In Ontario, employees generally have the opportunity to negotiate their severance package. Since terminations can be extremely stressful, receiving a severance package can help minimize stress while searching for new employment. In this blog, we explore the benefits of negotiating a severance package, as well as the risks associated with it, what you can negotiate, and the steps one can take to negotiate a severance package.
What is a severance package?
A severance package is the pay and benefits that employees may be entitled to receive following the loss of employment at a company through no fault of their own. Typically, these terminations are due to reasons such as layoffs, downsizing, or restructuring. The value of a severance package is typically based on the length of employment prior to termination. It is essential to check your employment contract to understand what you are entitled to upon termination. Key components often included in severance packages include:
Severance Pay:
This is a lump sum or structured payment provided to the employee upon termination. The amount is often based on the employee’s length of employment with the company. The employment standards legislation may specify minimum entitlements to severance pay based on years of service.
Salary Continuation:
In some cases, you may get your severance pay as a salary continuance. This means your regular income and benefits will continue for a set period of time following the termination of your job.
Benefit Continuation:
A continuation of benefits may include health insurance, dental insurance, retirement contributions or other benefits for a specified period of time following termination. This helps ease the stress until the individual finds new employment or secures other coverage for the time being.
Outplacement Services:
These services are in place to help terminated employees find new employment opportunities through access to career counselling, job search assistance, etc.
Stock Options:
Employees with stock options or equity in the company may have specific provisions in their severance package regarding the treatment of these assets upon termination.
Legal Considerations:
Severance packages often come with legal agreements outlining terms and conditions, including clauses related to confidentiality, non-compete agreements, and release of claims.
How to calculate severance pay
Severance pay is calculated by multiplying your typical weekly earnings by a figure derived from your employment duration. This figure is calculated as follows:
- The total number of complete years you have worked plus,
- The number of full months worked in the incomplete year, divided by 12.
Under the Employment Standards Act (“ESA”), severance pay is limited to a maximum of 26 weeks. For convenience, you can easily calculate your severance pay through our website.
What can I negotiate?
Not everything in a severance package is negotiable. However, there are many options to negotiate a severance package. Different approaches are applicable in different situations. For example, severance pay is typically offered for one to two weeks for every year worked, but it is possible to negotiate more. If the termination of your job created an economic hardship, it is recommended to speak with your former employer regarding this matter.
The loss of insurance coverage can be detrimental as some individuals rely on their employment insurance coverage in order to receive their medications. It may be beneficial to try to extend your health, life, and disability insurance coverage until you are able to transition into a new job.
Benefits of negotiating severance packages with an employment lawyer
Receiving assistance from an employment lawyer can be extremely beneficial as they are well-versed in employment laws and regulations. You may gain valuable insights into your rights and entitlements under employment contracts to ensure you receive a fair severance package. In terms of negotiations within the package, the lawyer can help negotiate for the maximum severance pay possible, depending on your position. Elements that may be overlooked on your own, such as unused vacation days, bonuses, commissions, and other benefits, can all contribute to a better severance package.
Consulting with a lawyer before signing any agreements can ensure that your employer adheres to all legal requirements and does not violate your rights during negotiations. Lawyers can guide you through these documents so that you have a full understanding of what you are agreeing to, and that the severance package is fair and favourable to you. The lawyer can also advocate on your behalf or draft letters to navigate discussions with your employer and work toward a resolution that meets your needs.
What are the risks of negotiating severance?
Although negotiating a severance package can yield great results, you should be mindful of the risks associated with it. If you decide to request any changes in the severance package offered, you are automatically rejecting your employer’s current offer. This means your employer can decline and offer a package less favourable to you. In some cases, these negotiations cannot be resolved amicably and risk legal disputes. Negotiations can also prolong the process of receiving your severance package, and the time you accept it may be critical due to the expectancy of finding alternative employment.
In addition, when employees attempt to negotiate these terms on their own, they risk putting themselves in a much worse position than before. This makes it more difficult for their lawyer later. This is why it is beneficial to book a consultation with a lawyer in the early stages to avoid any drawbacks from the negotiations.
Takeaway
Overall, negotiating your severance package with the assistance of an employment lawyer can significantly increase your chances of receiving a more favourable outcome. However, it is essential to weigh the risks and benefits of negotiating a severance package and consider seeking guidance from a lawyer to navigate the process and minimize potential pitfalls. If you are an employee and you believe you have received an unfair severance package, we encourage you to contact Toronto employment lawyers, Sultan Lawyers, online or by telephone at 416-214-5111 today.