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.