When dismissing an employee without cause, employers have the option of providing working notice, pay in lieu or some combination thereof
By Stuart Rudner
Several years ago, I was speaking with a man who had been let go from his job as a senior sales manager after 11 years of service. He quite happily told me that he had been treated very generously by the company, which had offered him a severance package worth 12 months.
Upon further examination, however, it became clear that the offer was not quite as generous as he thought. This gentleman's pay was based upon a fixed salary and commissions, which tended to be about 50 per cent of his total compensation. The "generous" 12-month package provided for continuation of his base salary for 12 months, but no compensation at all for lost commissions. In other words, it was really only worth about six months. Furthermore, it did not continue his benefits beyond the eight-week statutory notice.
Unfortunately, I met this individual at a cocktail party a few months after he had accepted the offer and signed a Full and Final Release, which precluded him from pursuing the matter further. He was dismayed to learn that he left over $100,000 on the table, and he was still looking for a new job.
I don't know what the statistics show, but anecdotally, it is remarkable that so many people assume that a severance package is fair without consulting a lawyer that specializes in employment law. Our firm sees thousands of dismissed employees, and it is rare that there is nothing that can be done to improve the package offered. And even in those rare cases, the individual is always happy to have the peace of mind of knowing she will not be selling herself short if she accepts.
It is important to bear in mind that when dismissing an employee without cause, employers have the option of providing working notice, pay in lieu, or some combination thereof. While offering a "package" is common, it is not required. However, if the employer chooses to provide pay instead of notice, the default at law is that it must continue all forms of benefits and compensation that the employee would have received had he continued to work through the applicable notice period.
In other words, simply continuing the individual's base salary is not enough, although it often happens. The employer must provide base salary, commissions, bonus payments, auto allowances, medical and dental benefits, disability benefits, and any other forms of remuneration. Of course, this legal default can be modified by contract or policy, if that is done properly. However, in many cases there is nothing more than an assumption, which will not be sufficient to displace the rule that all compensation should continue.
The common myth that a dismissed employee is entitled to one month of notice for every year of service is not the law. While it can be a reasonable approximation in some cases, in many cases an employee will be entitled to less or far more than this calculation would provide.
According to the law, courts will not just consider the individual's length of service; rather, they will consider all relevant factors, the primary ones being the length of service, character of employment, and age of the employee. The court will also consider the availability of similar employment, and other relevant factors such as whether the employee had been induced to leave other employment or give up other opportunities.
As a result, there are no hard and fast rules for assessing an individual's entitlement to “reasonable notice”, which is what the common law requires, and each case is to be assessed based upon its own particular circumstances. Short-term employees, particularly in managerial positions, can often receive far more than one month per year.
As I have written about extensively in recent times, it is possible for the common law requirement of "reasonable notice" to be displaced by contract. Employment standards legislation will establish the absolute minimum amount of notice or severance that an individual can receive. Contracts can limit individuals to those norms, or provide for some other amount.
If the contract is enforceable, and the clause does not reach the legislative requirements, then the contractual termination clause will rule. There have been many cases which have assessed termination clauses in recent years, creating some uncertainty within the law. However, employees are cautioned not to sign any offer of employment without receiving proper legal advice regarding its implications.
It is unfortunate that many employees sign offers without even reading them, let alone obtaining legal advice, and do not fully understand what they have done until years later when they are let go and find that rather than receiving a substantial severance package, they are limited to weeks rather than months due to the fact they gave up their rights when they accepted employment.
While this may sound self-serving, the bottom line is that individuals should obtain legal advice before signing any offer of employment, as well as before accepting any severance package. Otherwise, it is quite likely that they will either be giving up significant rights, or leaving significant money on the table. Legal fees can be expensive, but in the vast majority of cases, the advice (and representation, if necessary) will be worth it.