Author: Daniel A. Lublin
With 71,000 Canadian jobs having vanished in the month of November alone, tales of mass restructuring have moved from this column’s coverage to the front pages of the news. The question I’m most frequently asked now is, what should employees expect if they lose their job and what can they do to protect themselves. Here are the rules of severance:
Non-union employees in Canada do not have an entitlement to continued employment. That is, an employer is permitted by law to dismiss, as long as an advance warning known as reasonable notice is provided. The objective is to provide the employee with enough working notice to secure another job before being asked to leave his or her current position. However, instead of providing notice, most companies elect to give severance pay instead. What is most often disputed is the amount of notice or pay that an employee is entitled to.
In determining the amount of notice or severance pay, the first step is to consider whether or not there is an employment contract. If so, the employee may have agreed to receive a specific amount. As this situation creates an unfavourable scenario for employees who may not have known the consequences of signing such an agreement, courts have historically enforced these contract clauses only in very specific situations.
Without a specific contractual clause, employees are entitled to reasonable notice or severance pay. Many believe that this amount is based on a formula, such as one month per year of service. They are mistaken. Courts do not follow any defined rules in calculating how much severance to pay to a particular employee. Rather, notice or severance pay is based on how long it ought to take the employee to find a comparable position, having regard to his or her age, tenure, position and the availability of another job.
Notice or severance pay is not limited to merely an employee’s salary. Generally, an employee is entitled to all the non-discretionary payments that he or she earned while employed, such as non-discretionary bonuses, sales commissions, health benefits and even stock options.
Many people also mistakenly believe that notice or severance pay is based on provincial legislation. Each province has a set amount of notice or severance pay that employees must receive upon dismissal. However, that amount is only the minimum. The vast majority of dismissals result in the obligation to pay the greater “reasonable” amount, defined above.