Knowing your rights, responsibilities in a termination can avoid hardship

By Tony Poland, LegalMatters Staff • Failing to get the right advice on a severance package can be a costly mistake for both employers and workers, says Toronto-area employment lawyer and mediator Stuart Rudner.

Rudner, founder and principal at Rudner Law, says job dismissals are complicated and making assumptions when it comes to termination obligations can lead to expensive mistakes.

“Many people do not fully comprehend how dismissals work. That’s nothing new,” he tells LegalMattersCanada.ca. “Employers often underestimate their severance obligations and most workers don’t have a firm grasp on their total entitlement and often leave money on the table.

Reluctant to get advice

“I can understand why some are reluctant to spend money to get legal advice but, in many cases, they are being penny wise and pound foolish,” Rudner adds.

He says he has spoken to many people who accepted severance packages believing they received all they are owed only to learn differently.

The problem, Rudner says, is that “there are so many myths out there.”

“The most common mistake is assuming that you are only entitled to the Employment Standards Act minimum severance, which tends to be about a week per year. Not so in most situations,” he says. “The other common myth is that severance is a month per year, which is also not the case.”

Rudner explains that courts will take a variety of factors into consideration such as length of service, the nature of the job and availability of similar employment.

Rudner says being a short-term employee may not be a detriment to getting a substantial severance package, especially if that person was hired away from another company.

Minimal notice

“There are cases where a six-month employee received nine months of severance. Just because you are short-term doesn’t mean your entitlement is minimal,” he says. “That’s where employers can go wrong, I have had many say they were terminating someone but giving minimal notice since they were ‘only employed for a few months’.

“But if someone in a senior position was lured away from another company or if they are in a unique job that would be difficult to replace, they could be entitled to a substantial amount of severance.”

There’s also confusion about what happens to an employee when a business is sold, Rudner says.

“It really does depend on the nature of the sale, whether it’s a share purchase or an asset purchase,” he says. “If it’s just a purchase of shares, the employer doesn’t actually change. But if it’s an asset purchase, then there will be a new employer.”

That is where it can get complicated, Rudner says, especially if there is a question of the total length of service when it comes to severance.

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“We work with a lot of companies when they are buying or selling and we ensure they are protected before the sale, not after,” he says. “It’s important for employees to know the law too. Many times, employees show up for work and are told there is new ownership. They are doing the same job at the same place but don’t realize they have just entered into an entirely new legal relationship.”

Rudner says the fallout from the coronavirus pandemic has made it “tough for everyone to wrap their head around what’s going on these days.” 

“However, the impact on severance entitlements of the economic circumstances caused by the pandemic is open to debate, especially  when so many businesses are either shutting down or laying off most of their staff,” he notes.

‘Businesses are hurting’

“It’s very challenging and I think everyone has questions,” he says. “Businesses are hurting. They don’t know how they can afford to pay severance when the only reason they are letting people go is that they can’t afford to keep paying them.”

While he has sympathy for employers, Rudner says the financial position of the company has never been a factor in assessing severance entitlement.

“Even if the company is struggling, if the industry is struggling, if the global economy is struggling, historically that has never been used by the courts to reduce severance,” he says. “Perhaps a court will consider that now because these are such unprecedented times. But that remains to be seen.”

Rudner says an employment contract that sets out severance entitlement can help alleviate confusion but cautions that some agreements are not ironclad.

“We have seen dozens, if not hundreds, of cases in the past few years where those contracts have been deemed to be unenforceable,” he says.

For terminated employees, Rudner recommends taking the time to consult with an employment lawyer to discuss their options.

“Nine times out of 10, we can identify shortcomings in the offer. We’ve had people grudgingly come in, believing that getting a second option is a waste of time, only to discover they would have been losing out if they hadn’t,” he says. “You never know until you seek advice. Even if our opinion is that the package is reasonable, which is unlikely, you’ll at least have peace of mind.”

Avoid guesswork

Rudner also advises employers to avoid guesswork when assessing the termination package.

“That’s an important point, especially in a situation where a company underestimates their severance or lowballs the employee,” he says. “If they end up going through the court process, they could be liable for substantially more severance. In some cases, they could be liable for bad faith damages. They are also going to be on the hook for their own legal fees and if they lose they may be responsible for a portion of the individual’s legal fees.”

In the end, “no one should be making assumptions,” says Rudner.

“It’s a mistake on both sides. Employers who make assumptions often expose themselves to liability and they might be in for a much more expensive dismissal than they anticipated,” he says. “Employees who make assumptions often end up leaving money on the table at a critical time. They need every dollar because they have just lost their job. A lawyer can educate people on the law and how it can work for them.”