Calculating Severance Pay is an Art, not a Science
In Ontario, the courts in wrongful dismissal claims and constructive dismissal claims have blatantly stated that, when it comes to calculating severance pay, the exercise is more an art not a science. In fact, in each case, a judge deciding in wrongful dismissal litigation must weigh and balance a catalogue of relevant factors. Put simply, severance package entitlements usually depends on various potential factors a court might consider, including:
Did the Employee Sign an Employment Contract? If so, is there a legally valid and enforceable termination clause?
Generally, a key priority for an employment lawyer assisting an employee with a wrongful dismissal claim (or constructive dismissal claim) is to assess and review any employment contact that was signed between the employee and employer. Why? A major sticking point in negotiating employment contracts (or negotiating severance packages for that matter) is determining if the employee has agreed to the circumstances in which the employer can end their employment – as well as what the employee’s rights and entitlements will be upon termination of employment. Typically, these details are found in a “termination clause” of an employment contract.
The purpose of a termination clause in an employment contract is to establish the ways in which an employee’s job can be terminated by the employer, such as:
- termination for just cause (serious misconduct), where an employer can get away with not providing the employee with prior notice of termination or financial severance package
- termination without cause (or no reason at all, as long as it is not discrimination or reprisal), where an employer must provide the employee with notice of termination (or a financial severance package).
Put simply, the purpose of an employment contract termination clause is to help an employer minimize the financial obligations they have to an employee when it comes time to terminating employment. How? Well, usually by trying to legally limit an employee’s severance package entitlements to the bare minimums under the Ontario Employment Standards Act, 2000.
What is the Minimum Severance Pay Entitlement under the Ontario Employment Standards Act, 2000?
Under this minimum employment legislation, an employer terminating employment “without cause” owes an employee a severance package consisting of the following minimum labour standards:
Ontario Employment Standards Act: Minimum Termination Pay Requirements
| Length of Employment | Minimum Notice Period (or Termination Pay) and Benefits Continuance |
|---|---|
| Less than 3 months | None (if written into an employment contract) |
| 3 months to 1 year | 1 week |
| 1 year to 3 years | 2 weeks |
| 3 years to 4 years | 3 weeks |
| 4 years to 5 years | 4 weeks |
| 5 years to 6 years | 5 weeks |
| 6 years to 7 years | 6 weeks |
| 7 years to 8 years | 7 weeks |
| 8 years or more | 8 weeks |
It is important to keep in mind that:
- if an employer can prove that the employee committed wilful misconduct, disobedience or wilful neglect of duty that is not trivial and that has not been condoned by the employer (a higher form of “just cause” under common law), the employer may be able to avoid having to pay any of the above minimum legal standards under the employment standards legislation.
- On the other hand, if an employer can only prove the employee committed “just cause” under common law standard (which is a lesser form of serious misconduct than the “wilful misconduct” standard), the employer will still have to pay the wrongfully dismissed employee the above minimum legal standards under the employment standards legislation. Given the different thresholds, most of the time employers will generally have to pay at least the minimum standards as proving “just cause” may be relatively easier than proving “wilful misconduct” (although still very hard to prove itself).
Ontario Employment Standards Act: Minimum Severance Pay Requirements
| Conditions | Minimum Severance Pay |
|---|---|
| Employed for 5 or more years AND Employer has a global payroll of at least $2.5 million OR 50 or more employees were terminated within a 6-month period due to permanent business closure. | One week’s pay per year of employment, up to a maximum of 26 weeks |
Is the Employee Entitled to Receive Severance Compensation under the Common Law?
Yes – but only if they have not signed away (given up) their full severance pay entitlements under common law by signing an employment contract with a termination clause providing them with less than a common law severance package (but at least as much as minimum labour standards under the Ontario Employment Standards Act, 2000). In that case, Ontario employment lawyers, employers and courts will consider the following factors (among many others) when deciding the nature and extent of a severance package a wrongfully dismissed employee must be provided (that is, when calculating severance pay):
- age
- length of service
- the status of the employee’s position
- availability of similar employment
- disability
- pregnancy
- knowledge, skills and experience
Given the employer’s aim is to minimize their severance package entitlements, it is not surprising that in wrongful dismissal litigation, very few employers will employees as much as their cases are worth in court if they were to win a wrongful dismissal claim or constructive dismissal claim. As such, employees should always carefully review an employment contract and severance package with a top employment lawyer in Ontario before signing on the dotted line.
Facing a job loss (wrongful dismissal) is a difficult time for most employees. Among other things, ensuring you receive the appropriate severance package you deserve is essential and requires the guidance of an experienced Ontario employment lawyer. To help you, an employment lawyer in Toronto will review your employment contract, review your severance package, and carefully review and discuss your specific circumstances leading up to your termination of employment, such as any potential claims of discrimination or harassment at work. Most importantly, an employment lawyer can help with calculating severance pay and, if necessary, help negotiate a severance package with your employer on your behalf.
If you are an employer or employee needing to speak with an experienced Ontario wrongful dismissal lawyer to discuss your options and next steps on how to deal with workplace issues, call Bune Law, employment law firm in Toronto. You will review and get guidance on your severance package before you agree to sign any termination documents, and help ensure that your severance package is fair and reasonable.