Severance – Understanding Your Legal Rights

Previously, we discussed the top 5 tips right after being dismissed from a job.

If you have been dismissed from your job through no fault of your own, chances are, you have entitlements to severance.

This is true if you are a Canadian employee, and in some instances, if you are a “contract worker”. Some contract workers are in reality employees, or are highly dependent on the employer or the organization. In those cases, severance rights would flow. If you are a partner in a partnership, you may have similar rights as well.

If you are entitled to severance, the million-dollar question then becomes, what are those entitlements?


Working Notice, Not Cash

A common misconception is that an individual who has just lost his or her job has an entitlement to a cash payment. That is not true.

Technically, your legal right flowing from the dismissal is simply to be given notice of the dismissal, rather than to be given cash. Your employer may require you work through most, if not all, of your notice period.

In other words, your entitlement = notice. “Severance” actually refers to something entirely different in legal terms, even though it is commonly (mistakenly) used to loosely refer to rights flowing from a dismissal.

In practice, working notice is rare. If it is given at all, it usually makes up only a small part of the overall severance package. That said, some employers still prefer working notice, because that way, they would benefit from the individual's work.

If you find yourself stuck in a lengthy working notice period, would there be any way around it? In many instances, highly likely. Your lawyer can help convince your employer to skip the working notice altogether.


Pay In Lieu of Notice (aka Severance)

It is when you are not given working notice, that you would be entitled to pay in lieu of notice. That is what most people loosely refer to as severance entitlements, or, severance package.

The question then becomes, how do you quantify those severance entitlements?

Examine, together with your lawyer, the following 3 things:

  1. A termination provision, if there is one.
  2. Your minimum statutory entitlements.
  3. Your greater rights beyond the contract and the statute.


1. Termination Provision

The first place to look is any employment contract or offer letter you may have signed. Also, try to recall if you have come across any workplace policy or manual that refers to severance and that applies to you.

What you are looking for is whether there is a termination provision that talks about your severance entitlement, and should you be concerned about it.

Some termination provisions, if valid, limit severance entitlements to the bare minimum (more or that below). Some go slightly above minimum. Others are more generous.

Whatever you have, share with your employment lawyer. Your lawyer will ask you detailed questions about when and how you signed the papers. Explore with your lawyer:

  • Is your employment contract valid?
  • If there is a policy, does it even apply to you?
  • If so, is the termination provision properly written?
  • How can you challenge or strategize around the termination provision?

Whatever the case may be, spend some time on this topic with your lawyer to really understand what is at stake. If you are considering challenging the contract or policy, make sure you understand all the benefits and risks that may be involved.


2. Statutory Minimums

Whatever your termination provision says, your entitlement must not fall below the minimum standards legislated by the provincial or federal government, or, your statutory minimums.

Most individuals fall under the provincial category, and each province and territory in Canada has its own provincial laws on what the minimum termination standards are. In Ontario, the governing legislation is the Employment Standards Act.

If you are governed federally, the Canada Labor Code specifies the statutory minimums. Individuals who fall under this category include those in banking, railway, telecom, and mining and other natural resources industries.

If you are not sure which category you fall under, speak with your lawyer.

If you have an entitlement to statutory termination notice or termination pay, learn whether you are also entitled to severance pay, and how the severance pay has to be provided to you. You may also be entitled to other perks and benefits under the applicable legislation.


3. Greater Rights – “Reasonable Notice”

Depending on whether you have a valid termination provision and what it says, you may have additional severance rights called common law reasonable notice, or, pay in lieu of reasonable notice.

If you do, this is where the quantification gets tricky. The determination of reasonable notice is more of an art, than it is of science. It is a qualitative evaluation based on your unique circumstances, not quantitative.

Those circumstances typically include your age, how long you have worked for your employer, and what precisely you do in your job. Other factors may be at play as well.

Your lawyer may comment that it is impossible to determine precisely what your reasonable notice entitlement is, and that is true. At most, your lawyer can provide an estimated range of notice, not a fixed figure.


Total Compensation, Not Just Base Salary

The underlying rationale behind your legal entitlement to reasonable notice is this. The law recognizes that you need a reasonable amount of time to find a comparable means of livelihood, so during that period of time, there should be no change to pay, benefits, perks, pension or retirement contribution, bonuses, allowances, or anything else you normally enjoy.

That means, reasonable notice or pay in lieu of notice should be based on your total compensation package, and not just base salary.

If you think there are exceptions to that rule, you are right. This is where your lawyer will explore each benefit, perk, incentive that you enjoy and discuss in detail whether there would be an exception in your case.

A major point of contention in these types of cases is bonuses. If you have any plan documentation on your bonus entitlement (including short and long term incentives, or equity awards), be sure to share them with your lawyer and discuss this topic.

If you have an employment contract or offer letter, share it with your lawyer.


The Final Catch-22

There is always a catch-22. While you may well have a legal entitlement to severance, you also have a corresponding legal obligation. This refers to your obligation to actively find new gainful work and lessen your period of unemployment. It is called mitigation.

The catch is this. If you do not mitigate (or do enough of it), your severance entitlements may be cut short. On the other hand, your severance entitlements may be limited as well if you are actually able to secure new gainful work quickly.

The good news is you can reasonably strategize around this predicament with your lawyer. Discuss this in detail and understand all of your do’s and don’ts.


The Bottom Line

Bottom line when it comes to understanding your severance entitlements: Canadian laws are known to be in favor of employees and individuals. You should assume you have rights flowing from a dismissal through no fault of your own. Actively seek employment law advice to understand what those rights are, and move forward based on that.

Don’t discount your legal obligations and risks either. Learn what they are and make note of them. Follow your lawyer’s instructions. Don’t be the one to short-change your own legal rights.

Resources on minimum statutory rights:

Ontario: https://www.labour.gov.on.ca/english/es/tools/eswo...

Federal: https://www.canada.ca/en/employment-social-develop...