How Do I Know If My Severance Package Is Good Enough?

You’ve been working for the same company for more than 10 years.  Although management is always saying “We’re a family”, you never bought into that.  Still, you get along with everyone, you’ve worked hard, and your manager has let you know that they appreciate your efforts.  The pay’s not that great.  Working conditions could be better.  Anyway, it’s only a job, but you’ve spent most of your waking hours there, five days a week, for a long time, and it’s an important part of your life.

For the last year or so, however, it’s been obvious to everyone that there are problems.  It’s not as busy as it used to be.  There are rumours of layoffs.  It’s a stressful time for everybody.  Then the boss calls you into his office.  Times are tough, he says.  You’ve always done a great job, but business is slow, and we’re going to have to let you go.  Here’s a letter outlining your terms of severance.  I’m really sorry.

Okay, it’s not really a family, but you did feel a part of the organization, and even if you’re not the only one who’s being let go that day, it’s really tough to be shown the door.  What will you do without that paycheck? How will you spend your day, now that you no longer have a 9 to 5? You know you’re going to miss seeing the same people every day.  How long will it take to get a new job? And will you really be able to get a job in your field at the same level, after you’ve been so long with the same company?

You’re a bit surprised at how emotional you feel.  In the middle of all this, you have to decide whether or not the severance package that your employer is offering is reasonable and fair.

First of all, there’s no rush. Your employer wants you to accept the terms you’ve been offered.  Otherwise, why would they offer you a severance package at all?

Employers often set a deadline for acceptance of the proposed severance package. That’s usually just a tactic to put pressure on you to accept their terms.   Remember, these are the terms they want you to accept.  Chances are they will be willing to settle on the same terms or better even after their artificial deadline expires.

If you are a member of a union, the employer’s right to let you go or to eliminate your position depends on the terms of the collective agreement between the union and your employer.  You may have the right to grieve or arbitrate your dismissal, and you should speak to your union representative about this.

If you are not a union member, you really should consult a lawyer who specializes in employment cases before you accept your employer’s severance terms and sign a release.  Once that release is signed it will be difficult, if not impossible, to claim a better severance.

Often, the employer will base its severance proposal on the “Termination and Severance of Employment” provisions in Part XV of the Employment Standards Act, S.O. 2000, c. 41 (the “ESA”).  Under the ESA, the employer has to provide the employee with written notice in advance of termination.  The length of the notice period depends on the length of service of the employee.

In most cases, the employer will want to terminate the employee right away.  The ESA allows employers to do that, but the employer has to provide severance pay that is equivalent to the pay that the employee would have received during the statutory notice period.

Notice periods under the ESA are pretty short.  If you have worked for the company for a full year, but less than three years, you are only entitled to two weeks’ notice under the ESA.  If you’ve been with the same firm for eight years or more, all you get is eight weeks notice of severance; in other words, one week for every year of service.  And there is a cap of 8 weeks’ severance which applies even if you’ve been with your company for 20 years or more.

The good news is that the courts have made it very clear that the severance requirements of the ESA are the minimum.  If you choose to challenge a severance package that is based on the ESA notice periods, you can potentially negotiate a much better severance.

At law, you are entitled to “reasonable notice” of termination, and if your employer fails to provide reasonable notice, you get money damages equal to the salary you would have received during the period of reasonable notice.  Although the minimum notice periods under the ESA are the equivalent of about one week of notice per year of service, court cases have established that reasonable notice amounts to between one and two months’ severance per year of service, depending on the circumstances.

The overriding principle that courts take into consideration in determining whether or not the employer’s severance package is reasonable is the length of time that it would take an employee with the same qualifications and experience, and looking for work in the same job market, to find a new job that was comparable to his former position in terms of the nature of the work, the status of the work, and the compensation earned.  The courts have determined that the assessment of reasonable notice depends on a number of factors:

(1)          The age of the employee. Generally speaking, it takes older individuals longer to find a new position that is equivalent or comparable to their earlier employment.

(2)          The level of your position in the employer’s job hierarchy.  There are a lot of entry-level jobs, but there are very few presidential or vice-presidential level positions.  Courts therefore tend to conclude that the higher your job level, the longer it will take for you to find an equivalent position with another company.

(3)          The salary of your former position.  The more your old job paid, the harder it’s going to be to find another job that pays a comparable salary or wage.

(4)          The nature of the work.  If your job is specialized, and requires a high level of education or a great deal of on-the-job experience, it is unlikely that there will be a lot of other jobs available for someone with your background and education.  On the other hand, if you are highly qualified and there is a shortage of people with your skills, training, and experience, it may be that you can find equivalent work quite quickly.

(5)          Conditions in the job market.  If the overall economy is bad, and employment is low, courts will tend to award longer severance.  If, however, the economy is good, or if demand is high in your particular industry, the court might conclude that it won’t take you that long to find new employment that is comparable to your former position in terms of earnings, responsibilities, and status.

If you have been laid off, you are faced with some tough decisions.  Should you accept the severance your employer has offered, put the whole thing behind you, and hope for the best in terms of whether or not you can get a new job that pays as well and gives you the same satisfaction? Or should you go back to the employer and try to negotiate a more favorable severance? And if you can’t get a better severance, does it make sense to take your case to court?

There aren’t any easy or obvious answers, but an experienced employment lawyer can help you evaluate your options.

Richard Hayles


Brief informational summaries about commercial litigation matters in the courts of Ontario and other developments are periodically published on this website. They are intended to be a general comment or general discussion, not legal advice and should not be relied upon as legal advice. Should you require legal advice, please contact info@heydary.com or 416 972 9001.

One Response to “How Do I Know If My Severance Package Is Good Enough?”

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