Employment & Labour

Seek legal advice before finalizing severance packages

By AdvocateDaily.com Staff

Employees and employers should obtain legal advice before finalizing a severance package, Toronto employment lawyer Kevin Marshall tells AdvocateDaily.com.

“It takes a bit of strategizing,” says Marshall, principal of Kevin Marshall Personal Injury and Employment Law. “But the key is that employees and employers educate themselves on what the law permits so that they can make an accurate determination of what to offer and what to accept.”

Regardless of the circumstances of a worker’s departure, he says they will be entitled to any outstanding regular wages, bonuses and vacation pay owed to them.

However, if a termination has been made for cause, Marshall says employers may be able to avoid paying anything further to employees.

“If they are being fired for cause, then the termination letter needs to say that expressly, along with the grounds for doing so,” he says.

Otherwise, Marshall explains that Ontario’s Employment Standards Act (ESA) sets out certain minimum entitlements for employees of provincially regulated businesses. For example, termination pay of between zero and eight weeks is due to workers, depending on their length of service. The Canada Labour Code, which applies to employees at federally regulated employers, contains similar provisions, he adds.

“These are unconditional entitlements for employees, so long as they haven’t been fired for cause, so employers and employees will need to make sure that their severance packages meet those minimums,” Marshall says. “If they want to get a release signed, which means certainty in terms of ensuring no future claims are advanced, then they need to offer something beyond the minimums.”

What else employees are legally entitled to on termination will depend on the existence of a written employment contract between the parties, and its specific terms, Marshall says.

In many cases, he says employers will attempt to limit employees to the statutory minimums prescribed by the ESA.

While companies often rely on termination clauses in employment contracts for the cost certainty they promise, Marshall says they can be tricky to draft and notes that a number of recent court decisions have gone against employers trying to enforce them.

When there is no employment contract, or a termination clause has been deemed unenforceable, he says an employee’s notice period or pay-in-lieu of notice is determined under the common law, based mainly on the individual’s age, length of service, level of responsibility and ability to find a new job.

This typically results in more generous terms for the worker, Marshall says, though he says employees must bear in mind their responsibility to mitigate their damages by attempting to find new employment.

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