Aside from higher than expected common law notice periods, employers should turn their attention to their possible obligation to pay statutory severance pay upon termination of employment.
For example, in Ontario, the Employment Standards Act ("ESA") requires payment of up to 26 weeks of regular wages to terminated employees in certain circumstances. Most commonly, the severance pay obligation arises where the employer has a payroll of at least $2.5 million and the terminated employee has been employed for at least five years. Severance pay is payable in addition to any amount otherwise due to the employee by virtue of the ESA or an employment contract.
An employer is entitled to set-off and deduct from its ESA severance pay obligations certain amounts, such as "an amount paid to an employee for loss of employment under a provision of the employment contract if it is based upon length of employment, length of service or seniority". Therefore, the Divisional Court held in 2005 that "where the common law notice period is more generous than the ESA, the common law amount is awarded, but not both" [1].
However, employers must exercise caution when providing working notice of termination. For example, an Ontario Court was recently faced with an 26-year employee who claimed 26 weeks of severance pay despite her employer having provided 54 weeks of working notice of termination followed by a gratuitous payment of two months' salary [2].
While the employer argued that the combined effect of the working notice and the additional payment exceeded the 34-week ESA obligation (eight weeks of termination pay plus 26 weeks of severance pay), the Court disagreed and found that the two employment standards are "diferent and distinct" and could not be combined. While the employer met the eight week termination pay standard, the lengthy working notice period could not be used to offset the severnace pay oblgation. Accordingly, the Court awarded the employee 26 months of salary less the gratuitous eight-week payment. The decision was not appealed.
Therefore, employers governed by the ESA must take care to properly structure termination packages to ensure that severance pay obligations are met. This is so even where employers are "very generous", the precise words used by the Court to describe the defendant in the case above.
[1] Boland v. APV Canada Inc., [2005] O.J. No 510.
[2] Mattiassi v. Hathro Management Partnership, 2011 CarswellOnt 11431 (Sm. Cl. Ct.)
An employer is entitled to set-off and deduct from its ESA severance pay obligations certain amounts, such as "an amount paid to an employee for loss of employment under a provision of the employment contract if it is based upon length of employment, length of service or seniority". Therefore, the Divisional Court held in 2005 that "where the common law notice period is more generous than the ESA, the common law amount is awarded, but not both" [1].
However, employers must exercise caution when providing working notice of termination. For example, an Ontario Court was recently faced with an 26-year employee who claimed 26 weeks of severance pay despite her employer having provided 54 weeks of working notice of termination followed by a gratuitous payment of two months' salary [2].
While the employer argued that the combined effect of the working notice and the additional payment exceeded the 34-week ESA obligation (eight weeks of termination pay plus 26 weeks of severance pay), the Court disagreed and found that the two employment standards are "diferent and distinct" and could not be combined. While the employer met the eight week termination pay standard, the lengthy working notice period could not be used to offset the severnace pay oblgation. Accordingly, the Court awarded the employee 26 months of salary less the gratuitous eight-week payment. The decision was not appealed.
Therefore, employers governed by the ESA must take care to properly structure termination packages to ensure that severance pay obligations are met. This is so even where employers are "very generous", the precise words used by the Court to describe the defendant in the case above.
[1] Boland v. APV Canada Inc., [2005] O.J. No 510.
[2] Mattiassi v. Hathro Management Partnership, 2011 CarswellOnt 11431 (Sm. Cl. Ct.)
