Severance Package Design

TORONTO EMPLOYMENT LAWYERS HELPING EMPLOYERS WITH SEVERANCE PACKAGE DESIGN

Termination is an unfortunate aspect of business for every employer. Employers have a legal responsibility to ensure that they provide employees with adequate notice, and appropriate remuneration in most circumstances. The laws around severance and termination can be complex, as they are dictated both by employment legislation as well as the common law. Seeking advice from an experienced employment lawyer is key to ensuring that an employer has met their obligations and minimized any risk with respect to claims for wrongful dismissal.

The employment lawyers at Sultan Lawyers work regularly with employers to provide guidance with respect to severance packages and employee terminations. We will review all of the relevant factors with an employer and assist with designing an individualized package that addresses all legal obligations including legal notice requirements and compensation.

What is severance pay?

Severance pay is remuneration paid to a qualified employee whose employment has been “severed” in order to compensate the employee for their losses, including seniority.

Is severance pay the same as termination pay?

No. Termination pay refers to the statutory minimum notice period under the Employment Standards Act. This compensation is paid upon dismissal in lieu of notice to any employee who was employed for at least three months. Termination pay is equivalent to one week’s pay per year of service. Certain exceptions apply, such as an employee who is terminated for cause.

Severance pay is paid over and above the termination pay amount. For qualifying employees, it is equivalent to an additional week of pay per year of service, prorated for any partial year of employment. Severance pay is capped at 26 weeks.

It is important to note that termination pay, and severance pay will be applied in the following circumstances:

• Termination (without cause)
• Layoffs or mass terminations
• Constructive dismissal

Who qualifies for severance pay?

Not every employee requires severance pay upon termination. Severance pay is aimed at long-term employees, and will only be enforced in the following circumstances:

1. The employee has worked with the employer for at least 5 years; and
2. The employer:
   1. has a payroll in Ontario worth at least $2.5 million; or
   2. severed the employment of 50 or more employees in a six-month period because all or part of the business closed permanently.

Offering the Severance Package

Upon termination, the employee will be provided with the severance or termination package and granted a period of time to review and accept the offer. The package will outline the compensation being offered for both termination and severance pay, the continuation of benefits throughout the notice period, and will contain a letter of acceptance for the employee to sign. The letter serves to provide the employee with a full picture of their compensation as well as act as a release, absolving the employer from responsibility for any future claim for wrongful dismissal.

CONTACT SULTAN LAWYERS FOR ASSISTANCE WITH SEVERANCE PACKAGE DESIGN

Sultan Lawyers regularly works with employees in order to review severance packages, and with employers on the design of these packages. We will provide guidance to ensure that the employer has met all legal obligations to their employee while protecting themselves from the risk of litigation. Let us review your termination strategy and current severance package offerings in order to ensure that you are meeting all legal requirements. Contact us online or at 416-214-5111 for a consultation.

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