Severance pay: what am I entitled to? Part I

Posted by on February 10, 2009 in Jobs

Severance pay is a pay and benefits package payable when an employee leaves the business for involuntary reasons such as they are laid off, terminated without cause, terminated with cause (and, in some cases, upon retirement). It can be an all-encompassing package including salary, vacation pay, benefits, stock options and employee assistance programs. What anyone is entitled to as part of a severance package varies depending on their circumstances and where they are domiciled.

This post is a very brief and non-exhaustive over-view without mention of specific situations provided for informational purposes and is not intended to be advice of any kind whatsoever.  I deliberately avoid union environments since they work under a different regime all to themselves. I also will not provide information on what happens if the business goes bankrupt (another topic). As usual, if you are in a situation where you are being terminated, please do seek independent qualified legal advice.

As an aside on nomenclature, the term “severance” as a legal term of art has a slightly different meaning than the everyday use of the word. In some jurisdictions, severance pay refers to a package for companies over a certain payroll threshold whereas any employee terminated below that threshold are given “termination pay.” For ease of reference, I’ll use severance pay or severance in the everyday meaning of the term rather than the legal term of art.

Where Do I Start?

In Canada, employment is a provincial jurisdiction. Thus, each province has its own set of employment standards and all federally regulated workers are governed by the federal counterpart. The laws set out the minimal standards of severance by law. Many employees are granted rights above and beyond the statutory minimal under employment contracts and common law. However, in the absence of a written agreement, one refers to the statutes to determine minimum severance pay rights.

In the U.S., employment is a state jurisdiction. Many of the states work under an “at-will” employment regime. For the purposes of severance, this means that an employer or employee may terminate the employment relationship without liability to the other (i.e. hire or fire at will). There are several exceptions to this rule including an employee having an employment contract setting out severance entitlements and the employer must deal in good faith.  Having said that, as a broad and very simplified statement, most states do not set out minimal severance entitlements in their statutes. One basically resorts to contractual or implied severance terms or has to litigate for severance if severance pay is not voluntarily given, or given on unsatisfactory terms, by the employer in the absence of written agreement (giving another reason why the U.S. is so litigious).

Thus, the first place to start to educate yourself about your severance rights is to dig up your old employment contract. If you don’t have one, then refer to your employee policies or rules and regs (if your employer issues them) since the policies may set out what happens during termination (more important in the U.S. than in Canada where employee policies may indicate that the employee is not an at will employee).

Failing a written contract, the analysis has to move to the law.

What Does the Law Say?

It depends (and I have to confine this part to Canada; as a point of clarification, severance can be the prescribed notice or payment in lieu of notice- the latter means they pay you not to show up to work).

For example, in Ontario, any employee with 1 year or less of service is entitled to at least (note the “at least” meaning a minimum) 1 week of notice or payment in lieu of notice (no notice is given if you are terminated during probation). At least 2 weeks of notice or payment in lieu of notice must be given to employees with 1-3 years of service; at least 3 weeks for service between 3-4 years and so on up to at least 8 weeks of notice or payment in lieu of notice if the employee has served 8 years or more.

In Ontario, an employee who works for a business with a payroll of over $2.5 million and has served as an employee for 5 or more years is entitled to severance pay (and now I use the term in its legal sense) equal to (regular wage for regular work week)(# of years served on a pro rated basis).

British Columbia has a more generous severance pay entitlements. An employer must pay an employee 1 weeks’ wages if the employee is terminated after 3 consecutive months of service. Two weeks ‘wages after 12 consecutive month’s of service; three weeks’ wages after 3 consecutive years plus one additional week for every year of service up to 8 weeks.

Alberta severance entitlements sits somewhere in-between Ontario and British Columbia.

In other words, you have to call your Ministry of Labour to figure out what the minimal severance entitlement are in your province.

Having said that, the statutory minimums do not really apply to middle managers and other non front-line staff. What happens if you are in these positions? What happens if you are commissioned staff- how do you calculate severance when your pay varies?  I’ll blog on that next time.

23 Comments on Severance pay: what am I entitled to? Part I

By JJ on February 10, 2009 at 7:48 am

I’d be interested in hearing what the law (in Ontario) says about acquisitions. Working at a company that has recently been acquired, we’ve heard rumours that your ‘years of service’ resets to zero after the acquisition. In this environment of mass layoffs that’s a scary thought.

By Patrick on February 10, 2009 at 9:41 am

“Where they are domiciled”? Someone sure is proud of his fancy vocabumalary!

By admin on February 10, 2009 at 7:45 pm

JJ- section 9 of the Employment Standards Act of Ontario states:

9. (1) If an employer sells a business or a part of a business and the purchaser employs an employee of the seller, the employment of the employee shall be deemed not to have been terminated or severed for the purposes of this Act and his or her employment with the seller shall be deemed to have been employment with the purchaser for the purpose of any subsequent calculation of the employee’s length or period of employment.

Exception

(2) Subsection (1) does not apply if the day on which the purchaser hires the employee is more than 13 weeks after the earlier of his or her last day of employment with the seller and the day of the sale.

…I would call the Ministry of Labour Employment Standards Inquiries for more information (1.800.531.5551) to discuss your particular situation. They are very good to deal with.

By Thicken My Wallet » Blog Archive » Severance pay: what am I entitled to? Part II on February 11, 2009 at 5:03 am

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By A Lap Of The Blogs : WhereDoesAllMyMoneyGo.com on February 12, 2009 at 10:00 pm

[...] a two part series which discusses severance pay entitlements, a very pertinent post for the times. Click here for Part I, Click here for Part [...]

By This and That: Valentine’s Day edition on February 13, 2009 at 9:19 am

[...] Thicken my Wallet featured two timely posts on severance pay. [...]

By Bimalpreet on June 30, 2009 at 6:32 pm

What is difference between SEVERENCE PAY & PAY IN LIEU OF NOTICE.

By Thicken My Wallet » Blog Archive » Is my severance tax deductible? on November 26, 2009 at 11:02 am

[...] a general point of reference, I have previously posted on how the law on severance and how severance is [...]

By Sold on January 15, 2010 at 5:40 am

My employer in BC was just sold, and the new owner is intending to set years of service to ’0′. Unlike Ontario, I see no provision in the BC Employment Act that addresses this. Is the employer within their rights to reset years of service?

By admin on January 15, 2010 at 10:59 am

Your best bet would be to call the B.C. Ministry of Labour, Employment Standards Branch. Here is a link to the offices:

http://www.labour.gov.bc.ca/esb/contact/branch.htm

By ND on January 21, 2010 at 9:12 pm

The small business that I work for is being bought out; I have worked there for 13 years. I am under the impression that the new owners are going to take it upon themselves to do my management job themselves, am I entitled to anything? Live in NB.

By admin on January 23, 2010 at 6:44 pm

ND: I would call the NB Employment Standards line for information. Here is the link:

http://www.gnb.ca/0308/04-e.asp

Good luck.

By Why employees are entitled to severance pay and packages. « Fired Without Cause on February 19, 2010 at 5:46 pm

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By Vivian Povelofskie on February 8, 2011 at 9:37 pm

If a company was to closed in 6 month and you know this,is the empoyer required to pay you severance pay?

By Severance Pay: a crash course - Thicken My Wallet on February 24, 2011 at 5:02 am

[...] Severance pay: what am I entitled to? [...]

By suz on March 5, 2011 at 4:13 pm

I have been giving working notice with a deadline of 2015 to complete education requirements. At that deadline my current position will be eliminated and if I do not complete the education will no longer be employed by my company. I have worked there for 23yrs so at the deadline it will be 27 years. Am I entitled to severance pay at the end of my working notice? What if I give written notice of resignation within the working notice period?

By admin on March 7, 2011 at 9:56 pm

Suz- I am not sure what jurisdiction you live in. In Ontario, you are given either written notice or payment in lieu of notice. I would call your local Ministry of Labour for more information. Good luck.

By moug dee on March 16, 2011 at 2:38 pm

Our company is being taken over. we have a date of 06/11.they offerded us a severence but only if we were not offered employment by the new company.What if they offered a job that was not up to the standards that we were used to.Example if we were the shipper/reciever at a certain wage with overtime and set days and they offered us a warehouse position at a lower wage with no overtime and no set days then does the severence still apply

By admin on March 17, 2011 at 10:17 am

Moug- I would call your Ministry of Labor and ask about “constructive dismissal.” Good luck.

By Suzy on March 19, 2011 at 1:07 pm

I have been with a company in BC for eight years. The company has been struggling to survive for quite some time. They have been accommodating our need to find other work. Now I believe they are trying to avoid paying severance by forcing us to quit. (I have so much to do; I can’t take lunch breaks and go home crying) — To my knowledge nobody has been issued notice. We have been asked verbally to find other employment.

By Joe on March 22, 2011 at 6:13 pm

The company I work for offered voluntary (paid us a small portion) leaves for staff to reduce their workforce for a specified time. They said they would not hold the position we left but would do everything they could to help us back to work for them. Vague statement yes. Now its time to go back and they’ve been difficult to deal with. They tell me if I dont secure a position myself, I will be terminated. Am I entitled anything?

By mr bill on March 31, 2011 at 4:53 pm

I was issued a letter of notice on year ago by my employer of 9 years …. am I entitled to severance pay based on my years service or has my employer (soon to be previous employer) circumvented that with a long letter of notice …

By admin on April 1, 2011 at 12:23 pm

Mr. Bill- I can only tell you what Ontario law says. The employer either gives you notice or payment in lieu of notice (i.e. severance). Hope that helps.

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