How do I know if my severance is fair?
Severance is based on the theory that an employee is entitled to a certain amount of notice that their job is ending before their job is actually over. Essentially, the law implies a requirement that employers must give a warning to their employees prior to terminating an employee’s employment. This notice can be written notice prior to the termination date where the employee is still expected to work (i.e. “working notice”) or the employer can choose to forego the waiting period and simply pay the employee for the wages that they would have earned if the employer would have given working notice (i.e. “pay in lieu of notice”). That is why severance is often calculated in terms of weeks or months because it represents compensation for the time an employee would have worked had the employer given proper notice.
There are three sources to determine what notice an employer must give to an employee.
First, every employee in British Columbia is entitled to the minimum statutory entitlements under the BC Employment Standards Act. Under section 63 of this legislation, an employee becomes entitled to one week of wages after 3 months of service, 2 weeks’ after 12 months’ service, 3 weeks after 3 years service, and an additional week per year of service up to a maximum of 8 weeks. These are the minimum entitlements at law.
Second, the courts have implied a term into every working relationship that – unless there is a contract varying this term – an employee is entitled to reasonable notice of termination. Common law reasonable notice considers several “factors” and comparable cases to arrive at a range of notice that would be reasonable for the employee in the circumstances. These factors are the age of the employee, the tenure of the employment, the nature of the employment (e.g. whether it was managerial or was in a highly specialized field), and the reasonable availability of similar employment. There are other considerations that arise in case by case situations, such as whether the employee was recruited from previously secure employment and whether the employee’s tenure should include past history or part-time work.
Some places will suggest a rule of thumb of one-month severance per year of tenure with the employer. However, this rule has been firmly rejected at law. In practice, short-term employees tend to receive more notice than that rule suggests, and longer-term employees will tend to receive less. However, the range depends upon the number of factors that favour extending the notice period versus those that suggest a more limited notice period.
Third, the contract of employment can vary the entitlement to reasonable notice by including specific terms that address the amount of notice an employee is entitled to upon termination of the contract by an employer. These contracts should be entered into at the start of the employment relationship or in exchange for good and valuable consideration (e.g. increase in salary or benefits).
Accordingly, as an employer or employee evaluating how much notice is required the starting place needs to be the contract of employment [as an employer, if you do not have contracts of employment with all your employees then you should ask yourself why not?].
Most properly drafted employment contracts set out the terms of the employment relationship, including termination of the employment relationship. As long as the employment contract is compliant with the BC Employment Standards Act and the BC Human Rights Code, the courts have found the contract is binding on the amount of severance that an employer needs to pay to an employee. This remains true even if the contract recites or references the Employment Standards Act.
The contract can become void if the amount of notice hypothetically results in less notice than the minimum guarantees in the Employment Standards Act. For example, if a contract of employment calls for one month notice to an employee regardless of tenure then that notice provision will be found void and unenforceable because the Employment Standards Act can hypothetically provide up to two months’ notice. The employee in that scenario would be entitled to claim common law reasonable notice.
We can help you evaluate your reasonable notice period and decide on whether the severance being offered is fair. We offer a free initial consultation and have flexible fee agreements that can work for many people who have lost their job.
We also offer help to employers looking at dismissing an employee. We can help keep your business in a strong position when it must terminate employees go and we can tailor the services for your type of business and your workforce.