Severance Pay - One Month per Year of Service?
What is behind this suggestion that certain fired employees are legal entitled to one month of pay for every year service.
SEVERANCE PAY | TERMINATION PAY
Neufeld Legal P.C. can be reached by telephone at 403-400-4092 / 905-616-8864 or email Chris@NeufeldLegal.com
The computation of the appropriate common law severance pay is premised on what the applicable notice period is for a fired or terminated employee, and what we find frequently bandied about as a rule of thumb is one month’s notice per year of service, which effectively means one month’s pay per year of service. But is this an actual rule?
Justice Devlin, in his 2020 Alberta Court of Queen’s Bench decision in Brown v Hrt Motors Inc.: “As is usual in a case like this, the parties have provided me with a series of previously decided cases which they believe have approximately similar facts. These serve to create a matrix of precedent from which the Court then triangulates an appropriate notice period for the specific and unique facts of the case before it. By its very nature, this task is always somewhat subjective but the Court works to align each result as closely to other similar cases as facts and circumstances allow. A rough guiding principle in this realm is that notice will generally be in the range of one month per year of service for individuals who have served for any meaningful length of time.”
Nevertheless, it must also be remembered that the Court has repeatedly sought to dissuade parties, in particular terminated employees, from simplifying their analysis to a rule of thumb on one month’s notice for every year of service, be it Justice Yamauchi in Lederhouse v. Vermilion Energy Inc., Madam Justice Dario in Smith v Vauxhall Co-Op Petroleum Limited, or Justice Neufeld’s 2017 Alberta Court of Queen’s Bench decision in Freeman v PetroFrontier Corporation: “The parties discussed the so-called “rule of thumb” of one month per year of service, as a “measuring stick.”
This principle has been rejected by some courts. See e.g. Crisall v Western Pontiac Buick GMC (1999) Ltd, 2003 ABQB 255 at para 42, 13 Alta LR (4th) 104. This Court agrees that this rule is neither “warranted in principle, nor … supported by authority”: Minott v O’Shanter Development (1999), 1999 CanLII 3686 (ON CA), 117 OAC 1. This Court is of the view that the better approach is to examine the [Bardal factors] and arrive at an appropriate length of notice, from a principled perspective.”
To present this better approach, Justice Neufeld drew upon the summary of the Bardal factors from Nelson v. Champion Feed Services Inc., which are taken from the Supreme Court of Canada’s decision in Bardal v. The Globe & Mail Ltd.: 1. The nature of the employment - the more senior the position, the longer it is likely to take to find a replacement position. There are fewer senior management jobs around. 2. The length of service - the longer an employee has worked for one employer, the more difficult it may be to find an alternate job. Either because the employee has narrowed his or her skills by working for one employer for a long time, or the employee has been paid more than the job is worth because of long service. 3. The age of the employee - the older the employee is, the less likely he or she is to find a suitable position, or the longer it is likely to take. Older employees are sometimes perceived as less worthwhile to invest in. 4. The availability of suitable similar employment having regard to the employee's experience, training and qualifications together with surrounding economic circumstances - what is the realistic prospect of this employee getting a similar replacement job? What is the job market like? In good economic times, jobs may be plentiful and the employee may have little difficulty finding a good replacement job; in poorer times, there may be few jobs around.
Now, with that being said, we must not necessarily look at the court’s refutation of this perceived rule of thumb as being the basis for pushing downward on notice and severance pay, and instead need to look at Madam Justice Moen’s 2018 Alberta Court of Queen’s Bench decision in Jones v. Temple Real Estate Investment Trust: “It is apparent that the cases show some inconsistency but it is not uncommon for an employee to be given more than one month for each year worked.”
Naturally, the employer is going to be pushing back against providing its terminated employees with the higher end of these notice periods, and thus severance pay, especially in the initial offer that is put forth, such that seeing initial offers of only one or two weeks notice per year of service, with sometimes plausible arguments for these lower offers, and certain employers providing little or nothing more than the statutory minimum of termination pay in lieu of notice, is the reality that most fired and terminated employees face.
This in turn leads to the need for further investigation and analysis specific to one’s individual employment circumstances, so as to determine how best to approach one’s personal situation when fired or terminated from your job and needing to assess the adequacy of the severance pay being offered by your former employer.
If you have lost your job, it is imperative that you scrutinize your severance pay (or why your former boss is contending you are not due severance pay). For a free initial consultation, contact our law firm at Chris@NeufeldLegal.com or 403-400-4092 / 905-616-8864.
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