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Mar 13, 2012

Severance pay can't be cut

Entitlement to severance pay doesn’t change regardless of how much notice employee gets
    

By Jeffrey R. Smith

When Canadian employers are looking to cut staff, they have to take into consideration what it’s going to cost to cut them loose.

Employees who have been on the job for a while are going to be entitled to a lengthy period of reasonable notice or a tidy sum in lieu of notice. While statutory minimums may not seem that bad, employers have to take into account what employees are entitled under common law as well. I’ve seen many cases where employers tried to get away with only providing the statutory minimum notice or pay in lieu of, only to be nailed by courts for a much larger common law entitlement. Unless the employment contract specifically indicates an employee will only receive the statutory minimum upon termination, the employer must be ready to fork out more.

Sometimes, even paying out a good amount or providing reasonable notice still isn’t enough. In some jurisdictions, certain employees are owed severance pay on top of reasonable notice. For example, in Ontario, employees with five years of service with an employer who has a payroll of more than $2.5 million or has dismissed 50 or more employees within a six-month period are entitled to one week’s pay for every year of service up to 26 weeks, on top of their notice.

A couple of years ago, a 26-year employee of an Ontario law firm was told her employment was going to be terminated — in 54 weeks. The firm told her this would constitute her notice and she would continue to work until her termination date. A couple of weeks before the date, the firm reminded her and gave her a cheque equal to another two months’ pay.

However, after her employment ended, the employee sued for termination pay and a court found she was entitled to statutory severance pay of another 26 weeks, on top of the 54 weeks’ notice and two months’ pay she had already received. The Ontario Court of Appeal upheld the ruling, finding notice of termination and severance pay were separate and had different purposes.

There’s no doubt the employee warranted a lengthy amount of notice due to her long term of service, and the employer gave her that. More than one year’s notice, plus another two months’ pay on top of that as she neared the end of her employment. It was a good package and the employee didn’t argue it wasn’t reasonable.

Based on the courts’ reasoning, even if the employer had given the employee another six months’ pay or notice, she still would be entitled to the severance pay. But if the notice or pay in lieu more than covers any damages and gives the employee ample opportunity to find other work, should the employee still be entitled to separate severance pay?

Jeffrey R. Smith is the editor of Canadian Employment Law Today, a publication that looks at workplace law from a business perspective. He can be reached at jeffrey.r.smith@thomsonreuters.com. For more information, visit www.employmentlawtoday.com.

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COMMENTS
Ontario Severance Pay
Tuesday, March 27, 2012 8:24:00 PM by Karen Nash
I understood statutory severance pay of 1 week/yr of service to a maximum of 26 weeks under the Ontario ESA is a "payment for loss of office (position)"and thus cannot be worked off. So that would support the Ontario Court of Appeal ruling.
Notice & Severance Pay
Tuesday, March 13, 2012 5:25:00 PM by Peter Marinelli
Why would the employer need to pay this employee notice pay when they already gave her working notice? This is very interesting and disturbing at the same time depending on which side of the table you're sitting.