When is an Employee Entitled to Severance Pay?

When is an employee entitled to a notice of termination of their employment, or to be paid out for the time instead (called severance pay), is an unfortunately common question. In some cases, an employee is left with no right to severance, but in many others, the employee may overlook significant entitlements because they do not understand their rights. There are, of course, at least two sides to every story, so in future blogs we will outline the steps a prudent employer should take to terminate an unwanted employee, but for now, an employee who faces the dismal view of being fired themselves should ask the following questions.

Question 1: Am I unionized?

Unionized employees’ rights to dispute termination or seek severance pay are limited by the terms of the collective bargaining agreements (“CBA”) between their unions and their employers. These CBAs represent a trade-off where the employee assumes certain protections offered by the agreement (such as wage rates, benefits, seniority entitlements, pension, a grievance process, etc.), in exchange for giving up other rights. A unionized employee must dispute their termination through the grievance process under the CBA and cannot pursue severance pay against the employer in any of the processes discussed below.

Question 2: Am I an employee, a contractor, or a dependent contractor?

If you are not a unionized employee, the second question to ask yourself is: am I a true employee, a contractor, or a mix of these types of workers, some call a dependent contractor? This is important because, in the absence of a contract saying otherwise, only an employee and a dependent contractor are entitled to severance. A true contractor has no entitlement to notice of their termination outside of what is stated in their contract, if anything. Employees and dependent contractors, on the other hand, are entitled to reasonable notice of termination if their contract is silent on this issue. Employees and dependent contractors are people defined by several different legal criteria but both rely primarily on a single employer for work and tend to be under a greater degree of employer control than independent contractors.

Question 3: Was I fired for just cause?

Regardless of whether you are an employee, a contractor or a dependent contractor, if you are fired for just cause you are not entitled to severance pay (unless a written contract say otherwise, which would be very unusual). The law says that an employee can only be fired for just cause if their conduct fundamentally undermined the employment relationship. The threshold for just cause can be high. Significant dishonesty, theft, and gross negligence are examples of such behavior. Mere mistakes, irregular lateness, minor insubordination, and so on can only be just cause for termination if the employer provides clear written warnings in advance that such behavior will result in termination. The employer bears the burden of proving they had just cause to fire an employee.

Question 4: Are my rights limited by an employment contract?

An employee and a dependent contractor can have their rights to reasonable notice of termination limited by terms of a written employment contract. Such written agreements are relatively rare in the employee industries. Unless the court finds the employer has conducted themselves in such an egregious way as to disentitle them from relying on the written agreement, terms in the contract that restrict the employee from claiming severance beyond the minimum discussed below are enforceable and the employee cannot claim more than what they provide.

Question 5: If there is no contract, or it is not enforceable, what law governs?

In the absence of a contract, the entitlement to severance comes from two possible sources: (1) legislation such as the B.C. Employment Standards Act (“ESA”) or the federal Labour Code, and (2) judge-made law, called common law.

Regarding legislation governing severance, the majority of employees will be subject to the provisions of the ESA as opposed to the Labour Code. These laws provide for a minimum severance entitlement, which is roughly equivalent to 1 week for every year of service up to a maximum of 8 weeks. Employment contracts that limit the employee’s right to severance cannot provide for less than what is stated in the ESA and the Labour Code. Common law on the other hand, which is pursued in a court such as the B.C. Provincial Court or Supreme Court, is often more generous and can generally award one month per year of service depending on the factors discussed below.

Question 6: Should I choose Employment Standards/Labour Code, or a Judge?

Awards for severance are typically much higher (often by a factor of 2 to 4 times) for long-term employees who seek a severance award in the courts under common law, as opposed to awards given under the ESA or Labour Code. This is because judges are not limited to awarding the amounts set by the ESA and the Labour Code. The maximum severance awarded by a judge can be about 24 to 26 months of pay in lieu of notice, as opposed to 8 weeks under the ESA. A judge awards severance based on factors that relate to how difficult it will be for the employee to replace their position and income, such as: age, seniority, education, specialization, years of service, and labour market conditions.

People are often attracted to pursuing their severance claims under the simplified processes provided for by the ESA or Labour Code, but they often give up significant awards by not pursuing their claims in front of a judge. While some employees are concerned about the costs of hiring legal counsel to pursue their claims in court, employees should know that some lawyers pursue such claims on contingency (a no cure, no fee basis).

If you have a question about this topic or another legal issue, contact us for a legal consultation.  Reach us at 250-888-0002, or via email at info@leaguelaw.com.