What Terms Are Generally Included in an Employee Severance Package?

May 14, 2014

What Terms Are Generally Included in an Employee Severance Package?

Every employee termination is unique. Accordingly, there is no one size fits all employee severance package. There are, however, several terms that that are often included in a severance package.

Assuming an employee is not terminated for just cause, and the employee did not sign an employment contract with an enforceable termination clause, here are seven (7) such terms.

1. Pay for all monies owed up to the employee’s last day of employment.

In addition to unpaid salary, this can include monies owed for accrued but unpaid vacation pay and/or overtime pay, commissions owing, and in some cases bonus owing.

2. Notice of termination (or termination pay) and any severance pay owing under the Ontario Employment Standards Act (ESA)

An employee is entitled to up to 8 weeks’ notice of termination (or pay in lieu of notice); and, for employees with at least 5 years service with an employer with Ontario payroll of at least $ 2.5 million, up to 26 weeks’ severance pay.

 3. Benefit continuation during the minimum notice period under the ESA

An employer is required to continue certain group benefits during the minimum statutory notice period (i.e up to 8 weeks).

 4. An oral and/or verbal reference

Since the courts will deduct any income an employee earns during the “reasonable” notice period when calculating wrongful dismissal damages, it is in the employer’s interest for the employee to obtain alternative employment as quickly as possible. Accordingly, we recommend that an employer always consider providing a reference to an employee in a without cause termination.

5. Outplacement counselling

Outplacement counselling helps an employee get ready for the job market. If the employee has been out of the job market for a long time and/or has non-transferable skills then we recommend that an employer consider purchasing these services for an employee who is terminated without cause. This kind of service is not recommended for all terminated employees.

6. Additional termination pay and benefit continuation

In this scenario, the employer will almost always be required to provide the employee with more termination pay than the statutory minimums.  The amount of additional termination pay will depend on, among other things, the employee’s age, position, length of service and the employer’s assessment of the employee’s re-employment prospects. Depending on whether the employer is offering the employee a lump sum payment or salary continuance, the employer may also offer benefit continuation beyond the minimum statutory notice period.

 7. A release

Generally, an employer does not want to pay an employee more than the minimum statutory termination pay unless the employee agrees not to commence any legal proceedings in connection with the employee’s employment and/or the termination of his or her employment. An employer therefore generally requires the employee to sign a document which states that the employee will release these legal claims as a condition of receiving the additional termination pay.

Additional terms may be included in a severance package depending on the unique circumstances of a particular termination.

If you require assistance preparing an employee severance package for a terminated employee, please contact our Managing Partner, Doug MacLeod by phone at 416 317-9894 or by email at [email protected]

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