How to Calculate Employee Severance Pay – Severance Pay Lawyer Toronto

In Ontario, once an employee is dismissed from their employment, they are usually entitled to payment from the employer called “severance pay.” This is intended to provide a financial assistance for the employee to assist them as they transition to new employment (much like employment insurance benefits).

When it comes to determining how much severance pay a non-unionized employee is owed from the employer, there are many factors to consider. Most important among them:

•  whether the employee was dismissed for cause or without cause (see below)
  
• if they have a legally enforceable employment contract
• employee’s age, years of service, position and the availability of similar employment, relative to their knowledge, skills and experience

What was the Reason for Termination – Just Cause or Without Cause?

While employers are generally required to provide severance pay to a dismissed employee, there are a few situations where they do not have such an obligation. For instance, if an employee voluntarily resigns from their job (quits), the employee is deemed to forfeit their right to receive severance pay. Most importantly, if an employer can prove the employee engaged in egregious misconduct (wrongful behaviour), which gives them a “pass” to avoid providing. However, this is an extremely difficult task for employers to meet in most circumstances.

The courts in Canada have consistently held employers to a high standard to prove just cause, since a termination for cause leaves employees high and dry, without any prior notice of termination or severance pay. Essentially, employers must have good reason and sufficient documentation proving that an employee’s misconduct destroyed the root of the entire employment relationship, to such an extent that broke an employee’s trust and confidence in allowing the employee to continue in their job. Practically speaking, proving just cause for termination in employment law is akin asking a court to impose capital punishment – and in many cases, the courts have ruled this level of punishment does not fit the crime.

The moral of the story is: not all employee misconduct justifies a dismissal for just cause. As a result, employees will usually be deemed to have been terminated “without cause,” which entitles them to severance pay.

Has the Employee Sign a Valid Employment Contract With a Termination Clause?

Even if an employee’s job is terminated without cause, the next issue to determine is whether the dismissed employee previously signed an employment contract (or employment agreement). This is because an employment contract sets out the rights and responsibilities of the employer and employee, including the circumstances under which the employment relationship can come to an end (termination).

But simply having an employment contract is not the end of the story. An experienced employment lawyer will seek to determine whether it is even legally valid, as well as whether there is a termination clause properly limiting an employee’s entitlements to severance pay. If not, then the employee benefits from a rule in employment law that they are entitled to their full severance compensation (“reasonable notice of termination”).

Any employment lawyer worth their weight in salt understands that determining whether a termination clause is itself legally valid is usually a difficult task, and a key reason why employee’s commence claims for wrongful dismissal against their employers. In fact, it is precisely because dealing with termination clauses has become a sort of “whack-a-mole” or moving target, mostly due to the fact that employment law is always changing – and complicated!

What are some typical reasons why the courts have found factors an employment contract’s termination clause is illegal? There are plenty, including the fact that a termination clause:

• has the potential of (or in fact does) deprive the employee  a continuation of their employee’s basic health benefits, pension, wages and vacation pay for at least the minimum statutory notice period under Employment Standards Act, 2000 or Canada Labour Code
• the employment contract as a whole is invalid, such as where an employer pressures the employee to sign it or fails to provide “fresh consideration”
• deprives an employee of the minimum termination pay, benefits and severance pay under the Employment Standards Act, 2000, in situations where the employee’s alleged misconduct does not amount to “wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer”

Beyond these above factors, there are countless others the courts have ruled make an employment contract’s termination clause illegal, resulting in employee’s being paid their appropriate full severance pay. As such, it is important for an employment lawyer to review and analyze the language of an employment contract.

If There Is No Valid Termination Clause in an Employment Contract, a Wrongfully Dismissed Employee is Entitled to Common Law Severance Pay

After determining the dismissed employee was not terminated “for cause,” and they are not otherwise subject to an employment contract limiting the amount of severance pay they must receive, an employment lawyer will pursue an employee’s common law entitlements to full severance pay (or “pay in lieu of notice of termination”).

(Side note: the term “common law” refers to judge-made law, or court decisions in the past that have established rules the courts must follow in making decisions involving similar disputes.)

In most cases, an employee’s entitlement to full severance pay under common law far exceeds their minimum entitlements in an employment contract or minimum standards legislation. To calculate an employee’s severance pay, the courts take into account the following main factors (along with many others developed over time):

• the character of the employment,
• the length of service,
• the age at the time of termination, and
• the availability of similar employment (having regard to the employee’s experience, training and qualifications).

Generally, the courts have ruled that the older an employee is upon termination; the longer the employee worked for the same employer without interruption; the more managerial their job; the worse  the economic situation at time of termination; and the less skills, experience or qualifications the employee has upon termination, the more challenging it may be for him/her to find another comparable position. As such, many employees will generally be entitled to more severance pay under Ontario employment law.

Although the above factors are a court’s main considerations in determining an employee’s severance package in a wrongful dismissal claim, it is important to be mindful of the fact that each employee’s situation is specific to them, and will not necessarily follow the same result from another employee’s situation. As such, it is always prudent to speak with an experienced employment lawyer to assess your case and estimate what you may be entitled to upon termination.

Call Now to Improve Your Severance Package – Severance Lawyer Toronto

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