Terminated? Laid Off? Dismissed? 7 Factors in Assessing Severance Pay
We’ve all heard one of the following stories… An employee in heavy industry is laid off because of a downturn in the economy. Or an office worker is let go because she doesn’t get along with her supervisor. Or a company is going through a restructuring and has to terminate a quarter of its staff.
While the creation and destruction of jobs is essential to our economy and our workplaces, people dealing with job loss are nonetheless dealing with a unique form of personal tragedy. After all, a job is not only a source of income, it contributes to our overall well-being and is an important part of our identity.
From a legal perspective, however, an employment relationship is a contract. And like any contract, it can be broken, provided that appropriate compensation is paid. For lawyers and judges, there are seven important factors to be considered in assessing how much “reasonable notice” (or in common parlance, severance pay) is owed for terminating a non-unionized employee.
- Serious Misconduct – The first thing to be considered in assessing appropriate severance pay is whether the employee is culpable of serious misconduct such as theft, chronic absenteeism, gross insubordination or dishonesty. If so, the employer may be able to claim “just cause” for termination and the employee would not be entitled to any severance at all. However, this is a difficult test to meet, and arguments of just cause will often fall short.
- A Written Employment Contract – Severance pay essentially amounts to damages for breach of contract. Recognizing this, many employers will specify amounts owed for termination as part of a written employment agreement. Provided that these amounts respect employment standards legislation, they will normally be upheld. If you’ve lost your job and you have a signed employment contract, your agreement may define what you are entitled to receive.
- Age – Assuming that there is no written employment contract, we then look at the four classic considerations for assessing reasonable notice. First is age. There is plenty of research which suggests that for a variety of reasons, older workers are at risk for prolonged unemployment. As such, for terminated workers that are 50 years old or older, they will generally been entitled to a larger severance package.
- Tenure – Another important factor is the length of time an employee has worked for the organization. If a worker has been at the same job for a lengthy period of time, they likely haven’t updated their résumé, attended a job interview or written a cover-letter in a number of years. They may not be familiar with using social media, modern interview practices or current networking techniques. Their skill-set may also be defined by the job they had previously been working in, skills which may not be easily transferable to new employment. For these reasons, longer tenure employees are generally entitled to more severance.
- Job Description – The nature of the job is also relevant. The rationale is that the higher an employee is up a corporate hierarchy, the fewer the number of comparable positions will be available. While this factor is still considered in British Columbia, its appropriateness is criticized and there is ongoing debate within the legal community as to whether it should still be applied.
- Employability – This catch-all considers other factors such as the terminated employee’s education, career history, trade specialization and the local economy in assessing how long it will reasonably take for the person to find comparable work. The idea here is that a truck driver or mechanic in Fort St. John may have less difficulty finding comparable work than an bank teller or an accountant in Salmon Arm.
- Mitigation – Although we recognize that people who lose their job will require some time to refocus, there is also an onus on the terminated employee to make efforts to find new work. As I jokingly tell my clients, losing a job is not an opportunity for a Netflix marathon. A failure to make reasonable efforts to find work can negatively impact the severance awarded by a court. However, if a terminated employee successfully finds comparable employment, an argument can be made that the employee successfully stopped their income losses, and that their damages “crystallize” or become fixed.
Unfortunately, there is no mathematical formula or crystal ball for determining reasonable notice or severance amounts. However, legal counsel knowledgeable in employment law can look to court precedents and their own experience to examine a terminated employee’s situation and assess appropriate damages for termination.
If you have recently lost your job, consider contacting our office for a consultation and make sure that the severance package offered to you is fair and legal.