SEVERANCE PACKAGES & PAY

If you have been an employee for a company in a senior role, you may be entitled to much more substantial compensation on a without-cause termination than what your employer is currently offering you.  It is important to note that while employers include deadlines in their severance and termination offers as a means to pressure terminated employees to sign release documents, these deadlines are not enforceable.  Employers are required to provide a reasonable amount of time for employees to consider their options. Prior to signing any agreement, make sure you speak to an employment lawyer to ensure your rights are protected.

Determining Notice Period for Executives and Entitlement to Bonus and Benefits

While there is a general rule of thumb under the common law that reasonable notice for terminated employees is one month of notice for every year of employment, reasonable notice becomes a more fact intensive analysis when dealing with terminated executives, especially if they had short service within a company.  The Ontario Court of Appeal decision of Love v. Acuity Investment Management Inc. reveals some important considerations.

The Plaintiff was a senior VP and shareholder with the Defendant.  The shareholder agreement indicated that if the Plaintiff was to be “dismissed without cause”, the Defendant would repurchase the

Plaintiff’s shares at the value and date in which the Plaintiff “ceased to be an employee”.  The Plaintiff was dismissed without cause after only 2.53 years of service and the Defendant offered a three-month termination package in line with the “rule of thumb”.  Litigation proceeded.

The trial judge determined that the Plaintiff was entitled to five months’ notice and that he was able to hold his shares until the end of the notice period.

The Court of Appeal determined that nine months’ notice was more appropriate.  The court stated the trial judge placed too much importance on the Plaintiff’s short employment and not enough emphasis on the Plaintiffs high income, equity ownership, high-level role within the company and the difficulties in finding a position of a substantially comparable nature.  The court also determined that the Plaintiff “ceased to be an employee” on the termination date.

While employees are entitled to damages equal to the total benefits they would have been given had they worked the notice period, this principal does not apply in the context of a clear contract stating that the employee is not entitled to the benefit over the notice period. Ultimately, this case illustrates that the contractual language was clear enough so as to oust the Plaintiffs entitlement to bonus during the notice period.  Other case law in Ontario have provided for the same result of denying benefits over the notice period, however with even more clear and unequivocal language. An good example of limiting language can be seen in the 2004 decision of Kieran v. Ingram Micro Inc., where the employee’s right to stock options ended when the employee “ceases to perform services…without regard to whether [he] continues thereafter to receive any compensatory payments or is paid salary thereby in lieu of notice of termination.” Having such language in both hiring contracts and benefit agreements helps to clarify entitlement to benefits and when they end.

Bonus Entitlements in Severance Pay

Case law in the province has been inconsistent on whether or not employees are entitled to bonuses during the notice period. Generally, employees are entitled to the accrued bonus pay which would have been earned if they remained employed during the notice period.  There is an exception however where as part of the employers bonus policy, terminated employees must be “actively employed” during the time that bonus is paid. Case law in Ontario discusses the wording of the “active employment” clauses in bonus policies.

If you are an employee in an executive position, call the office of Stacey Ball to discuss your severance offer.

Being terminated from work is a stressful experience for anybody. Emotions run high as you have to figure out your next steps, and money is obviously a primary concern. Your rights to severance pay and termination pay will depend on the circumstances of your termination.

The first thing you should do, before signing anything, is contact a lawyer to review the severance package that your employer has offered you. An experienced employment lawyer can tell you if you are receiving all of the entitlements owed to you under the law, and give advice on how to maximize your severance package. Sadly, many employees walk away with less severance than they are owed.

Please note that “severance package” and “severance pay” refer to different things. The term severance package is generally used to describe the total payout that a terminated employee will receive. Severance pay, on the other hand, is a term in the Employment Standards Act. It compensates employees for losses (like loss of seniority) that happen when a long-term employee is fired. In order to qualify for severance pay an employer must have worked for the employer for at least five years and the employer must either have a payroll of $2.5 million or have severed 50+ employees in a six-month period as a result of a business closure.

There are two main scenarios in which Ontarians are terminated; with cause and without cause.

Terminated With Cause

It is a high bar to terminate someone with cause in Canada. Generally, there must be some serious misconduct that harms the employment relationship, such as theft, violence, fraud rising to the level of gross misconduct. The reason for the high bar is that in the event of willful misconduct, an employee will not receive any termination or severance pay. If you are an employee who has been fired for cause, you should absolutely reach out to a lawyer to review the circumstances of your dismissal.  You may have a case for wrongful dismissal.

Terminated Without Cause

In Ontario, you can be terminated without cause, so long as your employer provides the appropriate amount of “notice” or “pay in lieu of notice”. The Employment Standards Act sets out minimum entitlements that a terminated employee receives. This is based on the length of service. However, employers are only allowed to provide this minimum amount if they included an enforceable termination provision in your employment contract. This is actually quite tricky for employers. The provision must be explicit, unequivocal and a valid term of the employment agreement. Even technical violations of the Employment Standards Act may render the provision void.

If that happens, or if there is no termination provision at all, the employee is actually entitled to common law reasonable notice. This is usually a much higher amount than the minimums set out in the Employment Standards Act.

When the court determines common law reasonable notice, they will consider such factors as the length of employment, the employee’s position, the reason for dismissal, the employee’s compensation and whether the employer acted fairly and in good faith. These are several examples. The maximum notice period available is typically 24 months, though there are always exceptions for egregious behavior.

Please note that all of these factors would be weighed and the particular circumstances of each case need to be examined to determine the appropriate amount of reasonable notice.

Contact the legal professionals at Ball Professional Corporation for assistance to make sure you receive any entitlements owed to you upon termination.

Unlike termination pay, employees will only be entitled to severance pay in certain circumstances. To be entitled to severance pay, an employee must have worked for the employer for a minimum of five (5) years and one of the two following statements must be applicable to the situation:

a) The severance occurred because of permanent discontinuance or all or part of the employer’s business at an establishment and the employee is one of fifty (50) or more employees who have their employment relationship severed within a six (6) month period as a result;

b) The employer has a total annual payroll in Ontario of $2.5 million or more.

However, there are many situations in which an employer is not obligated to pay severance pay, even if an employee has worked five (5) or more years and the employer is a company whose total annual payroll is $2.5 million or more.

Some situations in which the employer is not obligated to pay severance pay include, but are not limited to:

• When the employee is being terminated for wilful misconduct, disobedience, or wilful neglect of duty that is not trivial and was not condoned by the employer
• When the employee is employed in construction
• When the employee has refused an offer of reasonable alternative work with the employer
• When the termination of employment is due to the discontinuance of all or part of the employer’s business that the employer can show was caused by the economic consequences of a strike
• When an employee retires upon having their employment severed and receives an unreduced pension benefit from the employer that reflects any service credits which the employee, had the employment not been severed, would have been expected to have earned in the normal course of events for the purposes of the pension plan.

More exemptions can be found under section 9(1) of the Ontario Regulation 288/01.

Stacey Reginald Ball is an experienced employment lawyer with Ball Professional Corporation. Our office is located in Toronto, Ontario, and handles various employment law matters, including wrongful dismissal. If you have questions regarding severance and termination pay, please consult a lawyer for advice.

Many people may think that termination pay and severance pay are the same thing. However, they are two different things legally and not all employees are entitled to both termination pay and severance pay. While most employees will be entitled to termination pay pursuant to the Employment Standards Act (ESA), only some employees will be entitled to severance pay under ESA.