With unemployment reaching a record high of 13.7 per cent amid the coronavirus pandemic, many Canadians have been laid off by companies that are struggling financially. As many as one in 10 Canadian businesses may not recover after being forced to close or scale back operations during the pandemic.
What does that mean for employees’ severance packages? Can an employer pay you less severance because of their financial struggles?
These are very common questions that our employment lawyers often deal with at Samfiru Tumarkin, particularly in times of economic downturn.
Here’s what you need to know.
What the law says about severance pay during a bad economy
Many of our clients assume that an employer that is struggling because of a can reduce its severance obligations. In fact, the opposite is.
The law is quite clear on this point: in a bad economy, when it’s going to be harder for an employee to find new employment, more severance is owed despite the financial struggles of the employer.
Over the years, courts across Canada have had to balance the business realities of employers and the rights of employees. In doing so, courts have found that when considering all factors, the law should favour the employee.
One of the most important factors in determining the amount of severance owed to an employee is employability.
At times when jobs are plentiful, the economy is doing well, and an employee is not expected to remain unemployed for long, the amount of severance an employee is legally entitled to will be somewhat less. When the economy is not doing well, the unemployment rate is high, and job prospects are poor, an employer will have to compensate a departing employee with even more severance to account for the potential time the individual may be unemployed.
This is especially important to keep in mind as businesses face closures, changes in consumer habits and shifts in regulations due to the current COVID-19 pandemic.
Employers can’t avoid paying fair severance packages
Employers may find it unfair that employees are entitled to more generous severance packages during the pandemic. Businesses can limit their financial exposure, however, by way of properly drafted employment agreements. Employers who failed to do this before the coronavirus crisis cannot avoid their financial obligations now.
While it is very common for individuals to be offered significantly less severance than what is legally owed, we have seen the gap between severance offers and legal entitlement widen significantly during the pandemic.
At Samfiru Tumarkin, we regularly speak with individuals in Ontario and British Columbia who are owed four or five times more severance than what they have been offered.
A severance package is meant to bridge the gap between jobs. As this gap is now expected to be longer than usual, severance packages must reflect this reality.
READ MORE: Will Ontario’s new COVID-19 layoff rules affect your rights as an employee?
Severance pay is more than one week per year of service
Many people still believe that severance amounts to one or two weeks’ worth per year of service. This cannot be further from the truth. In most cases, an individual can be entitled to one or two months of pay per year of service — especially when employment opportunities are scarce.
The good news is that most employers do wish to do the legally correct thing, and once we educate businesses on their financial obligations, a severance dispute is easy to resolve.
The important thing is not to make any assumptions as to your legal rights, especially before you accept a severance offer from your employer.
Hopefully, in the not-too-distant future, the economy will be firing on all cylinders again, and the unemployment rate will be back to pre-pandemic levels. Until that happens, employers will have to understand that their financial obligations to terminated employees have increased, and they must pay.
READ MORE: Where will Canada’s coronavirus economy go next? Here are 3 possible scenarios
Have you lost your job during the COVID-19 pandemic? Are you trying to determine if your severance package is fair?
Contact the firm or call 1-855-821-5900 to secure assistance from an employment lawyer in Ontario or British Columbia. Get the advice you need — and the compensation you deserve — during this crisis.
Lior Samfiru is an employment lawyer and partner at Samfiru Tumarkin LLP, one of Canada’s leading law firms specializing in employment law and disability claims.