Sorting Out Your Severance Package

When you must leave a job unwillingly, you face a number of concerns — and emotions. It can be a tumultuous time, but assessing your severance package with a clear head is essential. How is severance calculated? What should your employer include? And, critically, what steps should you take if you feel your offer is not fair?

Calculating Severance Packages

Most employers, particularly larger companies, have their own formula for determining severance. Typically, they start by establishing the statutory minimums in terms of entitlements. In other words, what are the bare bones that the law requires them to provide? This is dictated by the Employment Standards Act and the Canada Labour Code. Most employees are covered by one or the other.

There may also be entitlements under common law, or “judge-made law.” When courts make decisions on employment cases (including wrongful dismissals), they set a precedent with respect to employee entitlements upon termination. Here, severance is based on factors such as the age of the employee, the length of their service, and the type of position they held. Usually, the remedies under common law are greater than the minimum requirements under legislation.

One last aspect employers must consider when calculating severance is whether or not the individual has an employment contract. If so, this document will dictate what entitlements they are owed upon termination.

What to Do If You Receive a Severance Package

Take a deep breath! Being released from employment, especially if you didn’t see it coming, is a jolt to the system. Next, read the offer carefully. Every line.

  • What entitlements are they providing?
  • What do you receive regardless of whether you sign, and what do you receive only if you sign?
  • What are the deadlines by which you must reply?
  • How did your employer calculate your severance? Some employers just lay out blanket numbers without explaining the reasoning behind them. If you have questions about this, follow up with the employer.

Dig into the details:

  • Are you getting paid your bonus or compensation in lieu of bonus?
  • Is your pension or RRSP being continued?
  • Are benefits provided? If so, will you receive full benefits or a portion?
  • Will you receive a lump sum or salary continuum?
  • Does obtaining a new job in the future impact your severance? If so, How?
  • Are they asking you to sign a release? If so, what are the terms?
  • Is there a confidentiality clause regarding the settlement? (Most severance packages include a confidentiality clause. While we understand the urge to discuss the situation, it is vital that you keep negotiations confidential.)

After you have reviewed the severance offer, it is a smart move to hire a lawyer to review it as well — even if you fully intended to sign. This way, you can be sure you understand exactly what they are offering you, as well as what you may be giving up in exchange. An employment lawyer can also determine if there are any issues that have not been captured in the offer that should be included.

Some offers seem fair, while others seem unfair. That may very well be; an employment lawyer, though, will be able to tell you if the severance package is legal. Does it comply with the law? Is the amount you are being offered appropriate? Once you’ve signed the offer, you’ve signed it; there’s no going back and you have exceedingly limited recourse if you change your mind. Best to be sure.

Seek Counsel from An Employment Lawyer

While certain principles of employment law are clearly established, there is a great deal of nuance and ongoing litigation. The law is constantly evolving. An employment lawyer is up-to-date on changes and new court decisions, whereas a generalist lawyer may not be able to provide you with the same level of comprehensive advice on your severance package.

There is a lot of complexity, particularly with thorny issues like bonuses and compensation. Seek counsel so you know exactly what you are entitled to under the law and position yourself to move forward into the next chapter of your career.

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Morrison Reist Krauss knows your family and employment relationships are two of the most important connections you have in your life. When these relationships are first established or at risk of falling apart, knowing your legal obligations and rights gives you the protection and peace of mind you need.

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