Having Your Severance and Eating It Too

By Alfred Kempf
Categories: Blog, Employment Law

Employees who are passed from one employer to another in the event of the sale of a business create interesting issues for employment lawyers. Generally speaking if the employee is treated as though his employment is continuous and the new employer does not require a new form of contract, the employment is deemed continuous for the purpose of the calculation of damages (also called severance pay) if his employment is terminated by the new employer.

In a recent case in the Kootenays an employee who received over $100,000 in severance pay from his old employer argued that he ought to be entitled to similar severance pay from his new employer after only a few months of employment. The employee argued that since his employment was continuous, all of his years of employment for both employers ought to be taken into account in the calculation of his severance pay entitlement.

He argued that the severance pay from his original employer was really a retention bonus and not severance. While he won his argument at trial, the BC Court of Appeal overturned the decision. The appeal court reasoned that if the employee was terminated and paid severance pay by the original employer, and if there is no real continuation of employment, because the nature of the employment is different with the new employer, it is incorrect to award severance based on the combined employment with the two employers.

The bottom line is that where an employee is taken on by a new employer and has received termination pay or notice from the old employer, he may commence his new employment as a without credit for severance which accrued under the old employment.

There are ways for employers to provide for certainty in these situations to avoid the legal fees and court costs incurred in this case.