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Employment & Labour

Legal review of severance package critical with termination

Employees given a termination letter should always seek legal advice before signing the document, whether or not they have an employment agreement with a termination clause, Toronto employment lawyer Matthew Wise tells

“In the event that an employee signs an employment agreement, it’s worth taking a look at to see if there’s anything restrictive in it that may put a cap on the employee’s entitlement,” says Wise, a partner with Macdonald Sager Manis LLP.

“If the employee didn’t sign an employment agreement, it’s even more prudent to discuss the matter with a lawyer because there’s obviously an inherent power imbalance in any employer-employee relationship, and it ought not to come as a surprise to an employee that the employer will look out for their own best interest.”

While not true in all cases, he says, employment agreements tend to favour employers by restricting the rights of employees. They “may not realize that certainly in the last few years or more, a trend with the courts is to find ways to poke holes in various termination clauses that seek to limit an employee’s entitlement, and once those clauses are attacked, it opens up the door to significantly higher entitlements under common law,” he adds.

“Correspondingly, if there is no employment agreement, the common law prevails, and the common law is extremely generous to employees, far more than most employers will offer at first instance,” and more generous than the minimum stipulated under Ontario’s Employment Standards Act," Wise says.

The courts take a “holistic” approach when examining employment agreements, Wise says, looking at such factors as an employee’s age, years of service and seniority level within the organization when determining entitlement.

He says there have been instances where he’s reviewed an employee’s severance package and found it to be reasonable, requiring no further action, but such cases are “rare.”

“Generally speaking, I see severance packages that are outrageously low and either well below the common law or relying upon an employment termination clause that would not withstand court scrutiny. In that instance, it’s worth pursuing the matter, Wise says.

“There are many different reasons why a clause, which appears perfectly logical and reasonable on its face, would not stand up to court scrutiny," he says.

Wise says his views on seeking legal advice pertain to both terminations with or without cause, noting that when just cause is alleged by an employer, it’s “certainly worthwhile” to speak to a lawyer in all but the most egregious cases.

“The courts have taken the philosophy that there’s an inherent power imbalance, so they’re going to do whatever they can to protect the employee. And therefore the bar for establishing just cause for termination in Ontario is extraordinarily high. It’s very difficult to substantiate a claim for just-cause termination. In fact, it seems to be getting harder every day,” he says.

“If you’re caught stealing or have punched your boss in the face, or do something completely egregious, there’s not much I can do with that. But I tell employees all the time that the courts hold the employer to an extraordinarily high standard before they can justify a termination for cause. It is tough to do.”

Wise notes where an employer fails to prove an allegation of just cause, an employee could receive additional damages “because it makes the termination even more unfair.”

In the end, he says, compensation is the main issue when someone is terminated. “That’s really all it comes down to. People say to me, ‘They can’t fire me. I didn’t do anything wrong.’ The short answer is they can fire you for whatever reason they want, outside of a human rights violation, as long as they pay you enough.”

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