8 things you need to know about termination and severance pay

Photo by Pau Casals on Unsplash

By Kevin Press

Special to the Financial Independence Hub

Earlier this year I shared what I hope was a good-humoured look back at my being shown the exit after 14 years with one of the country’s major insurance companies. Because the news did not come as a surprise, I went into my “touchpoint” that Tuesday morning with a pretty good idea of what to look for in the package they put in front of me.

Like anything else, the more you know about what you’re owed and what you can reasonably negotiate, the better. In Ontario, for example, provincial employment law requires either written notice of termination, termination pay or a combination of the two, assuming you didn’t quit, you’ve been employed a minimum three consecutive months and you’re not guilty of misconduct. (There are additional exceptions; consult a lawyer.) Termination pay runs one to eight weeks in the province, depending on how long you were employed.

Severance pay is a separate matter for those forced to leave an employer. Your age, what kind of profession you’re in, how senior you are, what shape the job market is in and other factors will all be taken into consideration if you end up in court. Chances are though – with the help of a lawyer – you and your former employer can negotiate a satisfactory settlement.

It is a learning experience, to say the least. Eight big lessons:

  • What’s put in front of you is a starting point for discussion, not unlike a job offer. Do not sign off on a severance offer the day you’re fired. Hire a lawyer. Sleep on it. Discuss what you need with your partner or spouse. Think carefully about what you want and negotiate through your representative.
  • You’ve probably been told to expect one month of severance for every year of service. There is no guarantee you’ll land there. You may be offered less. Don’t be discouraged. If you’re offered more, don’t let that dissuade you from negotiating a better deal.
  • Don’t forget to negotiate health benefits. Given the cost of health care, the continuation of drug and other health benefits is a critically important issue for many Canadians. Don’t be surprised if the employer’s first offer includes no benefits coverage beyond your termination period. This is negotiable.
  • Think about how confident you are in your ability to find another job quickly. You may choose to accept your pay-out in one lump sum, in which case the employer may reduce it by some percentage. Effectively, this choice is a bet on your ability to land another job before the severance money is spent. Lump-sum payments are yours to keep. If you decide against the lump-sum payout, you have to inform your former employer when you get a new job.
  • Talk to a financial advisor.They’re a big help with the paperwork and ensuring your payout is properly managed in terms of available RRSP room and other considerations.
  • Include your legal fees in the negotiation. No guarantee the company will agree to this, but it’s not uncommon for them to cover your expenses.
  • Don’t dismiss career counselling. Your package may offer this as an added benefit. Take full advantage. These firms offer coaching, networking and a variety of learning opportunities. The big ones also have work spaces you can book. If you don’t see this in the package, ask for it.
  • If your employment contract includes a non-compete clauses, get legal advice. Ideally you did this when you joined the company. “Non-competes typically have three limitations: time, scope of activity and geographic scope,” says Hilary Page, an employment and contracts lawyer at Spring Law in Toronto. “In order for them to have any chance at being valid, they need to be as specific as possible and as narrow as possible to protect a former employer’s legitimate proprietary interests. A non-compete that says something like ‘you cannot work in the auto-sales industry in Ontario for the next two years’ would likely be way too broad.” Make sure you provide your lawyer a copy of the employment contract, so that they can review this language. Even if one exists, that doesn’t mean it will stick. “Courts start the analysis of a non-compete with the presumption that it is not enforceable and there are many reasons why employers will often have a steep hill to climb in trying to enforce one. An employer must prove they have something that warrants protecting (a proprietary interest) and then also that the non-compete was reasonable … Courts do not want to unnecessarily restrain trade or limit someone’s ability to earn a living in their chosen field.”

If you and your lawyer are unable to come to an agreement with the employer, the next step is mediation and/or trial. The latter is uncommon. According to Dutton Employment Law in Toronto, 93% of suits are settled before going to court.

Kevin Press has written extensively on economics, finance, health care, employer-sponsored benefits and retirement plans, investments and insurance. He has led a number of research studies including the Unretirement Index, Retirement Now Report and Canadian Health Index. He also specializes in plain language and brand tone of voice. He blogs at Today’sEconomy.  


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