Severance packages for senior executives can often amount to several hundred thousand dollars in entitlements. Accordingly, it is imperative that executives are attuned to the employment law issues that are prevalent in severance packages in Ontario.
A wrongful dismissal occurs when an employee has been terminated without cause from their employment and has not been provided with a reasonable severance package in the circumstances. The basic principle in awarding damages from wrongful dismissal is that the terminated employee is entitled to compensation for all losses arising from the employer’s breach of contract in failing to give proper notice of termination. The damages should place the employee in the same position they would have been had they remained employed.
Accordingly, damages for wrongful dismissal (or severance packages) may include an amount for bonus or incentive compensation that the employee would have received had he/she continued employment during the notice period. This is more typically the case where the bonus is an integral part of compensation. As few as two consecutive discretionary bonus payments have been found to be enough to constitute an integral part of compensation. In Bain v. UBS Securities, the Court considered the following factors in determining whether a bonus payment was an integral component of compensation:
(a) Whether the bonus was received each year;
(b) Whether the bonus was required to stay competitive with other employers;
(c) Were bonuses historically awarded and did the company ever exercise its discretion;
(d) Did the bonus constitute a significant portion of the employees overall compensation.
If you are a senior executive that has been terminated from your employment in Ontario and have been offered a severance package, it is imperative to ensure that the severance accounts for all forms of compensation during the notice period, including bonus entitlements. For a free severance package review, contact the Goldstein Law Firm today!