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Rudner MacDonald - Toronto Employment Law Firm
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Clearing Up Common Misconceptions About Termination and Severance Pay

There continues to be a plethora of myths and misconceptions when it comes to the termination of the employment relationship. We are asked the same questions time and time again, including:

  • Can an employer make a dismissed employee work through the notice period?
  • Is a dismissed employee entitled to a lump sum?
  • What happens if a dismissed employee finds new work quickly?
  • If the Employment Standards Act provides for X weeks of notice, why should the employer provide more?
  • Does an employer have to provide bonuses, commissions, car allowance, and other compensation during the notice period?
  • What if the insurer won’t continue some benefits, like disability coverage?

Failure to understand the rights and obligations of the parties can cause employers to expose themselves to substantial liability and can cause the dismissed individual to leave a lot of money on the table.

What employers and employees often do not realize is that such mistakes are entirely avoidable if both parties receive the proper advice, and understand their rights and obligations in the circumstances.

Take a look at these common misconceptions and see which ones apply to you.

Misconception #1: You can dismiss an employee with only the minimum notice set out in the employment legislation.

Reality: The notice and severance obligations set out in employment legislation are the minimum amount any employee is entitled to receive. Most employees are also entitled to reasonable notice pursuant to the common law, which is much lengthier and is dependent on a number of factors. Employers can only avoid common law obligations if there is an enforceable contract with an enforceable termination clause in place. That is an area of employment that is most definitely in a state of flux.

Misconception #2: You can add or amend termination provisions in an employment contract after the beginning of employment.

Reality: To make a material change to an employment contract you must provide the employee with consideration (something of value) or notice of the termination of their existing agreement, which is the same amount of notice required to dismiss them.

Misconception #3: A dismissed employee is entitled one month notice per year of service.

Reality: There is no metric used by the court to calculate reasonable notice. The court takes a number of factors into account, including the employee’s age, length of service, nature of their position, availability of comparable employment, and anything else that is relevant.

Misconception #4: Minimum notice established by employment legislation is provided in addition to reasonable notice at common law.

Reality: The common law notice INCLUDES the statutory minimums, and is not in addition to them.

Misconception #5: Notice must be paid as a lump sum on termination.

Reality: Employers are within their rights to provide working notice, salary continuance (with or without a clawback), a lump sum, or a combination thereof.

Misconception #6: When providing pay in lieu of notice the employer only needs to provide the employee’s salary or wages and nothing else.

Reality: Unless there is a contract or enforceable policy which provides otherwise, pay in lieu of notice must include all compensation and benefits which the employee would have received had they continued working through the notice period.

Conclusion

Termination of the employment relationship is never an easy thing for the employer or the employee. The law recognizes the impact that job loss has on an individual and provides a number of protections to ensure that they are treated properly during this period. An employer who acts without considering these protections may find themselves not only paying more “severance” than they expected, but also paying additional damages and incurring significant legal fees. This can be avoided by obtaining legal advice before dismissal; it is cheaper to prevent a matter from becoming a problem than to fix it once it has. Similarly, employees receiving a severance package should never assume it is fair or reasonable; they may be entitled to far more.

By Stuart Rudner & Geoffrey Lowe

Join us for a Google Hangout on this topic on Thursday, March 2nd, at 11am EST. Register here.


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