What is severance?
When an employer terminates an employment contract they will often offer the employee a severance package. This often includes a lump sum payment or continued salary and access to benefits for a fixed period of time. The offer of severance often requires an employee to sign a release, which prevents the employee from suing their employer after the fact for an unfair severance package.
Why do employers offer severance packages?
Employees are entitled to notice of the termination of their employment. In most cases, severance packages are paid to satisfy the employer’s obligation to provide notice of termination, effectively paying the employee for what they would have earned if they worked through the notice period.
Sometimes certain severance packages are guaranteed by the employee’s employment agreement.
What is a fair severance package?
The fairness of a severance package depends on a variety of factors, including:
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Character of employment
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Length of service
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Age of the employee
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Availability of similar employment
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Commissions or bonuses
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Car allowances
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Stock options
The court will also consider prior judicial decisions across Canada and whether the employee is also pursuing a human rights or other legal claim against the employer.
The employment agreement signed by the employee at the start of their employment may outline or even limit the severance packages. However, if the language is ambiguous or unclear, it may not be enforceable.
At Cashion Legal, we work with our clients to review employment agreement terms and severance package offers, along with any requested releases, to ensure they are receiving something that is fair given their unique situation.
Frequently asked questions about severance packages
Severance packages are designed to provide financial and other benefits to employees who are being terminated or laid off. By reviewing your severance package, you can gain a clear understanding of what you are entitled to receive. This includes information about the amount of severance pay, continuation of benefits, outplacement assistance, stock options, and other compensation or benefits.
If your employment is terminated without cause and without advance notice, then you are entitled to pay in lieu of notice (commonly referred to as severance pay). If your employer had just cause to terminate your employment, then you are not entitled to severance.
A tightly-worded employment agreement can limit your entitlement to severance to the mandatory minimums available under Alberta’s Employment Standards Code. However, very specific wording is required. We recommend reviewing your agreement with an employment lawyer to get a better sense of how it might impact severance.
Calculation of severance pay depends on a variety of factors and may be limited by your employment agreement. It’s best to work with an employment lawyer to determine what fair severance might be based on the specifics of your circumstances.
It is crucial to review your severance package before you sign it. Sometimes employers will place deadlines on when your severance package needs to be signed, but these deadlines can be extended upon request.
Severance package reviews can usually be completed within a few days of your first contact with our firm.
Our standard fee for a severance package review and consultation is $425, plus GST. This fee includes reviewing of all materials provided in advance of the consultation, reviewing relevant precedents, attending the consultation, and answering follow up questions you have after the consultation.
We always encourage employees to speak with an employment lawyer before signing a release. In our experience employers almost always grant extensions on the deadlines for signing releases.
While there are certain rights that employees have that independent contractors do not have, many times employers will improperly classify their employees and independent contractors to avoid respecting these rights, meaning you may actually be entitled to these privileges.
Learn more about Severance Packages
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