February 1st, 2017
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Severance 101 – How Much Severance is Appropriate?

In British Columbia, employers have two options when deciding to dismiss an employee: just cause, or without cause.

Just Cause – No Severance

An employer can dismiss an employee “for cause”, which means that they have a good and obvious reason for letting the employee go. These are rare, as a just cause dismissal is appropriate only when the employee is guilty of serious misconduct, such as theft, fraud, or violence.

In a just cause dismissal, the employee is not entitled to any severance. Essentially, the employee’s misbehaviour has to be serious enough that the employee no longer deserves a severance.

Without Cause – Notice or Severance

An employer can dismiss an employee without cause. The majority of dismissals in B.C. are without cause dismissals. Without cause dismissals occur when the employment relationship is no longer working, which can happen for various reasons. For example, companies may need to dismiss employees without cause due to downsizing, cost cutting, poor employee performance, or simply for lack of fit.

Employers in B.C. are required to give employees an appropriate advance notice of a without cause dismissal. The working notice period is the time between when an employee has been informed of their termination and when they actually must stop working for that employer. During this notice period, the employee continues to work and be paid, but also is entitled to time during the work day to look for a new job.

When the employer terminates an employee immediately they may provide compensation for the work notice period, instead of requiring the employee to continue working during that time. This payment is called severance. A severance should take into account all the compensation the employee is losing, including base salary, benefits, bonus, RRSP contributions, pension contributions, and allowances.

How much Notice or Severance is appropriate?

The amount of notice or severance depends on several factors, including which statute laws apply to the employee. Statutes are specific laws that the government writes, and some of those laws set out minimum notice or severance entitlements for employees.

For example, the Employment Standards Act sets out minimum notice or severance entitlements for most provincially regulated employees, and the Canada Labour Code sets out minimum notice or severance entitlements for most federally regulated employees.

The first step in determining an appropriate notice or severance is to figure out whether provincial or federal law applies, and then what entitlements are set out in that law.

The second step is to look at any written employment contract. Often, employment contracts will contain termination provisions, which set out an amount of severance the parties have agreed is appropriate. It is a good idea to have a lawyer assess whether the termination clause in the contract is valid and enforceable.

The third step in severance determination is to look at whether a common law severance entitlement exists. Common law refers to cases that have gone before a judge. Looking at judicial decisions in similar situations (for example by industry, type of job, and duration of time with the company) give us a good estimate as to how judges would rule in future severance cases involving the common law.

Judges consider the employee’s age, length of service, the nature of the employee’s job and the availability of similar type work elsewhere when estimating a reasonable period of common law notice. The courts will also look at the manner of the termination itself and will establish a reasonable notice period reflecting such considerations.

Summary

Unfortunately, there is no chart in existence that will tell an employee precisely what severance they should receive. Indeed, the B.C. Court of Appeal has said that there is no “rule of thumb” as each case is unique. In each situation, a review of the applicable law, the terms of any written contract, and the factors affecting the specific employee will be required to determine an appropriate notice or severance amount. However, once a seasoned employment lawyer has the facts, the appropriate severance amount can be determined fairly quickly.

To learn more about severance in your own situation, contact the writer, Jonas McKay, or any of the HHBG Lawyers at 604.696.0556 to schedule an appointment.

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