Severance Package for Short Service Employees in Ontario
It is well known that, under common law, an employee whose job is terminated without cause must be given either prior reasonable notice of termination, or pay in lieu of notice (“severance pay”). Determining precisely how much severance pay an employer is required to provide the employee will depend on various factors the courts recognize will impact an employee’s ability to find a replacement job, such as:
- the employee’s age at time of termination (generally speaking, a longer notice period will be justified for older long-term employees, who may be at a competitive disadvantage in securing new employment because of their age)
- the number of years the employee worked continuously for the employer (generally speaking, the longer the duration of employment, the longer the reasonable notice period)
- the employee’s character of employment (“level of employment” or “position in the hierarchy of a company as opposed to simply meaning the kind of work the person does)
- the employee’s job compensation
- the employee’s ability to find a comparable job in the labour market, considering their education, job qualifications and current economic conditions
Typically, the only exception to an employee’s common law entitlement is where a termination clause in an employment contract limits the employee’s severance package to only the minimum termination pay and severance pay required by Ontario employment law.
Based on these general Ontario employment law principles, it makes to assume that the longer the duration an employee works for the same employer, the more severance pay they should be given. Similarly, the shorter the duration an employee has worked for the same employer, the less they severance pay they should be given. However, this is not always the case, as the courts consider many different factors to determine an employee’s proper severance package upon dismissal.
In fact, the courts have been clear that none of the above factors is more important than the other. Rather, each factor is given different weight depending on the employee’s particular circumstances. So, for example, in some wrongful dismissal claims, the courts will award an employee a larger severance package because of their old age or type of job, despite having only worked for the employer for a relatively shorter period of time.
Put simply, it is not always reasonable for employers to assume that short-service employees are entitled to a small amount of severance package compensation following a termination of employment. For example, unless there is a valid employment contract, there is no basis for employers to follow a “1 week per year of service” formula or one-size fits all approach. When dealing with wrongful dismissal claims, the courts have made notable decisions where they have awarded substantial severance packages to employees who would otherwise be entitled to little severance pay compensation as a result of their short-service, including based on the following factors that will substantially reduce an employee’s chances of re‑employment and justify a larger severance package:
- older age
- health issues
- inducement (accepting a new job and then quickly having their new job terminated)
- pregnancy
- lack of formal education or diverse job qualifications
- being one of the first employees hired and/or spending an entire adult working life with the same company
Case in Point
In a recent wrongful dismissal case called Humphrey v. Mene, the court decided that a 32-year old employee who had worked for the same employee for only 3 years was entitled to 12 months of severance package compensation.
Facts
In this case, the employee had requested a salary review to coincide with her recent promotion. In response, the company began questioning her dedication to the company and passion for her job. About 1 month later, the employer terminated her job “for cause”.
Court Decision
In determining the employee was entitled to a larger severance package, the court considered the above factors
- having regard to the fact that the employee was terminated allegedly for cause 6 months after her promotion, it will be more difficult for the employee to get a new job because she will have to explain to prospective employers why she was terminated (terminated “under an ethical cloud”)
- it is much more difficult for women to obtain senior executive positions, particularly given her young age of 32
- the employee’s high-ranking, managerial role with the company justifies a longer notice period (severance package) because it is commonly accepted that executives have more difficulty finding other comparable employment
When this decision was appealed, the higher Ontario Court of Appeal agreed with the 12-month notice period award (although it reduced her severance package to 6 months of compensation because of the fact that she she unreasonably delayed starting her search for new employment by several months and then turned down a comparable offer job offer). The court specifically stated the following:
“In these circumstances, considering only certain factors (Ms. Humphrey’s age and length of service) might suggest that a notice period of 12 months was too high. The determination of reasonable notice, however, required an approach that considered all of the relevant circumstances as they would bear on Ms. Humphrey’s likely ability to find another comparable position. The determination of reasonable notice depends on the context and particular circumstances of the case. Mene has failed to demonstrate any legal error or error in principle in the motion judge’s approach, or any palpable and overriding error of fact that would justify interfering with her determination that 12 months was a suitable notice period. Nor am I persuaded that 12 months is entirely outside of an appropriate range in the circumstances of this case. As I will explain in the next section, however, I would reduce the damages to which Ms. Humphrey is entitled to the equivalent of six months’ compensation as a result of her failure to properly mitigate her damages.”
This case, therefore, stands as an example that a young, short-service employee can be awarded significant wrongful dismissal damages. As the Court noted:
“because no single Bardal factor should be given disproportionate weight or be treated as determinative, a short period of service will not always lead to a short period of notice.
It would have been an error for the motion judge to overemphasize the short duration of Ms. Humphrey’s employment as a factor. See, for example, Love v. Acuity Investment Management Inc., 2011 ONCA 130, 277 O.A.C. 15, leave to appeal refused, [2011] S.C.C.A. No. 170, where this court concluded that the trial judge erred by overemphasizing the employee’s short length of service (2.53 years) and underemphasizing the character of his employment, where (as here) he reported directly to the CEO. The court substituted a notice period of nine months for the five months awarded at trial.”
There are also similar cases where the courts awarded a large severance package despite an employee’s short service following a wrongful dismissal:
- Sager v. TFI International Inc. – an employee was awarded a severance package worth 9 months of compensation after working for the employer for 2 years and 9 months at the time of their wrongful dismissal
- Sanghvi v. Norvic Shipping North America – an employee was awarded a severance package worth 8 months of compensation after working for the employer for only 3 years and 9 months at the time of their wrongful dismissal
- Norgren v. Plasma Power LLC – an employee was awarded a severance package worth 8 months of compensation after working for the employer for only 23 months at the time of their wrongful dismissal
- Love v. Acuity Investment Management Inc. – an employee was awarded a severance package worth 9 months of compensation after working for the employer only 2.53 years at the time of their wrongful dismissal
- Mark Doughty v. EcoPower Inc. – an employee was awarded a severance package worth 6 months of compensation after working for the employer only 17 months at the time of their wrongful dismissal
- Norgren v. Plasma Power LLC – an employee was awarded a severance package worth 8 months of compensation after working for the employer only 23 months at the time of their wrongful dismissal
Call Now
It is important for an employee (or an employee) to speak with an experienced wrongful dismissal lawyer before taking any action that could affect the situation at workplace. Sezar has experience advocating for both employers and employees, which allows him to anticipate the other side’s arguments and develop an effective strategy.
If you are looking for a wrongful dismissal lawyer in Toronto, call today at 647-822-5492 for a case evaluation with an experienced employment lawyer.
Disclaimer: The content on this website and blog is not legal advice or legal opinion of any kind, and is only to provide general information. It is in no way particular to your individual case and should not be relied upon in any way. The outcome of a legal matter depends on its unique circumstances, and prior successes are not indicative of future results. No portion or use of this website or blog will establish a lawyer-client relationship with the author, this law firm or any related party. Should you require legal advice for your particular situation, please fill out the form below, or call 647-822-5492, to request an initial consultation.