Seek Legal Advice to Maximize Severance Package

duty of honesty in contracts

Bram Lecker discusses Severance Package with Advocate Daily

Terminated employees could be shortchanging themselves if they accept a severance offer without seeking legal advice, Toronto employment lawyer Bram Lecker tells Advocate Daily.

Lecker, principal of Lecker & Associates, explains that there are two levels of severance pay potentially available to a terminated employee — the minimum entitlements set out in Ontario’s Employment Standards Act (ESA), and the generally more generous wrongful dismissal damages available under the common law’s reasonable notice requirement.

But determining an individual’s entitlement is a complicated business, he adds.  

“The distinction is confusing to many people, and it can be difficult to determine when confronted with a termination notice whether you’re entitled to that second level,” Lecker says. “But that is exactly why it’s so important to get legal advice. Knowledge is a powerful thing, and it’s a tragedy when people accept an offer based on the first level, without determining whether they are entitled to more.”

In recent years, he says employers have increasingly crafted employment contracts to expressly limit worker entitlements to the ESA minimums. The law provides for termination pay of up to eight weeks, depending on the employee’s length of service. Additional severance pay of up to 26 weeks may be available for employees with at least five years of service at companies whose aggregate salaries surpass $2.5 million annually.

Still, Lecker says any contract that provides for less than the employee is entitled to under the ESA will not be enforceable. In fact, a number of court decisions have gone against employers judged to have gone too far in their restrictions.   

When there is no valid clause limiting entitlements — or no contract at all — an employee’s notice period or pay-in-lieu is determined under the common law, based on a number of factors, including the person’s age, length of service, level of responsibility and ability to find a new job, Lecker says.

“Every person is different. I could see 10 people from the same company, and each would have a different assessment based on those three factors,” he says.

“While employers have previously relied on a general rule of thumb of one month of notice per year of service, practically speaking, courts have held that analyzing an employee’s notice period is an art and not an exact science. It can fluctuate based on factors such as age, length of service, and type of position. A judge may also analyze additional factors, including alleged human rights violations or enticement,” Lecker says.

Under the common law, he says judges have ruled that damages should reflect a person’s total remuneration during the notice period, including bonuses, commissions and benefits on top of basic salary.    

“That’s where much of the big fighting comes in because employers try to nip and tuck everything. In particular, they tend to be reluctant to continue long- and short-term disability benefits,” Lecker says.

And while employers will often give terminated employees a tight deadline to accept an apparently generous severance offer, they should resist the temptation to cave in quickly, he advises.

“When they give someone a 48-hour deadline to accept, it’s because they want to artificially pressurize the situation so they won’t have the opportunity to seek legal advice and arm themselves with knowledge,” Lecker says.