Negotiating Maximum Termination Pay and Severance Pay

Often, people who lose their job assume that if they receive any termination pay, severance pay, or pay in lieu of notice then they must have been properly compensated for being fired. This is far from the case. There are many factors and considerations a person should be aware of when figuring out what their termination entitlements are and more often than not an employment lawyer can help them get what is fair.

Statutory Minimum Notice Periods VS Common Law Notice Periods

Upon being fired, an employee is entitled to receive either (1) working notice, or (2) pay-in-lieu of notice. Working notice is not unusual but more often than not an employee is unhappy about being fired and an employer is concerned that the employee may do something to hurt the employer’s business while working to the end of the notice period. For that reason, employers usually chooses to terminate the employee immediately and, provide pay in lieu of notice. The Employment Standards Act contains only the minimum entitlements that employees must receive on termination. Likewise, the Canada Labour Code sets out the minimum notice periods and severance entitlements for federally regulated employees (i.e. banking and telecommunications). However, just like the minimum wage, most employees should get a lot more than the minimums. Judge made law or otherwise the law made by the Courts is called the “common law”. It entitles most employees to “reasonable notice”. Reasonable notice is much greater than the statutory minimums. Employees default to getting common law reasonable notice, unless they have a written employment contract that says otherwise. There is no set formula to calculate common law notice. Generally, it is accepted that the average short-term employee is owed three to six months of notice, a long-term employee in a senior position may be owed up to 24 months or more, and somewhere in the middle for the other lengths of employment. How senior the employee’s position is will also be a factor. For example, a vice president or manager may be entitled to higher pay in lieu of notice that an employee doing a low level job, even for the same length of time. The employee’s age and the availability of alternative employment are also factors the Courts consider.

Termination Clauses

A termination clause in an employment contract alters an employee’s entitlements to common law reasonable notice. While it could technically provide for more, more often than not, employers include termination clauses to limit what an employee would otherwise get after being fired. Termination clauses cannot limit entitlements to below the minimums. Where there is a valid and enforceable termination clause, an employee would not be successful if they attempted to seek more in a wrongful dismissal action. Fortunately, the Courts are often persuaded to strike out termination provisions. There are a number of different reasons that a court might find a termination clause unenforceable, such as pressure being put on the employee at the time of signing of the contract or where the limits on the severance pay are less than the minimums. If the termination clause is successfully struck out common law notice applies. An experienced employment lawyer can offer advice on options on how to deal with terminations — for example whether one should sue for wrongful dismissal or alternately file a claim for termination pay or severance pay with the Ministry of Labour. It should be noted that a person cannot do both – sue for wrongful dismissal and file a claim for termination or severance pay. Seeking legal advice on rights is recommended to make the right decision. An employment lawyer can also help ensure payments for common law notice are maximized either through court action or a negotiated settlement.

When are termination clauses unenforceable?

In Movati Athletic Group v Bergeron, an employee had worked for about 16 months before she was terminated without cause. Purporting to rely on the termination clause in her contract, the company gave her the minimum entitlements under Ontario’s Employment Standards Act, 2000 (ESA). The employee claimed damages for wrongful dismissal arguing that the termination clause in her employment contract was not clear enough to rebut the presumption that she was entitled to common law reasonable notice of termination. The court found the termination clause not clear and as a result, the employee received three months’ pay in lieu of reasonable notice of termination instead of her statutory minimum entitlements.

This case illustrates how important it is for employers to make all efforts to expertly craft termination clause wordings and how important it is for employees to have their employment contracts checked by a lawyer before deciding whether it is actually enforceable.

A court will not enforce a termination clause that excludes minimum statutory entitlements upon dismissal as set out in the ESA or Canada Labour Code. It is illegal for an employer to provide less than the minimum standards of the ESA or Code, even if the employee has voluntarily agreed to accept a lower amount. Additionally, a court will not enforce a termination clause if it has not been properly drafted.

Poorly drafted clauses are very common and any ambiguity in the language in the termination clauses usually acts against the employer. Termination Provisions must use the clearest possible language when trying to limit an employee’s rights upon termination. Failing to use explicit language leaves the door open for varying views and interpretations of intention and, therefore, the clause may be set aside by a court for ambiguity.  Courts resolve drafting ambiguities in favour of employees. Laws on termination clauses continue to evolve. It is important to keep abreast of changes and consult with employment lawyers when employers are drafting clauses or when you, an employee, are terminated.