A gentleman called me recently with what sounded like a simple question.
He had been let go from his job. Was he owed severance?
Yes.
But once I heard what happened before his termination, the situation became much more interesting — and potentially much more expensive for his former employer.
He had worked for the same company for 27 years.
After nearly three decades, he decided it was time to retire. He told his employer, they threw him a nice retirement party and he left.
About a month later, the owner called. They needed him back.
He could work part-time, keep some flexibility and still have time for his kids and grandkids.
He agreed.
The arrangement worked extremely well. He enjoyed the job, liked the part-time schedule and expected to continue for another few years.
Then the company told him they didn’t need him anymore.
That’s when he called me.
Retirement wasn’t the end of the story
His original retirement was voluntary. He had chosen to leave, so that departure itself didn’t trigger a severance package.
The second departure was different. This time, the employer ended his job.
That meant we had to determine his proper severance pay — and the biggest question was whether the company could simply ignore the 27 years he had worked there before retiring.
In his circumstances, there was a very strong argument that it couldn’t.
The company hadn’t recruited a stranger.
It specifically wanted him back because of everything he already knew after 27 years with the business. He could step back into the workplace and start helping immediately.
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That history matters.
READ MORE: Employers enticing older Canadians to exit retirement: 4 key rights you have
He could be looking at roughly two years of pay
When the company eventually let him go, it wasn’t necessarily terminating someone whose relationship with the business had lasted only a few months.
His previous 27 years of service could still factor heavily into the calculation.
Based on his circumstances, I told him his severance could be worth approximately two years of his current pay.
That’s an enormous difference. Many employees still believe severance is calculated using a simple formula, such as one week per year of service.
It isn’t.
For non-unionized employees, factors such as age, position, length of service and the availability of comparable work can all affect the amount owed.
For an older employee with decades of service, those factors can produce a significant severance package. Our guide to severance for older employees and retirement explains why age and long service can become particularly important.
READ MORE: Six common employer mistakes that could lead to a bigger payout after termination
But the severance is based on his part-time earnings
There was another important wrinkle.
Before retiring, let’s say this employee was earning $75,000 a year working full-time.
When he returned, he was working part-time and earning approximately $35,000.
Which salary matters?
Generally, the severance calculation looks at the compensation the employee was earning when the employer terminated them.
So in this example, we would be looking at the part-time earnings of approximately $35,000 rather than the old $75,000 full-time salary.
But don’t miss the larger point.
Approximately two years of part-time pay is still a substantial amount of money.
If the employer thought it was letting go a short-service part-time worker with only a small severance obligation, it may have badly underestimated the cost of its decision.
A break in service doesn’t always wipe the slate clean
This is where other employees should pay attention.
I speak with people who worked for a company, left and were eventually brought back.
Sometimes they quit.
Sometimes they retired.
Sometimes the company previously let them go.
They often assume that when they return, their previous years automatically disappear.
Don’t make that assumption.
The length of the break matters, but so does the way the employee returns.
Were you treated like a completely new hire?
Was there new onboarding, training or probation?
Did you sign a new agreement specifically dealing with your previous years of service?
Or did the employer simply bring you back because you already knew the people, the systems and the job?
Those facts can change the analysis.
In this gentleman’s case, the reason the company wanted him back was obvious: it wanted the experience he had built over 27 years.
It wanted the benefit of those years.
That makes it much harder to pretend that history suddenly had no relevance when his employment ended.
The employment agreement could have changed things
The employer could have addressed this issue when it brought him back.
For example, a properly drafted agreement could have spelled out how his previous service would be treated and what would happen if the new employment relationship ended.
That is why an employment contract review can be so important before an employee signs a new or replacement agreement.
But that wasn’t what happened here.
The company brought him back to help, allowed him to resume working and then later ended his employment.
Only then did the potential cost of those 27 years become obvious.
READ MORE: She called about vacation pay — but was owed months of severance
Rehired and then fired? Don’t assume you’re a short-service employee
This is the broader lesson.
If you’ve returned to a former employer and are later fired, don’t calculate your severance based only on the date you most recently came back.
Your previous service could matter enormously.
The result will depend on the circumstances, including the length of the break, how you were brought back, your employment agreement and how the company treated your prior service.
This individual thought he was asking me about losing a part-time job that he had only recently returned to. The real issue was approximately 27 and a half years of employment history.
That’s a very different conversation.
And it’s why I tell people to have every termination reviewed, even when they think the answer is obvious.
You can use a severance pay calculator to get an initial sense of what may be owed, but don’t sign a termination package or release before having the circumstances properly reviewed by an employment lawyer at Samfiru Tumarkin LLP.
Your most recent start date may not tell the entire story.
