What happens to an employee when a business closes or they’re given working notice?

The COVID-19 pandemic has created economic hardship for many businesses. Retailers and restaurants have been some of the hardest hit, and other companies have had to permanently halt operations due to the impact of the coronavirus.

In my employment law practice, I continue to receive many questions from employees about their rights when their employer goes out of business, such as entitlements to severance and vacation pay. Here are the answers to some of employees’ most commonly asked questions when the company they work for shuts its doors.

Am I owed severance pay if my employer goes out of business?

You are entitled to full severance pay if your employer closes the business and you lose your job unless the company files for bankruptcy or goes into receivership.

In 2015, I was contacted by a significant number of employees who had been laid off from Future Shop and wrongfully dismissed, or not given legally appropriate severance packages, in the process. Parent company Best Buy, however, was still active and financially secure. Even though the company that dismissed the employees had ceased operations, we were still able to secure proper severance.

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How much is severance pay?

Severance pay is calculated using several factors, such as an employee’s age, position and length of service, as well as an employee’s ability to secure similar employment. Any bonus, benefits and commission should also be included in the package, which can be as much as 24 months’ pay. My firm developed a severance pay calculator that can give you a quick and anonymous understanding of how much you might be owed.

READ MORE: The 5 facts you need to know about severance pay, according to an employment lawyer

Do I have to accept a severance offer by my employer’s deadline?

Your employer may present you with a severance package and ask you to sign it on the spot. But you don’t have to accept a severance offer before the deadline set by your employer. Legally, you have two years from the moment you’re let go to obtain compensation.

Your rights include having a severance package reviewed by an employment lawyer at my firm to ensure that your entitlements are satisfied. Severance package deadlines are often used as a pressure tactic to get an employee to agree to an amount that is less than what they are entitled to through our legal system.

Can I get severance if the company goes bankrupt?

If the company goes into bankruptcy or receivership, it is extremely unlikely that you will be able to get severance pay.

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There is no better example of this than when Sears Canada declared bankruptcy in the summer of 2017. As David Vaughan, an employment lawyer at my firm, told Global News at the time, the chain’s decision to seek creditor protection meant that its 14,000 former employees were placed at the back of the line for compensation, behind secured creditors like the government and banks.

People who were owed as much as $100,000 in severance would instead receive nothing. If your employer owes you unpaid wages or vacation pay at the time of bankruptcy, the federal Wage Earner Protection Program (WEPP) may be able to help you secure those funds. You should also speak to an employment lawyer about making a claim for unpaid wages, as the directors of a company may very well be liable for such payments.

READ MORE: The top 5 termination myths — and what you need to know about being fired from a job

What happens if I am still on a layoff when the company closes down?

If you are on a temporary layoff when your employer shuts down permanently, you will still be entitled to a severance package. Your employer can’t ignore their legal obligation to provide you with compensation just because they have stopped operations.

A temporary layoff is illegal to begin with. Unless your employment contract allows your employer to put you on a temporary layoff, or you have accepted similar layoffs in the past, your employer can’t make drastic changes to your hours of work or pay. If they do, contact my law firm immediately. We can pursue a claim for constructive dismissal, and you can likely leave your job with full severance pay.

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READ MORE: Return company property, call an employment lawyer: 5 things to do right away if you’re fired

Can my employer give me working notice?

Your employer can give you advance notice of the company’s permanent closure. This is called working notice.

If the business plans to close three months from now, your boss can set that as your termination date and have you work through those remaining months. A period of working notice counts toward your overall severance pay, but many employers fail to provide the correct amount of pay after the notice period ends. If an employee is entitled to 10 months’ worth of pay when they are fired, then given three months of working notice, they should still receive seven months of pay.

Do I get EI if my employer goes out of business?

The purpose of employment insurance (EI), like severance pay, is to provide a financial bridge to help you pay your bills until you find new employment. When an employee loses their job through no fault of their own, including when a business closes, they should be entitled to EI.

When should I speak to an employment lawyer?

If you are let go or laid off, you should speak to an employment lawyer at Samfiru Tumarkin LLP right away. It’s critical to have your severance offer reviewed before you sign it. We can help you protect your rights and secure your full legal entitlements to severance pay.

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Have you been let go from your job? Are you trying to properly calculate the amount of severance pay owed to you?

Contact the firm or call 1-855-821-5900 to secure assistance from an employment lawyer in Ontario, British Columbia or Alberta. Get the advice you need — and the compensation you deserve.

Lior Samfiru is an employment lawyer and partner at Samfiru Tumarkin LLP, Canada’s most positively reviewed law firm specializing in employment law and long-term disability claims. He provides free advice as the host of Canada’s only Employment Law Show on TV and radio.

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