence of any employment contract or offer letter and a range of other factors.  A key factor is the likelihood of the dismissed employee finding new employment since all of these items are only really payable if they are arranged initially, or if the employee is actively looking for work and unsuccessful.  Dismissed employees who find new employment quickly may only be entitled to the applicable employment standards minimums.

There is no set formula for exact severance pay calculation.  Despite the fact that some lawyers might claim there is a very exact number if you plug a few variables into a “severance pay calculator,” that only produces a rough average, which may not even be statistically significant.  In most cases, there is a range, sometimes a fairly wide range.  Employees need to consider all of the different aspects of the proposed severance including which items are being paid and which are not, whether the severance is being paid as a continuance or a lump sum, and other related factors.

This list of items is provided only as a guideline for things that employees should consider when looking at a severance package that has been proposed.  In most cases, particularly when a number of different items are listed, employees should make the tax-deductible investment of obtaining proper legal advice from a qualified employment lawyer.

Most employers (and employees) do not want to wait and see how long it might take to find other work.  They want things resolved and out of the way.  So employers will often provide a salary continuance arrangement that provides some incentive for the employee to look for work and find a new position.  Usually, it is 50% of the remaining severance amount that they might have been paid. This is considered a reasonable provision and many employers will refuse to delete these clauses.  Nevertheless, most employees view these incentive payments as a “clawback” on the amounts that they are “owed” and become very upset with these provisions.  Some employers simply are very insistent on including these provisions as part of any severance arrangement.

Nevertheless and with that in mind – here are a few things you can consider when faced with a salary continuance proposal:

1.  The Length of the Notice/Severance Period:  Just because an employer has chosen some arbitrary number as the number of weeks or months that it will provide as a notice and/or severance period, that number may not be written in stone.  It may be quite flexible.  Sometimes employers will low-ball employees, hoping that they do not take any further steps.  Employees are often more likely to get the notice period increased than to get the “clawback” removed.  Many employers will increase proposed severance packages after receiving a letter from legal counsel.

2. Definition of Mitigation:  Some employers will state that the 50% payout will be triggered if the employee finds any work – even part time, consulting or temporary.  Empoyers are often willing to negotiate changes to these clauses so that the 50% will only come into effect if the employee has found a reasonably comparable employment or self-employment opportunity.

3.  What’s Included?:  Sometimes employers will offer a salary continuation on the basis of base salary alone.  Employees are entitled to be provided with benefits continuation, pension contributions, bonuses and other amounts that they would have earned if they had continued to be employed – even the severance arrangement is a salary continuation package.

4.  Other Items:  Employees should be able to get some other items included in their severance packages – like outplacement assistance through a decent agency and reasonable legal fees to have a package reviewed.  As well, some employers will provide a helpful reference letter though they cannot really be forced to do so.

The items listed above are items that employers will often consider changing, adjusting or adding.

It is fair to point out that, despite anything I have said above, some employers will be open to removing the salary continuation provision and paying out a lump sum.  They will usually want some concession in exchange – for example a lower overall amount or the agreement not to pay some of the “extra items” listed above.  But it is often  worth trying.

Other employers will not budge on anything and will tell employees to take the package or bring a lawsuit.  Employees then have to make a decision as to whether it is worthwhile to start a legal claim.  This can be a difficult decision, especially since neither the employer, the dismissed employee or the lawyer know how long it might take the employee to find new employment.

Nevertheless, in situations where employers have provided low-ball offers and are not willing to budge initially, dismissed employees will often come out ahead by proceeding with a Statement of Claim (i.e. filing a lawsuit in court).

1.  Remain Calm and Professional

This is one of the hardest things for many people. That is quite understandable, particularly if the termination has been handled poorly or is a bad faith termination.  For many dismissed employees, it will simply be a short meeting with the boss and an HR representative, or perhaps, just your supervisor.  Often, these meetings are very short and little is said.  Perhaps you are not even provided with a reason for the dismissal other than “the company is making a change.”  In any case, it is rarely helpful to argue or debate the issue.  It is almost always an irreversible decision and you will now have to move forward in the best way possible.  You should avoid the urge to do anything rash or impulsive.  Nasty emails sent around to company personnel or clients are almost never helpful, although a short and sweet goodbye note may sometimes be appropriate, if acceptable to the employer.

2.  Review the Termination Letter But Don’t Sign

Dismissals in Canada will generally be “with cause” or “without cause.”  If you are being dismissed “with cause,” you may not be offered a severance package.  If you are offered one, it may be one that is greatly reduced as compared to what you might have been entitled to receive in a without cause situation.  If the dismissal is “for cause,” it may be helpful to try to ask questions at the dismissal meeting about the allegations that are being made, the basis for the allegations and other related questions.

If the dismissal is “without cause,”  you will almost certainly be provided with a severance package.  In most cases, the employer will ask you to sign a release or some other agreement accepting the package.  You should never sign this type of document immediately.  You may well be entitled to significantly more than you are being offered by the employer.  If the termination letter references an “employment contract” that you signed when you first started, you should ask for a copy of it if you do not have ready access to it.   The employment contract may well set out the employer’s severance obligations and you may or may not be able to challenge this type of contract.  If you can’t find it, you may want to get a copy from HR, especially if it is referenced in your termination letter.

Whether a dismissal is for “cause” or “without cause,” it can still be considered a wrongful dismissal if you have not been given full proper compensation.

3.  Avoid Publicizing Immediately and Help Yourself

Although it might be tempting to immediately announce your departure on Facebook, LinkedIn and other social media, you should tread carefully.  It is usually not helpful to begin telling everyone immediately that you have been fired.  Consider contacting some close former colleagues or supervisors who may be prepared to provide you with a helpful reference or ideas about suitable job openings.  Consider some other contacts who may have ideas about the types of positions that would best suit you going forward.  Of course if there are people close to you, a spouse or partner, close friends, parents or others, it can be very helpful to share everything with these people, discuss your feelings and emotions and get support.  If you feel that your health has been affected, you should not hesitate to speak with your physician or, if appropriate, other health care providers such as a psychologist or psychotherapist.  Some people may find comfort in confiding in clergy, many of whom can be very empathetic.  Others may find it helpful to ramp up an exercise routine.  Whatever works best for you, take steps to keep yourself on a solid emotional footing.

4.  Meet With a Lawyer

Whether you have been dismissed for cause or without cause, this is still important.

If your dismissal is for cause, this may be something that you can challenge.  You may be entitled to significant compensation, even though the employer has claimed that it has “just cause.”  The law in Canada is quite favourable to employees.  It is very difficult for employers to succeed with a just cause defence, particularly if the defence is based solely on poor performance.

If your dismissal is “without cause,” you may well be entitled to significantly more than the employer has offered.  Have a look at what is included in the severance package.  There may be items missing such as bonus, benefits, outplacement or the severance may simply be too low.

Most employment lawyers will charge a consultation fee for this type of review.  The fee is tax deductible and often employers will pay it.  This advice may be quite valuable.  After a proper review, if you are advised that everything is in order and the package is reasonable, this may be money well spent.  Some lawyers offering a “free consultation” will avoid providing detailed advice and will try to get you to commit to providing a large deposit without really providing a proper assessment of what you should expect.  With a proper legal consultation, you should leave the meeting with a good sense of the likely range of improvement in your package if you proceed, the anticipated legal fees and an understanding of relevant legal issues.  You should not commit to anything other than a reasonable initial consultation fee for a first meeting with a lawyer.

If you had a non-competition or non-solicitation agreement in place with your former employer, this is also something that should be reviewed with legal counsel so that you can understand your rights and obligations going forward.

5.  Outplacement and a Resume

If your severance package includes outplacement assistance, you should verify whether or not it is being provided unconditionally.  If so, you should get in touch with the outplacement provider early on in the process.  Don’t hesitate to ask questions.  Will the meetings be confidential?  Will the outplacement provider be reporting back to the employer?  Does the outplacement provider have experience in your field?  If you are not satisfied with the answers, you should consider asking the employer to permit you to use a provider of your choice.  If the outplacement assistance is only being provided conditional on a signed release, you should discuss the best strategy with your legal counsel.

6.  Employment Insurance

In most cases, you should contact HRDC to file for Employment Insurance as soon as possible.  Even if you have been dismissed for misconduct or other “just cause,” you may still be entitled to EI.  Sometimes you may have to go through an appeal process to ensure your entitlement.  If you are being provided with severance, you may not receive any EI payments until two weeks after all of the severance payments have been paid.  Nevertheless, you should still register early.

7.  Health, Dental and Insurance

Your severance package may continue benefits for some period of time.  You should make sure that you and/or your family members, if applicable, are up to date with dental care, health prescriptions, eye glasses, and other items that may be covered by your extended dental plan.  If your life and/or disability insurance coverage are going to be terminated, you should consider getting quotes as quickly as possible.  In some cases, you may have 30 days to convert over your life insurance policy from a group policy to an individual policy.  This may be important if your medical tests are problematic.

8.  Be Forward Looking

Being dismissed is never easy.  This will usually involve a significant life change as you will now have to shift careers.  But most people go through this transition successfully.   You will need to do your best to stay positive, consider the types of roles that you envision yourself in and put together a personal transition plan.  You should make sure that your resume is professional, free of any errors, and eye catching.  When attending job interviews, you should remain positive and avoid bad mouthing your previous employer or boss.  You should consider dealing with the that fact that you were dismissed upfront and summarily.  Honesty will almost always be the best policy even though that does not mean telling potential employers about all of your weaknesses.

9.  Keep Track of Efforts

It will be helpful and often legally required for you to track your job search efforts.  Put together a spread sheet listing all activities. This should include formal and informal contacts.  Include lunch meetings, phone calls and discussions with friends, colleagues and former co-workers.  Track dates, people contacted, positions applied for, interviews and outcomes.  Keep this file up to date.  It may be important in proving “mitigation” if your severance entitlement has not been resolved quickly.  Or it may be required for EI purposes.  It will also be a useful part of tracking your personal progress.

10.  Carefully Consider any New Contract

When you have been offered a new position, you may well be given an offer letter or employment contract.  Don’t assume that the contact is a standard form or that it is non-negotiable even though you may really want to take the position and move on.  The proposed employment contract may limit or reduce your legal rights significantly.  Make sure you understand all of its terms properly.  You might consider having it reviewed by an employment lawyer.

These are some of the key points to consider. Certainly there are many career transition books that are quite helpful.  People often recommend What Color is Your Parachute?  Another favourite, on a lighter note, is Dr. Suess’ “Oh The Places You’ll Go.”  

There are also numerous job search websites and resources of every kind available on the internet.  Brush up your linked in profile with details of your work, references and endorsements.  Try to remain positive.  For many people, a dismissal may well lead to opportunities or new situations that might even be better for you that the role you have just left.

The plaintiff had worked in residential gas installation for 12 years for the defendant.  He was earning an income of approximately $55,000 annually, though it fluctuated depending on the availability of work.  He was dismissed after 12 years of service on a “without cause” basis.  A number of other employees were also dismissed at the time.

At the time of dismissal, the defendant offered to pay the plaintiff a total of 8 weeks’ pay, which was the minimum that would have been owed under the Ontario Employment Standards Act.  It asked for a signed release.  The plaintiff refused and brought a claim for wrongful dismissal.  The defendant paid out the 8 weeks’ pay.

At trial, the defendant argued that business was slow.  It took the position that the plaintiff would have have worked a very small number of hours if he had not been dismissed and that his damages would have been reduced to a very nominal amount.  The trial judge rejected the argument that there was sufficient evidence to draw this conclusion.  In other words, the court concluded that the plaintiff still would have earned an income if he had not been dismissed.

However, the trial judge expressly accounted for tough economic times in assessing the notice period.  First, the judge concluded that the appropriate notice period should have been 12 months.  This is probably a reasonable conclusion, based on all of the common law factors.  The plaintiff was 52 when he was dismissed.  Looking at all of the common law factors, including length of service, position, age, availability of comparable work and other relevant factors, a 12 month award would have made sense.

Justice Conlan then proceeded to reduce the plaintiff’s award by four months’ pay because of the “market and economic health of the [defendant]” at the time of dismissal.  In doing so, the court relied on the decision of Bohemier v. Storwal International, (1982) CanLii 1764 (Ont S.C.J.), a decision that had been affirmed by the Ontario Court of Appeal in 1983.

The Bohemier decision held that a notice period should be fair to both the employee and the employer.  However, as it has been interpreted subsequently by other court decisions, it did not say that the plaintiff’s notice period should be eviscerated because the employer is facing tough economic times.  In fact, if times are really tough, the dismissed employee will have a more difficult time finding alternate employment and could require a longer notice period.

It may be that Justice Conlan was swayed in this particular case by the fact that the plaintiff’s hours fluctuated and there might have been less work over the notice period.  Or perhaps the court was not fully convinced of the plaintiff’s mitigation efforts, even though the court expressly concluded that the plaintiff had mitigated his damages satisfactorily.  In any case, the court concluded that 12 months’ severance was too much for the plaintiff and reduced it to 8 months, expressly relying on the fact that the defendant was facing difficult economic times.

It remains to be seen whether the plaintiff will appeal this decision.  the amount at stake would be approximately $20,000.  There could also be significant legal costs at stake, depending on what types of offers to settle, if any, were exchanged between the parties before the trial.  The Ontario Court of Appeal does not like to “tinker” with notice periods if they are in a “reasonable range.”  However, the plaintiff could try arguing that the court made an error in principle by placing an overly significant emphasis on the economic challenges facing the defendant.

If this decision stands, it would be a very helpful piece of ammunition for defendants facing tough times.  Defendants can use this argument to limit severance liability in tough economic times.

For plaintiffs, it can be a real double whammy.  The employee is let go in difficult economic times, where it may well take longer to find work. Then the plaintiff faces a reduced notice period because of those same difficult economic times.  There seems to be a problem with this logic…

We will watch to see what happens with this case and how (if at all) it is applied.