fbpx
jeff@goldsteinlawyers.ca 647-838-6740

Blog

Components of a Severance Package

When receiving a severance package, the primary consideration for most employees is the number of weeks of notice or severance that are paid to them; however, there are other components that must be considered before accepting a severance package. 

Firstly, this discussion addresses severance package entitlements of employees in Ontario that have been terminated from their employment without cause.  For those employees that have been terminated for just cause, the entitlement to severance is nil. That said, in many just cause termination cases, the employer has weak grounds for the termination (i.e., in other words, they would not successfully satisfy the threshold for just cause) and as such, a severance package may be attainable through a negotiation or Court action for wrongful dismissal.

With respect to the without cause terminations, an employee’s severance entitlement is either (i) determined in accordance with the terms of an employment contract that contains an enforceable termination clause, and in no case less than the minimum entitlements prescribed by the Employment Standards Act; or (ii) is based on the principles of the common law (i.e., judge-made law) in Ontario, which has set out various factors that must be assessed to determine “reasonable notice” of termination.

In calculating reasonable notice of termination or pay in lieu thereof, Ontario Courts have enumerated a non-exhaustive list of relevant factors, including:

  • Age of the employee;
  • Duration of service (including any successive fixed-term contracts);
  • Seniority at the company;
  • Total compensation (including base salary plus bonus, with more weight given to more substantial bonuses that form an integral component of compensation); and
  • The availability of comparable employment given labour market conditions. 


In addition to the compensation paid out in accordance with the above considerations, an employer will issue a Record of Employment (ROE) to Service Canada to qualify for employment insurance. 

The employee will then be required to return all company property and the company in exchange will return all personal property to the employee. 

Often, companies will require that the employee update their social media profiles to reflect that they no longer are employed in the same position.

The employee will be continued on the employers group benefit plan and regular contributions will be made to continue health and dental insurance coverage for, at minimum, the statutory notice period.

The employee may be entitled to vesting of stock options, restricted share units, or other incentive compensation plans depending on the terms of the applicable policy. 

The employee may have to comply with various restrictive covenants including a non-competition clause (restriction from working in the same or similar line of business in a given geography for a certain period of time), non-solicitation clause (precluded from soliciting former clients or employees of the employer for a separate venture), non-disparagement (restriction against publicizing negative comments about the employer) and confidentiality provisions. 

Companies may also offer terminated employees career counselling and resume building services to facilitate their job search. 

In exchange for all of the above consideration, the company will request that an employee signs a Full and Final Release, which is a legal document that prevents the employee from seeking any further compensation or any future claims against the employer, or any party that may seek indemnity by the employer, for any matters relating to the employment.  In essence, the Release is a document that acknowledges that the severance package agreed upon satisfies all of the employees legal rights. 

Job Loss during COVID-19: Government Subsidies and Benefits

Many businesses and workers have suffered severed financial loss as a result of mandatory business closures resulting from COVID-19. Fortunately, the government of Canada and the province of Ontario have stepped up by introducing a number of programs to help alleviate the negative impact of the economic downturn. In this blog post we will highlight a few of the government programs designed to assist workers who have been impacted by the pandemic and also commercial landlords and tenants.

First, Am I Entitled to Notice or Severance from my Employer?
The Employment Standards Act (ESA) sets out the minimum obligations of employers following the termination of employment, including notice of termination (or pay in lieu thereof) and severance pay obligations. If you have an employment contract that does not specify that your “ESA entitlements represent your full entitlements on the without cause termination of your employment,” you may be entitled to common law notice, which provides for more generous notice requirements.

Whether or not you are entitled to common law notice is based on the terms of your employment contract; and the amount of such notice is dependent on each unique set of circumstances. Terminated employees often contact us advising that “they were the best employees” and they consistently received positive performance reviews. We often hear from terminated employees “how can my employer terminated me and then post a job opening for my former position right away?” These concerns are actually not relevant to the severance equation. As an employees can resign at any time for no reason, any employer can terminate an employee without cause at any time for no reason so long as it is not a discriminatory reason. As a result, your strong performance or the fact that your job may be replaced by another candidate, is not relevant in determining the severance calculation.

The more relevant factors in determining severance entitlements under the common law in Ontario, include but is not limited to: (i) the age of the employee at the date of dismissal – with employees of more advanced age typically entitled to greater notice periods; (ii) the duration of service in the employment, with longer-service employees entitled to more enhanced severance pay; (iii) the seniority or position of the employee, with greater notice periods being awarded to more senior employees with specialized positions; (iv) and the availability of similar employment. During COVID-19, the job market has frozen and it will be most challenging to secure a new job following a termination of employment, entitling the employee to greater severance pay.

The government has also introduced programs to protect workers and businesses that have been negatively impacted by the global pandemic. More details on these programs are provided below:

Benefits for Employers and Employees
Millions of employees have been terminated or temporarily laid-off due to business closures resulting from COVID-19. If you have been terminated from your employment as a result of COVID, you may be entitled to enhanced severance pay given the difficulty you are likely to confront in obtaining replacement employment in a timely manner given the economic downturn. You can contact our employment law firm for a free consultation to discuss your employment rights.

The government of Canada has introduced a number of programs to assist employers and employees that have suffered as a result of the COVID-19 pandemic.

Canada Emergency Response Benefit
The Canada Emergency Response Benefit (CERB) is available to workers (i.e., employees or independent contractors) who have lost their job on account of COVID-19. The Benefit is available to workers:

  • Residing in Canada, who are at least 15 years old;
  • Who have stopped working because of reasons related to COVID-19 
  • Who had employment and/or self-employment income of at least $5,000 in 2019 or in the 12 months prior to the date of their application; and,
  • Who have not quit their job voluntarily.

The amount of the CERB benefit is $2,000.00 per month for a period of four (4) months.

Canada Emergency Wage Subsidy
The Canada Emergency Wage Subsidy is available to employers whose revenues have decreased by at least 30% as a result of COVID-19. The benefit covers up to 75% of employee wages on the first $58,700 employees earn, or up to $847 per week. The program covers wages from March 15 to June 6, 2020 – and may be (but hopefully will not be required to be) extended should the pandemic continue on for longer than anticipated.

The purpose of the CEWS is to enable employer’s to re-hire workers or at least refrain from laying-off workers due to the economic downturn. To receive the wage subsidy, the employer must be eligible as defined by the benefit, which includes various types of entities (sole proprietor, partnership, corporation, non-profit, etc.) that has suffered an eligible revenue reduction (i.e., 15% revenue decline in March 2020 and 30.0% thereafter for April and May 2020).

Canada Commercial Rent Assistance Program
The Commercial Rent Assistance Program was introduced by the government of Canada to reduce rent for small businesses that have been impacted by COVID-19. The program will provide non-repayable loans to commercial property owners to cover 50.0% of three monthly rental payments for the months April, May, and June 2020. The loans will be forgiven if the property owner agrees to reduce the small business tenants rent by 75.0% during the loss period. The small business tenant will then cover the 25.0% remaining rent.

To be eligible to benefit from the program, eligible businesses will have to pay less than $50,000.00 in monthly rent and have seen their revenues decline by 70.0% as a result of COVID-19 during the three-month period.

If you are an employer or employee residing in Ontario and have questions regarding the governments new benefit programs to assist your business during the economic downturn causes by COVID-19 we would be happy to provide you with guidance. In addition, commercial landlords and small business tenants may require an understanding and interpretation of the Commercial Rent Assistance program to ensure it is implemented in accordance with the benefits parameters.

At Goldstein Law, we practice employment law, commercial leasing, and real estate litigation disputes. We are well-positioned and have the expertise to advise our clients on matters arising out of the COVID-19 crisis.

Executive Employment Law

At Goldstein Law, our employment lawyers focus on the niche area of executive employment law. In addition to providing advice and counsel with respect to contracts and employment offers, wrongful dismissal, constructive dismissal and changes to employment, termination, our executive employment lawyer routinely assists executives and other senior employees with issues that are unique to the senior executive or employee, including: duties of departing executives, fiduciary duties, executive and other complex compensation models and plans, bonus issues, deferred compensation, changes of control, mergers and acquisitions, non- compete and non-solicitation agreements.

Bonuses During the Notice Period for Executives

A particular issue that often arises in the context of executive employment law is how to deal with bonus claims in wrongful dismissal actions. Where a terminated executive employee claims damages for lost opportunity to earn bonuses during their reasonable notice periods, an employer will often rely on language in their bonus policy that attempts to deprive the employee of their bonus if they were not “actively employed.”

The Court in Paquette v. TeraGO Networks established a two-part test to govern bonus claims:

  1. Was the bonus an integral part of the compensation package; and
  2. If so, is there language in the bonus plan that restricts the common law entitlement to damages in lieu of a bonus over the notice period?

An employee will typically have a right to claim damages in relation to a bonus that is an “integral part” of their compensation, even if the bonus is described as discretionary. Whether the bonus plan ousts the employees entitlement to bonus during the notice period is based on whether the wording unambiguously alters or removes the employee’s common law rights.

What Bonus Clause Will Oust the Common Law?

In Paquette, the Court held that a clause that required an employee to be “actively employed” by the employer on the date of the bonus payout was insufficient to displace the common law entitlements to damages for a lost bonus. Further, in this case, the Court validated the use of a three-year average total compensation to determine the value of subsequent bonuses payable during the notice period.

There have been a number of updates with respect to deferred bonuses (see Bain v. UBS Securities Canada Inc.), principles applicable to stock options and restricted share units (see O’Reilly v. IMAX Corporation) that our executive employment lawyers understand and reference to support your entitlement to full compensation during the reasonable notice period. Should you have any questions about your common law entitlements to bonus or deferred compensation on the termination of your employment, it is advisable to contact a law firm that specializes in executive employment law.

Scarborough Subway Extension Expropriations

Metrolinx is proceeding with a proposed subway extension to TTC’s Line 2 Subway service eight kilometres further into Scarborough. The proposed extension will extend from Kennedy Station to Sheppard Avenue and McCowan Road. 3 additional stops are being added, and the project is estimated to take almost 10 years to completion.

Metrolinx is in the process of notifying property owners of its intention to expropriate property for the subway extension. If you have received a Notice of Intention for Approval to Expropriate, this is the first formal document from the authorities notifying the owner of the pending expropriation, as required by s. 6 of the Expropriations Act.

Once a Plan of Expropriation is registered, in accordance with s.9 of the Expropriations Act, which will show the parcels that the authorities require to expropriate, ownership of the lands will vest in the authorities. Once the plan of expropriation is registered, the authorities are required to send out a Notice of Expropriation along with a Notice of Election, which permits the owner to select a valuation date to determine compensation.

Thereafter, and within 90 days of the Notice of Expropriation being served, the authorities must serve a Section 25 offer on the registered owner of the property on a without prejudice basis along with a supporting appraisal report. The authorities must offer all compensation set out in the appraisal report, and alternatively the authorities must advance an offer of immediate compensation for the market value of the land expropriated, if the owner wishes to take the immediate offer and continue to seek additional compensation (without fully releasing their rights to additional compensation, which is the election we always recommend to clients).

Additional steps in the expropriation process follow thereafter. If you have received a Notice of Intention for Approval to Expropriate, it is wise to contact an expropriation lawyer familiar with the processes and the types of compensation which you are entitled to. Goldstein Law has extensive experience working with property owner and business owners in the context of expropriations arising from infrastructure projects in Ontario. Contact us today for a consultation!

Ontario Court of Appeal Rules on the Enforceability of Termination Clauses

Waksdale v Swegon North America Inc. is a recent case in 2020 released by the Ontario Court of Appeal involving an employee that was terminated from his employment without cause. The employee’s employment contract contained a termination clause that sought to limit his entitlements to severance pay to the minimum amounts prescribed by the Employment Standards Act (ESA). However, the employee challenged the enforceability of the termination clause on the basis of the termination for just cause component of the clause, even though he was terminated without cause.

The termination provision in the employment contract was written as follows:

You agree that in the event that your employment is terminated without cause, you shall receive one week notice or pay in lieu of such notice in addition to the minimum notice or pay in lieu of such notice and statutory severance pay as may be required under the Employment Standards Act 2000 as amended. All reimbursement for business expenses shall cease as of the date of termination of your employment, however, you shall be reimbursed for legitimate business expenses that have been incurred and submitted to the Company but not as yet paid you to that date. The terms of this section shall continue to apply notwithstanding any changes hereafter to the terms of your employment, including, but not limited to, your job title, duties and responsibilities, reporting structure, responsibilities, compensation or benefits.

The contract also contained a termination for just cause provision. The wording of the termination for just cause provision breached the terms of the Employment Standards Act, 2000 (“ESA”), and the employer recognized this at trial. This component of the termination clause was therefore void and unenforceable – however, the employer argued that it was irrelevant and inapplicable as the case at bar involved an employee that was terminated without cause, and that component of the termination clause was written in an enforceable manner, that limited the employees entitlements on termination.

The Plaintiff argued that the contract was not enforceable because the termination for just cause provision was void.

The Ontario Court of Appeal agreed and held as follows:

An employment agreement must be interpreted as a whole and not on a piecemeal basis. The correct analytical approach is to determine whether the termination provisions in an employment agreement read as a whole violate the ESA. Recognizing the power imbalance between employees and employers, as well as the remedial protections offered by the ESA, courts should focus on whether the employer has, in restricting an employee’s common law rights on termination, violated the employee’s ESA rights. While courts will permit an employer to enforce a rights-restricting contract, they will not enforce termination provisions that are in whole or in part illegal. In conducting this analysis, it is irrelevant whether the termination provisions are found in one place in the agreement or separated, or whether the provisions are by their terms otherwise linked.

What Makes a Termination for Cause Provision Void and Unenforceable?

As written in previous blog posts, an employer has the right to terminate an employee for just cause where egregious misconduct has been displayed. For cause termination have been considered the ‘capital punishment’ of employment law.

Examples of “Just Cause” at common law include:

  • Repeated breaches of company policy
  • Repeated Truancy
  • Violence or Harassment
  • Dishonesty
  • Insubordination

When terminating for just cause, employers are still required to pay ESA Notice and Severance unless that employee “has been guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer”.

Unless your employment contract explicitly carves out a distinction between termination for Just Cause and termination for “wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer”, it may be void and unenforceable, as was found by the Court of Appeal in the Waksdale decision. As a result, your employment contract’s “Termination Without Cause” provision might also be found unenforceable.

Many employment contracts in Ontario will need to be amended and updated. Otherwise, employers risk their termination provisions being unenforceable, which means they will owe employees common law reasonable notice. Common law reasonable notice often works out to months or years of notice rather than weeks under the ESA.

Employers Need New Employment Contracts

In conclusion, employers need to update their employment contracts. Doing so is inexpensive and pays substantial dividends at termination time. As noted, the difference in notice period, for an employee with an enforceable termination provision versus one without, can be months or years of pay.

Employment Law Considerations During COVID-19

Employment Law Considerations

If you are a worker at an essential workplace and are continuing work, your employer has a duty under the Occupational Health and Safety Act to ensure proper hygiene is in place and that employees are given breaks and time to sanitize their hands and practice physical distancing.

For those businesses that have to shut on a temporary basis, either because they are being ordered shut by the government or due to a decline in business that cannot support a complement of staff, a lot of company’s are conducting temporary lay offs

Temporary lay offs are permitted under the Employment Standards Act.  A temporary layoff is one that lasts no longer than 13 weeks in a period of 20 consecutive weeks (it does not have to be 13 consecutive weeks).  The exception is that where benefits are continued or substantial payments are made to the employee, the temporary layoff periods can be extended to 35 weeks in a 52-week period. These provisions are written into the Employment Standards Act.

If you do not have a written employment contract that allows the employer to put an employee on temporary lay off, under normal circumstances, the employee can argue under the common law that they have been constructively dismissed from their employment.  Right now, we are not under normal circumstances.  The common law is fluid and adapts with societal changes. 

There may be a flood of wrongful dismissal cases related to temporary lay-offs due to COVID-19.  There is an alternate argument arising out of contract law referred to as frustration of contract, which refers to an intervening event which neither party anticipated at the time the contract was entered into, the contract is treated as null and void.  Some employers may argue that they have not terminated their employees but rather there has been a frustration of contract. 

Severance Package as Lump Sum Payment or Salary Continuance

When an employee is terminated from their employment without cause, they are entitled to a severance package. The amount of severance they are entitled to is based on the Employment Standards Act (“ESA”) in Ontario and the common law (i.e., judge-made law). The common law has evolved with various precedent cases that have set out factors that are relevant in determining a terminated employees severance pay entitlements. Common law severance entitlements are much greater than the statutory minimum entitlements outlined in the ESA.

Note that this discussion only applies to employees that have been terminated without cause from their employment. Those employees that have been terminated for just cause are not entitled to any severance; however, as we have discussed here in our article on terminated senior executive employees for just cause, and as outlined by the Supreme Court of Canada the threshold for establish just cause is very high. The onus of establishing just cause is on the employer – and if they are unable to satisfy the onus, the employee is then entitled to severance pay and was subject to a wrongful dismissal.

Are You Entitled to Severance Pay Based on the Common Law?
The analysis as to whether a terminated employee is entitled to common law “reasonable notice” of termination, over and above the minimum statutory entitlements prescribed in the ESA (which amounts to one-week per year worked of termination pay, up to a maximum of 8 weeks total; and 1 week of severance pay [subject to satisfying various conditions] up to a maximum of 26 weeks of pay) is firstly based on the terms of the employment contract.

Prudent employers will seek to include “termination clauses” in employment contracts which limit the amount of severance an employee is entitled to upon the without cause termination of employment. The specific language of the clause is very important in determining its enforceability; as such, it is important that employees reach out to a qualified employment lawyer to review the terms of contract. If such clauses are deemed enforceable, which is based on the strict language of the clause, then the employees entitlement upon termination will be limited. If, however, there is an argument that the clause would be unenforceable, this can often mean 10’s of thousands of additional severance entitlements for the employee.

If you are deemed entitled to reasonable notice of termination based on the common law, the employer can pay out your severance in one of two ways: (i) on a lump sum basis; and (ii) on a salary continuance basis. The employer does not have the obligation to pay employees on a lump sum basis despite the oft-held preference. With respect to salary continuance severance payouts, employers will often include a “claw-back” clause, which serves to reduce the remaining severance payments (i.e., by 50.0% of the amounts owing) should the employee secure comparable employment during the notice period.

This clawback clause relates to the employees duty to mitigate its damages following the termination of employment – by seeking out new and comparable employment. The language behind the salary continuance clauses and the severance package agreements in generally should be reviewed by an employment lawyer in the province in which you reside to ensure you are protected to the fullest extent of the law.

Terminating Senior Executive Employees

As we have discussed in various posts, a termination from employment in Ontario can occur in one of two ways; (i) a termination without cause; and (ii) a termination for just cause. As we have noted here, the threshold to establish a termination for cause is very high and the test for establishing just cause was discussed as length by the Supreme Court of Canada in McKinley v. BC Tel 2001 SCC. As noted in McKinley, a contextual interpretation to the employees alleged misconduct is considered in determining whether the employer had just cause for termination, rather that considering the sole instance of alleged misconduct in a vacuum. At paragraph 33:

The courts do not consider an act of misconduct, in and of itself, to be grounds for dismissal without notice, unless it is so grievous that it gives rise to the inference that the employee intends no longer to be bound by the contract of service. There is no definition which sets out, precisely, what conduct, or  misconduct, justifies dismissal without notice, and rightly so.  Each case must be determined on its own facts. . . .

Thus, according to this reasoning, an employee’s misconduct does not inherently justify dismissal without notice unless it is “so grievous” that it intimates the employee’s abandonment of the intention to remain part of the employment relationship. In drawing this conclusion, the Nova Scotia Court of Appeal relied on the following passage in The Law of Dismissal in Canada (2nd ed. 1992), at p. 124:

What constitutes just cause in a specific situation is particularly difficult to enumerate because it depends not only on the category and possible consequences of the misconduct, but also on both the nature of the employment and the status of the employee . . . .

The existence of misconduct sufficient to justify cause cannot be looked at in isolation. Whether misconduct constitutes just cause has to be analyzed in the circumstances of each case.  Misconduct must be more serious in order to justify the termination of a more senior, longer‑service employee who has made contributions to the company.

The last point is the most relevant for the purposes of this discussion. Longer service more senior employees who have a demonstrable history of strong performance and dedication with a company will have more latitude when it comes to alleged misconduct. In other words, it is harder to establish just cause for terminating the employment of a senior executive that a short-term entry-level employee.

Where a senior executive is terminated from their employment without cause, the typical factors as enunciated originally in Bardal v. Globe & Mail Ltd., 1960 CanLII 294 (ON SC) continue to apply; including (i) the age of terminated employee, with employees of more advanced age typically entitled to more severance pay given the challenges for older workers to obtain new jobs; (ii) the years of service with the company, with longer service employees being entitled to more severance on average; (iii) the specialization of the job and the corresponding time it is anticipated for the employee to obtain a new job, with more specialized employees likely to have more difficulty obtain comparable employment, thereby entitling them to enhanced notice periods; among other factors.

For senior executives with long lengths of service, they can typically be entitled to severance pay at the high-end of the range awarded by Courts in Ontario. Other considerations including the payment of variable incentive pay, commissions accrued but unpaid to the termination date, continuation of RRSP or pension plan contribution matching, employee benefits coverage continuation, contributions to legal fees, provisions of letters of reference, and outplacement counselling to assist employees with obtaining a new job. These are all requests made in the ordinary course while negotiating severance packages for terminated employees.