How Does a Court Calculate an Employee’s Severance Pay in a Wrongful Dismissal?
While there is definitely no “magic formula” to calculate an employee’s severance pay, the starting point is quite simple: If an employee has never signed written employment contract, their employer is legally required to provide them with “prior reasonable notice of termination” (or severance pay equivalent) in order to properly terminate their employment and not risk a wrongful dismissal claim. Otherwise, if the employee has signed a written employment contract, then as long as it meets basic legal standards, the employee’s severance pay may be restricted to the specific amounts agreed to in the employment contract.
Severance Pay Limited by a Valid Termination Clause in an Employment Contract
A termination clause is a section in an employment contract (typically one detailed paragraph) which restricts the amount of termination pay or severance pay it has to pay the employee when it decides to terminate their employment without cause. This means that if the employment relationship is terminated, the termination clause will set out the employee’s entitlements and the employer’s responsibilities (i.e., financial severance pay). However, the employer can only rely on a termination clause if it is legally valid and enforceable.
Severance Pay Limited Not Limited by an Employment Contract – Common Law Reasonable Notice
What happens if an employer cannot rely on a legally valid and enforceable termination clause? In that case, the employer is legally required to provide the employee with payment in lieu of reasonable notice (severance pay package). In other words, the employee may be able sue the employer for wrongful dismissal to obtain their full common law severance pay. How much prior reasonable notice (or pay in lieu of notice) is the employer required to provide when terminating an employee’s job?
When a court has to calculate severance pay for a terminated employee under common law where there is no valid termination clause in an employment contract, the courts will consider various objective factors that impact the employee’s ability to replace their lost job, including:
- employee’s age
- position
- compensation (base salary, bonus, health benefits, pension, etc.)
- years of service
What makes an employment contract termination clause legally invalid and unenforceable? There are many different reasons why a court will refuse to recognize a termination clause to limit an employer’s financial severance pay obligations to an employee, the most common reason being that an employment contract termination clause violates the Ontario Employment Standards Act, 2000 (i.e., fails to provide the employee with at least the minimum amounts of termination pay and severance pay upon wrongful dismissal).
Take-Home Lesson
While Ontario employment law provides basic standards that employers must follow when terminating employment (handling a wrongful dismissal), there is no “hard-and-fast” rule. In fact, most employees’ severance packages differ depending on an honest assessment of if they have signed a valid employment contract, their age, years of service, economic conditions, and so on. Since an employee’s severance pay package entitlement depends on their specific circumstances, an employee (or employer) dealing with a wrongful dismissal or termination of employment should immediately consult an experienced employment lawyer upon the termination of their employment to determine their entitlements (and responsibilities).
Contact Bune Law, Employment Lawyer
If you are an employer and are facing a wrongful dismissal claim by a terminated employee, or an employee who feels you were wrongfully dismissed from your employment, an experienced employment lawyer at Bune Law can help with your workplace issues. Call by by phone toll-free at +1 (647) 822-5492 or submit the request consultation information.
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