Unfair Severance Offers Can be Risky Business for Employers
My recent column on severance packages garnered more interest than others I’ve authored. One comment, from a management-side labour relations advocate, caught my attention. The writer argued that employers naturally should offer employees less severance than a court could award them on the premise that they should agree to take less money in exchange for not having to spend the time and effort pursuing their case in court.
Not only did the comment miss the point of my column, if followed, the approach advocated by the writer is risky business for employers. Intentionally lowballing an employee’s severance entitlements routinely enrages dismissed employees and provides far greater incentive for employee-side lawyers to take on their case. A termination dispute leads to time and expense incurred by the company, too, and can often cost employers more money to settle later, including paying the employee’s legal costs, than had they presented a more reasonable offer from the outset.
There are other questionable termination strategies that some companies may be using that should also be addressed.
- FAILING TO CLEARLY SPECIFY THE MINIMUM REQUIRED PAYMENT
Termination letters have become very confusing, so much so, that sometimes even I have trouble decoding them. There are companies that use this to their advantage. Provincial and federal employment-standards statutes across Canada guarantee that most workers dismissed without advance notice are entitled to some form of unconditional minimum severance payment, calculated based on their length of tenure. In Ontario, this can be as much as 34 weeks’ pay. Employers ought to clearly specify in termination letters the exact amount they are obligated to pay by legislation and that this amount will be provided to the employee regardless of whether or not he or she accepts the overall severance offer. Too often the fact that an employee is guaranteed a certain amount of severance gets lost in the heap of information contained within a termination letter and leads some to believe that an employer is being far more generous than it actually is.
- HOLDING BACK EARNED AMOUNTS
Workers are unconditionally entitled to all wages earned up to the legal date of termination and any back payments owed, such as commissions or vacation pay. The payment of these accrued amounts ought not to be tied to any offer of severance. However, some companies seemingly combine these two items as part of their severance offer, without clearly articulating that the accrued amounts will promptly be paid whether or not the employee accepts the final offer. This can give the impression that an employee needs to sign a release in exchange for what he or she is already entitled to receive. This is another one of the very questionable termination strategies.
- INSUFFICIENT TIME TO REVIEW THE OFFER
While an employer is not required to provide an employee with legal advice concerning its offer of severance, it should provide sufficient time and flexibility for employees to do so. There is nothing wrong with a company imposing a deadline. However, a just-dismissed employee should not have to scramble to obtain advice and make such an important decision. How long should workers be given to review an offer of severance? I recommend at least one week be provided.
It is also in an employer’s best interest to demonstrate that dismissed employees were given enough time to obtain advice and make an informed decision. If a deadline is unreasonable, it adds to the stress and anxiety that workers inevitably face upon dismissal and could be relied upon to claim that a decision was made under duress.
- CHERRY PICKING
A proper severance package must take into account commissions, sales incentive payments, and bonuses, especially where they are based in part or entirely owing to business performance. However, many employers use questionable termination strategies like using the pandemic as an opportunity to skew the calculations in their favour. They will offer to provide a payment in lieu of a bonus or commissions but will calculate that amount only based on the employee’s most recent earnings. If that amount is unusually low, then it is a point worth contesting. Ignoring the average income earned by an employee prior to the pandemic and relying only on his or her most recent sales or commissions can be grossly unfair. In wrongful dismissal lawsuits, most judges prefer to consider an average of the employee’s income over the past few years, unless there is clear and convincing evidence that a lesser number is more appropriate.
- INTERIM PAYMENTS
Obviously, the terms of a contract or commission plan may be relevant, but where an employer has included a bonus or incentive payment as part of the severance package, there are many instances where there is no consideration given to the period of employment worked up until the date of termination. That is a mistake. Take for example, an employee who receives an annual bonus or incentive payment based on a calendar year-end. If she is dismissed midyear and offered payment in lieu of a bonus from that point forward, she should also receive an incentive payment for the time worked from the last payment up to the date of termination.
- HEALTH BENEFITS
Especially in light of the continued fears associated with COVID-19, threatening to cut off an employee’s health benefits shortly after termination of employment can be highly problematic. Legally, health benefits must continue for at least the period of time that matches the termination notice required by employment standards legislation. However, I have seen instances where even this requirement is not being met. Granted, most companies will offer to extend benefits for at least part of the severance period, but again, this is not always made clear to ex-employees. The lack of clarity may lead some to develop the impression that unless they quickly accept their employer’s offer, their benefits will be cut off.
I have one final piece of advice for any just-dismissed employee. If you do not have the time or ability to get advice before an offer of severance is set to expire, make sure to communicate that to your ex-employer and be sure to do so in writing. State that you are looking to obtain legal counsel and that you intend to respond to the severance offer within five to seven days’ time and do not fall for any questionable termination strategies. There are few circumstances where an employer can reasonably justify refusing to provide a short extension.
Daniel A. Lublin is a founding partner of Whitten & Lublin, Employment & Labour Lawyers. Do you have a question about workplace law? You can contact us online or by phone at (416) 640-2667 today.