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Severance Package and Severance Pay: 5 Things You Should Know?

Severance Package and Severance Pay: 5 Things You Should Know?

Published by Leonardo Calcagno

Severance packages are very common. There is a lot of confusion about what they are and how they should be calculated.  Here are some basic things you should keep in mind.

  1. They’re designed to Compensate Employees for the Loss of their Employment: The intent of severance packages is to provide people fair compensation for the termination of their employment. They can be based on a multitude of factors.                    

Here is what is really important to remember: severance packages are not paid to people who resign! There are some exceptions to this rule: cases of constructive dismissal are the most prevalent exception but there are also rarer exceptions such as a retirement provision in a Collective Agreement. Nonetheless, you cannot reasonably expect exceptions to apply in most cases so remember the following equation: resignation = no severance pay

2. The Contract Is Not Always Right: Employment Contracts may specify the amount of severance to be paid.  However, just because something is written in an Employment Contract that does not make it automatically valid.  A lot of things are written in Employment Contracts.  Conversely, you should not assume that Employment Contracts are automatically invalid and that no attention should be paid to them.  Quite the opposite!  Employment contracts are often valid and extremely important. However, they are worthy of careful examination as there may be invalidating clauses, circumstantial exceptions, or have other issues that may negate their validity. 

3. Employment Standards Are Not Employment Maximums: Employers often say that their severance packages exceed the requirements under legislation.  That is often not entirely true.  There are certain aspects of employment standards that provide for certain minimums. However, employment law is complex and there are often several different rules or laws which simultaneously provide rights to employees.  Satisfying one legal obligation does not necessarily mean that an employer has fulfilled all of their obligations under all of the legislation.  

It is important to carefully consider this aspect.  Accordingly, Employers should not be assumed to be lying when they say that they are exceeding their legal obligations or claim that they’re being fair.  They may very well believe that they are! However, some employers are not necessarily being completely truthful either.  This must always be examined on a case-by-case basis.

  1. Severance Packages Are Not Owed If The Termination Is For Cause: If an Employer fires an Employee for cause,  that Employee is not entitled to a severance package.  However, that rule is not as straightforward as it first appears.  Firstly, Employees terminated for cause may still have certain entitlements under law or under their contracts.  Secondly, and more importantly, the Employer’s statement that there was a cause does not make it true.  Often, Employers allege cause and it doesn’t hold up.  These situations can be very nuanced and the exact circumstances are very important in determining your rights; therefore each case must be examined separately before a determination can be made.

 Severance Packages Cannot Be Compared:  Severance packages can vary significantly depending upon:  

  • employment contracts, 
  • economic circumstances, 
  • reason for termination, 
  • company policy, 
  • age of the employee, 
  • annual compensation, 
  • a large variety of other factors.  

Formulas should be avoided when assessing what a fair severance package is.  Comparisons should also be avoided.  What is fair in a certain set of circumstances would be entirely unfair in a different set of circumstances.  Similarly what would be cheap for one set of circumstances could be very generous in a different set of circumstances.  You should always consult an expert who would be able to make the necessary distinctions very quickly.  By contrast, consulting friends, relatives or even colleagues on what their experiences were is an extremely unreliable and misleading method for evaluating a severance package.   You must always remember your objective! The objective of accepting a severance package should be a good severance package or at least a fair severance package.  Being unaware of the applicable criteria could lead to accepting an unfair offer or refusing a generous one.  

An expert should be able to help you quickly determine whether your offer is fair or not.  If your offer is fair, the expert should tell you so.  If your offer is unfair, the expert should be willing to take on your file and get you the compensation that you merit.