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Being fired from your job can be stressful on many fronts – professionally, emotionally, financially. Understanding what you're entitled to as a terminated employee can help you negotiate a more favourable severance package from your employer.
Unlike many areas of law, the law of wrongful dismissal is surprisingly simple, predictable – and blissfully Latin-free. However, few employees seem to know their most basic rights upon losing their jobs.
Before you accept a severance package offered by your employer, here are five basic legal principles to bear in mind.
One months' severance per year of service is the norm
Let's assume for now that you weren't fired for "just cause", and that your employment contract doesn't attempt to limit the amount of severance you're owed upon termination.
In that case, you're entitled to either reasonable notice prior to termination, or payment in lieu of such reasonable notice (this latter payment is often referred to simply as 'severance'). This is based on the notion that there is an implied term in the employment relationship that you, the employee, deserve fair warning before you're fired so that you have time to find a new job.
The "notice period" you're owed depends on several factors. These include your age, seniority, and, most importantly, years worked at the company. The general rule of thumb is that the notice period is usually around one month per year of service.
So, if you worked at the company for 10 years, you'd be entitled to 10 months' notice, prior to termination. And, if your employer failed to give you that warning, you'd be entitled to 10 months' pay, in lieu of this notice. While only a general rule, employment lawyers often use this as the starting point in negotiating the severance package with employers.
It's ridiculously difficult for your employer to prove just cause
You're not entitled to severance if your employer had just cause to fire you. However, the law holds employers to an exceptionally high standard when it comes to proving they had cause to fire someone. Courts recognize that firing somebody without ample warning and without compensation is a drastic step, and can only be justified in exceptional circumstances.
The vast majority of terminations are therefore considered in law to be "wrongful dismissals", because the employer lacked just cause and failed to give reasonable notice prior to termination. The employee is then entitled to damages (pay in lieu of reasonable notice, as discussed in No. 1).
Your employment contract can affect your entitlement to severance
Your employment contract may contain terms that reduce your entitlement to severance pay. Two things are worth noting, though. First, employment standards laws typically stipulate minimum amounts of notice or pay in lieu owing upon termination. These statutory minimums must be honoured by your employer. Any term in your employment contract that fails to meet these minimums is unenforceable.
Second, your employment contract has to be worded carefully in order to reduce your entitlement to severance. If your contract claims to do so, it's worth a visit to your friendly neighbourhood employment lawyer to find out if it will stand up in court.
Severance doesn't have to be paid in a lump sum ...
Let's say you worked at your company for 10 years and were fired without notice. You'd likely be owed (based on length of service, etc.,) somewhere in the range of 10 months' severance. Because you weren't given notice, the notice period would run from the date of termination until 10 months in the future.
Your now ex-employer is obligated to pay you for 10 months – but not necessarily in a lump sum. While many employers choose to make one upfront payment upon termination, they do have the option of simply continuing your regular pay throughout the notice period (and, as discussed below, they can stop paying if you find a new job).
… but getting a new job quickly may reduce your severance payout
The law imposes a duty upon you as a terminated employee to "mitigate" your losses – i.e., take all reasonable steps to find comparable employment.
Unfortunately, if you find a new job and start earning income during the notice period, your former employer can claw back your severance pay, dollar for dollar. So, if you find a new job after three months, making the same or higher pay, your former employer only needs to pay you for the three months you were without a job. You're considered to have mitigated your damages from that point on – and your entitlement to severance pay comes to an end.
For this reason alone, it's vastly preferable to negotiate a lump sum severance payment. This strategy will protect you from any claw back of your severance funds when you find a new job, and ensure that you gain maximum compensation for your employment loss.
Disclaimer: This is an overview of certain general principles of employment law for non-unionized employees in Canada's common law provinces, and should not be construed as legal advice. The author strongly encourages all terminated employees to consult with an employment lawyer before accepting an employer's severance offer or taking legal action.
Gord McGuire is a senior associate with Adair Barristers, Toronto, practising in all manner of civil litigation..