Termination Pay vs. Severance Pay, yet only the start
Neufeld Legal P.C. can be reached by telephone at 403-400-4092 / 905-616-8864 or email Chris@NeufeldLegal.com
Although losing one's job results in most employees looking into termination pay and severance pay, they have rarely, if ever, looked beyond these two particular aspects, which can prove exceedingly costly. It is our intent to clarify some of the confusion surrounding the differences between termination pay and severance pay; however, this should not be the end of your inquiry, given that there are further legal issues that all too often need to be addressed and can represent significant money being recoverable from your former employer.
Termination Pay versus Severance Pay
When your employment comes to an end, whether as a result of being fired, terminated or laid off, employees will typically be offered a payout from their now former employer. The terms termination pay and severance pay are typically bandied about, being distinct legal terms that can create considerable confusion without differentiating between these two payments, what each represents and how they co-exist.
It is important to understand the differences between termination pay and severance pay, such that as a fired employee you might properly understand what payments you are receiving, your obligations in relation to those payments and where there might be an underpayment or non-payment by your former employer.
1. To begin, termination pay is a statutory payment that is legislated by the applicable employment standards legislation, while severance pay emanates from the common law, being the creation of the courts and as such is subject to significant variance due to an employer’s assessment of those variables, and what determination the employer makes and whether or not it is disputed by the employee.
Now, even though we’ve differentiated termination pay as statutory and severance pay as common law, certain jurisdictions do have a statutory form of severance pay in addition to statutory termination pay and common law severance pay; for example, statutory severance pay for larger employers under section 64 of the Ontario Employment Standards Act or minimum severance pay under section 235 of the Canada Labour Code.
However, these statutory provisions of severance pay are more akin to statutory termination pay, as is evident from the employment standards legislation, as their specificity emanates from the legislation, such that they share similar legal characteristics with statutory termination pay, but for the fact that the legislators sought to use the term severance pay, even though the court had already been utilizing the term severance pay for purposes of its common law adjudication. And for that reason, when we refer to severance pay herein, it will be exclusive to the court dictated, common law variants, given that in most provinces there is no statutory severance pay.
2. Termination pay is very specifically determined, with the applicable employment standards legislation setting out the mathematical formula for calculating termination pay. Typically, it relies upon two variables, being (1) the number of years of employment, which establishes the notice period, being measured in a number of weeks, and (2) the weekly pay earned by the employee based on the inclusions and exclusions specified in the applicable employment standards legislation.
Meanwhile, there is not a singular mathematical formula for the computation of common law severance pay, with the courts having established a series of variables that it uses for determining severance pay when it is fully litigated through the courts, thereby enabling employers to set severance pay as they see fit and forcing employees to fight through the courts if they dispute the amount being offered by their former employer.
3. Termination pay must be paid in full within the time specified by the applicable employment standards legislation, this is non-negotiable, although there are many employers, big and small, that violate this statutory requirement.
Common law severance pay is very much a negotiated arrangement, which lacks the statutory requirements of termination pay, such that its payment can be structured over many months.
4. Termination pay, when due, as distinguished from an alleged termination for cause that is not challenged by the employee, needs to be fully paid out.
Severance pay, however, needn’t be fully paid out if the employee either agreed in their employment contract or upon termination of employment to conditionality, such as a severance pay claw-back that reduces their monthly severance payments by a set amount or percentage should they find specified replacement employment prior to the completion of their monthly payments.
5. Termination pay cannot be subjected to signing a release agreement or other dispensation of one’s legal rights. That is not to say that far too many employers request a signed release prior to the issuance of termination pay, which contravenes most employment standards legislation, however employees rarely push back on this statutory violation.
Meanwhile, being asked to provide a signed release in advance of the employer paying severance pay is technically permissible, given that the terms of an employee’s severance pay are rarely established in full specificity, and when they are set out in an employment agreement, they typically specify that the signed receipt of the employer’s written release is a pre-requisite for the payment of severance pay. Given its negotiated or contracted term to settle the specifics of severance pay in a more timely fashion, as opposed to proceeding through court litigation to attain the court’s determination as to the appropriate amount of severance pay, a written release is permissible for purposes of attaining severance pay.
6. Termination pay and severance pay can and do co-exist, with termination pay, in the absence of working notice, representing the statutory minimum that the legislatures have determined all identified employees are entitled to, while common law severance pay represents the greater and more complete payment that the courts believe is due based on an individual’s specific employment circumstances. Both aspects need to be dealt with when an employee’s job comes to an end upon being laid-off, fired or terminated without cause, however due to the variability of severance pay which can only be conclusively settled through protracted court litigation, an employer can propose something less than what the courts might otherwise rule, knowing that a more immediate negotiated payment is typically preferrable to an extended court litigation to attain severance pay.
Naturally, we are only scratching the surface when it comes to dealing with losing one’s job, whether you are fired, terminated or laid off, with termination pay and severance pay only being two facets of what you might be owed from your former employer, with the confusion distracting far too many employees from what they should also be looking at. If you have been fired, terminated or laid off, and are looking for knowledgeable legal counsel to address your personal situation, look to contact us for a free initial consultation.
Our approach, however, is not for everyone. When we take on an employment case, we pursue it very aggressively, such that we don't pull our punches with your former employer. As such, for those individuals who simply want to move on, even if it means leaving behind a considerable amount of money, we are probably not the right legal team. For everyone else, especially those employed by larger companies (who think they are so strong and powerful to be beyond reproach), that meet our internal criteria for aggressive employment litigation, we have a unique legal approach that you should seriously consider. If this is of interest to yourself, feel free to contact our law firm in strict confidence, by telephone at 403-400-4092 or 905-616-8864, or via email at Chris@NeufeldLegal.com.
IMPORTANT NOTE: This website is designed for general informational purposes. The site is not designed to answer specific questions about your individual situation or entitlement. Do not rely upon the information provided on this website as legal advice in respect of your individual situation nor use it as substitute for individual legal advice. If you want specific legal advice, you need to engage a lawyer under established legal engagement procedures that have been specifically agreed to by that lawyer.