Seek legal advice before finalizing severance packages.

Kevin Marshall

March 25, 2019

Employees and employers should obtain legal advice before finalizing a severance package.

“It takes a bit of strategizing. But the key is that employees and employers educate themselves on what the law permits, so that they can make an accurate determination of what to offer and what to accept.”

Regardless of the circumstances of a worker’s departure, they will be entitled to any outstanding regular wages, bonuses and vacation pay owed to them.

However, if a termination has been made for cause, Marshall says employers may be able to avoid paying anything further to employees.

“If they are being fired for cause, then the termination letter needs to say that expressly, along with the grounds for doing so.”

Otherwise, Marshall explains that Ontario’s Employment Standards Act, 2000 (ESA) sets out certain minimum entitlements for employees of provincially regulated businesses. For example, termination pay of between zero and eight weeks is due to workers, depending on their length of service. The Canada Labour Code, which applies to employees at federally regulated workplaces, contains similar provisions.

“These are unconditional entitlements for employees, as long as they haven’t been fired for cause, so employers and employees will need to make sure that their severance packages meet those minimums. If they want to get a release signed, which means certainty in terms of ensuring no future claims are advanced, then they need to offer something beyond the minimums.”

What else employees are legally entitled to upon termination will depend on the existence of a written employment contract between the parties, and its specific terms.

In many cases, employers will attempt to limit employees to the statutory minimums prescribed by the ESA.

While companies often rely on termination clauses in employment contracts for the cost certainty they promise, they can be tricky to draft and Marshall notes that a number of recent court decisions have gone against employers trying to enforce them.

When there is no employment contract, or a termination clause has been deemed unenforceable, an employee’s notice period or pay-in-lieu of notice is determined under the common law, based mainly on the individual’s age, length of service, level of responsibility and ability to find a new job.

This typically results in more generous terms for the worker, however, employees must bear in mind their responsibility to mitigate their damages by attempting to find new employment.