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Severance Package Reviews

Do not sign anything before having it reviewed by our Hamilton Employment Lawyers

Terminated? Do not sign anything before having it reviewed by one of our Hamilton Employment Lawyers

If you’ve been fired – do not sign termination documents under pressure.

When employee is? terminated, ?he or she will be owned severance, which is, in most circumstances, termination pay and common law payment in lieu of notice. It can be extremely important not to accept the terms or sign a severance offer until you have an experienced Hamilton employment lawyer review it or even step in and negotiate better terms on your behalf, if possible.

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.

It may be tempting to sign off and move on – but don’t.

It may no doubt be tempting to accept the termination pay offered to you immediately but it may not be in your best interest. For example, if you sign a full and final release you may not be able to go back and negotiate whatever is owed to you. You may in fact have a valid wrongful dismissal claim, however, by signing a release and accepting the severance offered, you may in fact be waiving your right to sue for those wrongs and what you are rightly owed at law.? The earlier you involve an employment lawyer, the better.

How do I know if my severance is fair?

It’s completely possible for you to know if your severance package is fair without speaking to an experienced employment lawyers. We understand that one of your first questions after being terminated may be “have I been provided enough severance?” Will this be enough money to tie me over while I look for 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.

What is Termination Pay?

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.

What is 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;
  • or if the 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 – Your Health and Dental Group 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 employment contract is illegal, will it simply invalidate that specific part of 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.

What is reasonable notice of termination?

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.

What is notice or payment 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.

Can my employer and I contract out of Reasonable Notice or Payment in Lieu?

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)

How is severance normally paid out?

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.

The employer is not required to provide all of the employee’s notice in the same form. The employee’s notice may be provided in any of the following combinations:
  • Working notice and lump-sum payment.
  • Working notice and salary continuance (with or without a clawback).
  • No working notice, a lump-sum payment covering part of the notice period, followed by salary continuance (with or without a clawback), to begin after the lump-sum payment period expires.

What happens if your employer does not provide you with sufficient notice?

If your employer does not provide sufficient notice, you have the right to start a wrongful dismissal action.

What are some common reasons why employers face wrongful dismissal claims?

There are countless reasons why employers often face lawsuits over improperly structured termination packages. Common mistakes made by employers in structuring and drafting the termination package include:

  • Failing to properly appreciate and assess the actual reasons for termination. For example, many employers refuse to provide notice on the erroneous belief that just cause for termination exists, which may ultimately increase the employer’s costs and liability;
  • Improperly assessing the employee’s actual statutory, contractual or reasonable notice entitlements. Many employers do not consider whether their contractual termination clauses are enforceable or whether there are any high-risk factors which may increase their ultimate liability;
  • Forgetting that all forms of compensation loss must be accounted for when providing pay in lieu of notice. In addition to their wages, most employees receive other forms of compensation during their employment;
  • Failing to consider whether there are any liability reducing strategies available for their given situation;
  • Relying on termination clauses which are invalid and contrary to the Employment Standards Act; or
  • Improper use of a full and final release.

If you’ve been terminated, get your severance package reviewed now.

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 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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Common Questions about Severance Package Reviews

In every non-unionized employment relationship, the employer has an implied common law obligation to give the employee reasonable notice of its intention to terminate the employment relationship, unless there is just cause for termination. If the employer fails to give the employee reasonable notice of termination, the employee can bring a wrongful dismissal action for breach of that implied term.

Your employer is obligated to provide you reasonable notice of your termination – or in the alternative – payment in lieu of such notice. If your employer has not provided you with reasonable notice OR payment in lieu of notice, or your employer has provided innapropriate notice then you may in fact have a claim for wrongful dismissal.

The employer’s obligation to provide the employee with reasonable notice of termination does not apply where:
  • The employee resigns his employment;
  • The employment relationship is frustrate;
  • There is just cause for termination of employment;
  • The employment contract contains a valid term providing for the amount of notice to be given in the event of termination;
  • The employment contract is for a fixed term.
There are two steps to determining the employer’s liability for reasonable notice:
  • First, the employer must determine the period of reasonable notice. There is no definitive catalogue or list that will guide in assessing reasonable notice in a particular case. The most important considerations are the Bardal factors, however, other factors may also be considered.
  • Second, the employer must calculate the employee’s damages based upon the reasonable notice period. Reasonable notice damages are usually calculated on the basis of the employee?s compensation per month, multiplied by the number of months of reasonable notice. There may be deductions from the damages for mitigation income and collateral benefits.

No, independent contractors are not entitled to common law reasonable notice of termination.

The purpose of providing reasonable notice is to allow the employee a period of time in which to secure alternative employment.

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.

The starting point for determining the reasonable notice period is set out in an old seminal case case called Bardal v. Globe & Mail Ltd., from 1960. Bardal tells us that reasonable notice is decided with reference to the certain? key factors (the “Bardal factors”):

  • The character of the employment;
  • The employee?s length of service;
  • The employee?s age;
  • The availability of similar employment, having regard to the experience, training and qualifications of the employee.

Bardal lists the most important factors to be considered in assessing the common law reasonable notice period. These factors are weighed and balanced by the courts in their analysis. No single Bardal factor is to be given disproportionate weight.

It’s important to understand that Bardal does not provide an exhaustive list of the factors to be considered. Courts have added other factors into the analysis. However, additional factors are not given the same weight as the Bardal factors, except (arguably) for the factor of inducement.

The reasonable notice period has been generally capped at a rough upper limit of 24 months of notice, with the court awarding above 24 months if exceptional circumstances are demonstrated.? For example, in the case of Dawe v. Equitable Life Insurance Company, 2018 CarswellOnt 8419 (Ont. S.C.J.) a 62-year-old senior vice president with 37 years of service was awarded 30 months of notice. The court would have awarded 36 months on the basis that no comparable employment was available however only 30 months of notice was claimed.

This approach has been rejected by the appeal courts as it overemphasizes the length of service factor and undermines the flexibility of the?Bardal analysis.? The rule of thumb approach to reasonable notice also has little correlation to reality. Short term employees may well receive reasonable notice in excess of a month per year of service (sometimes up to four or five months per year of service) and longer-term employees (over 20 years) tend to receive less than a month per year of service.

The reasonable notice period is usually expressed as a number of months. The definition of a month as it relates to the beginning and end dates of the notice period can be a key issue in calculating an employee’s reasonable notice damages.
For example, where an employee is entitled to damages for any bonus arising during the reasonable notice period, and the employee’s bonus vests of a specific date, the employee’s entitlement may turn on the precise calculation of that notice period down to a single day.
There are two ways to view the length of one month:
  • A standard period of days. In this approach a month would either be treated as 30 or 31 days.
  • A calendar month. In this approach December 5 to January 5, and January 5 to February 5 would both be treated as one month despite containing a different number of days.
An Ontario court has held that a month of reasonable notice is a calendar month. This method is “clear, simple and accords with common sense and everyday experience”.

In considering the character of employment, the courts are more concerned with the responsibilities, skills and character of the work performed rather than the minutia of the employee’s job duties or the employee’s job title.

In the past many courts assumed that senior level employees with a high degree of management functions or professional skills would have a harder time finding alternative employment and, as a result awarded greater reasonable notice for more senior level positions than for lower level or non-skilled positions. However, in the last 20 years Appeal Courts have considered the character of employment factor as one of “declining” importance or significance in the reasonable notice assessment. The character of employment factor is relevant to the reasonable notice analysis, but it is not to be given disproportionate weight (See Keays v. Honda, 2008).

Long term employees are typically entitled to longer notice periods than short term employees of the same age, with the same skills and responsibilities.

Normally, the length of an employee’s service is easy to determine: it is the period between hiring and termination. However, this determination becomes more difficult if there has been a break in the employee’s tenure of service or there has been a sale of the business.
Changing employment status may also complicate the assessment of length of employment. A court may consider prior service as a dependent contractor in addition to service as a true employee in the calculation of the reasonable notice period.
Older employees are generally entitled to longer reasonable notice than younger employees, based on the rationale that it will take an older employee longer to find new employment. The court will take judicial notice that:
“Barring specific skills, it is generally known that persons over 45 have more difficulty finding work than others. They do not have the flexibility of the young, a disadvantage often accentuated by the fact that the latter are frequently more recently trained in the more modern skills”.
McKinney v. University of Guelph, 1990 CarswellOnt 1019 (S.C.C.)
The fact that an employee is nearing a normal retirement age, and presumably has less working years left, does not reduce the reasonable notice period. On the other hand, the notice period is not increased to the point that the employee will receive reasonable notice for life or until he retires.
If there is a term in the employment contract requiring the employee to retire at a certain date, the reasonable notice period will not extend past that retirement date because the employee will not have had the contractual right to continue to be employed by the employer beyond that date.
Note that dismissing an older employee who is near normal retirement age may lead to a human rights claim.
Like other factors, age should not be given disproportionate weight in the Bardal analysis. For example, it is improper for the court to set reasonable notice as the time-period needed to bridge an older employee to the date he would be entitled to a full pension.

The court may increase the amount of reasonable notice where there is limited similar employment available in the job market, having regard to the experience, training and qualifications of the employee. On the other hand, where similar employment is widely available, less notice may be awarded.

This is conceptually different than the time taken to find a new job. Reasonable notice is determined by the circumstances existing at the time of termination and not by the time that it takes to find alternative employment (which goes to the duty to mitigate and not to the length of reasonable notice). See?Holland v. Hostopia.Com Inc., 2015 CarswellOnt 16985 (Ont. C.A.)

The length of service may be difficult to determine when the employment relationship has not been continuous.
In general, if the employment has been interrupted for a lengthy period of time (for example, where an employee leaves to work for another employer) the length of service will run from the date of the rehiring and not the prior hiring date.? The longer the period of interruption in service, the less likely the court will consider the period of prior service in its assessment of reasonable notice.
The court, however,? has the discretion to disregard a gap in service when considering the employee’s length of service and may examine the gap in the context of the entire employment period.

Yes, it is. The Supreme Court of Canada has expressly recognized that inducement is a factor to be considered in the reasonable notice analysis. Have a read of our blog post about inducement about how the inducement factor comes into play when en employee has left a relatively secure job.

The employer may choose to provide the employee with working notice of the termination of his employment. In this case, the termination letter would be given to the employee in advance of the actual termination date and expressly provide a final termination date that reflects the end of the applicable notice period.

Not typically. A release should not be used where the employee is given only working notice of his termination. If the employer offers additional payments over and above any minimum standards obligations (for example, the amount of working notice will not cover the entire reasonable notice period), it may require the employee to execute a release in exchange for the additional payments over minimum standards requirements.

In many cases, the employer notifies the employee that the employment relationship is terminated effective immediately and offers the employee pay in lieu of notice, either in the form of a lump-sum package or as a salary continuance package. Lump-sum packages are typically structured so that the employee receives a fixed sum, with no 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.
If the employee is provided with a lump-sum payment and no release is executed, the employee may bring an action for further notice at the end of the period of notice covered by the lump-sum package.

Severance?pay is a payment that is made by the employer upon termination of an employee, in addition to any individual notice of termination and group termination notice. Where notice of termination is meant to give an employee an opportunity to prepare for an upcoming termination and take measures to seek alternative employment,?severance?pay is meant to compensate the employee for the investment of her long service with the employer’s business.

Severance?pay cannot be given as working notice and must be given as additional pay upon termination.?The employer is required to pay the employee her total?severance pay amount even where it provides greater than the minimum required amount of working termination notice. (Mattiassi v. Hathro Management Partnership.)

In Ontario, a termination clause that gives the employer the option to provide?severancepay as working notice, in part or for the entire?severance?pay entitlement, will likely be unenforceable for contracting out of the?Employment Standards Act, 2000, S.O. 2000, c. 41. (Wood v. Fred Deeley Imports Ltd.)

Yes, Any severance?pay paid to the employee is deductible from her common law reasonable notice entitlement. See?Stevens v. Globe & Mail, 1996 CarswellOnt 1590 (Ont. C.A.)?and?Brake v. PJ-M2R Restaurant Inc., 2017 CarswellOnt 7619 (Ont. C.A.).

No, amounts paid as continuing salary will not qualify as a retiring allowance pursuant to Section? 248(1) of the Income Tax Act and therefore cannot be transferred into an RSP or RRSP for the purpose of the deferral specified in Section 60(j.1).

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