Termination without cause is often accompanied by a termination package. This sets out the terms that apply to the termination, such as the amount of notice that the employer will provide. 

The termination package is very important for both employers and employees alike. For employers, it is an opportunity to move an employee out of the organization in a way that attempts to prevent the employee from bringing claims down the track. Employees need to ensure that the package being offered includes all of their entitlements under the terms of their employment agreement. It is important to avoid signing anything before you have had a chance to assess your options.  

An experienced employment lawyer is an important resource for employers and employees going through the termination process. They can help employers to put together a termination package that decreases the likelihood of costly and time-consuming litigation. Having a lawyer review a termination package proposed by your employer increases the chance of maximizing an employee’s compensation so they have the resources needed to search for a new job. 

This article sets out a few of the basics around termination packages. Much depends on the employee’s contract of employment. 

Notice of termination or payment in lieu normally applies

The termination package needs to comply with the relevant provincial or federal legislative employment standards. Most employees are entitled under the Ontario Employment Standards Act (ESA) to a statutory minimum amount of notice, or payment in lieu of such notice, which is based on the length of service. 

Employees may also be entitled to a lengthier period of common law notice, so employers sometimes include pay instead of notice beyond the statutory minimum in the termination package. Courts determine the length of this notice in wrongful dismissal claims by looking at a range of factors, including the employee’s age, length of service, the character of employment and re-employment prospects.

Employment contracts sometimes attempt to remove the right of employees to claim common law notice. As we have written about in other articles, such provisions may not be enforceable. An employment lawyer can advise you on whether or not your contract effectively removes this entitlement.

Severance pay might also be required

Although “severance” is often used loosely to refer to any payment made when an employee is terminated, it is a specific concept under the ESA. The terms of the relevant employment contract may also contain an entitlement to severance. 

Under the ESA, the right to severance is limited to a subset of longer-serving employees. In order to be entitled to severance, an employee needs to have had their employment severed, which is defined in section 63 to include those who have been dismissed, plus:

  • the employee needs to have been employed by the employer for at least five years; and 
  • the severance must have occurred due to a permanent discontinuance of all or part of the business at an establishment in which at least 50 employees have been severed within six months, or the employer has a payroll of $2.5 million or more.

Severance payments can be substantial. If entitled to severance under the ESA, the employee receives one week’s pay multiplied by their number of years of employment (and the number of months divided by 12), up to a maximum of 26 weeks.

Bonuses, commissions and benefits during the notice period

Employees are normally entitled to non-salaried compensation, like bonuses and commissions, during the reasonable notice period. Receiving advice from an experienced employment law is very important in relation to rights to non-salaried compensation. Employment contracts or termination packages may attempt to remove these rights. 

Likewise, benefits (such as medical, disability insurance, pension and RRSP contributions) should generally continue during the notice period. Employees can request compensation if benefits are cut off early.

The employer may request a release of claims

Sometimes employers require employees to sign a release of all claims in exchange for accepting the termination package. There may be pressure to execute the documents quickly.

Such a release may not only prevent the employee from bringing a wrongful dismissal claim but may also seek to remove the ability of the employee to start other types of proceedings, such as those seeking a remedy for discrimination or harassment. As we wrote in a previous article, signing a release may not prevent a claim, depending on the particular circumstances. Employers and employees should take legal advice before seeking or signing a release. 

If the employee rejects the termination package, a wrongful dismissal claim may be coming

Employers may attempt to sweeten the termination package to ward off claims by employees. As we mentioned above, the employer might offer compensation above the minimum ESA notice requirement, particularly if the employee is entitled to common law notice. The employer may offer other things as well, such as retraining or career guidance services and letters of recommendation, which may help the employee to transition into a new position with another employer. 

Suppose the employee turns down the proposed termination package and either serves out the statutory notice period or receives this payment in lieu. In that case, this may indicate that they are considering bringing a claim for wrongful dismissal. This is particularly the case if they are entitled to common law notice.

Contact Haynes Law Firm in Toronto for Guidance on Termination Packages

As this article has shown, it is important to get advice from an experienced employment lawyer before offering or accepting a termination package. Termination can be a risky time for both employers and employees alike. The former need to manage the risk of litigation, and the latter need to ensure that they receive what they are owed. Paulette Haynes of the Haynes Law Firm has many years of employment law experience and can help you get the job done. Please contact us by filling out the online form or calling 416.593.2731 to arrange a consultation to discuss termination or a termination package.