Severance is a safety net, not a clean entitlement for former employees

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By Howard Levitt and Eduard Matei

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Two decades ago, only top-tier managers and “C-suite” positions sought out employment lawyers. Now, the legal playing field has levelled, benefiting everyday workers. In a precarious economy, severance offers a safety net, allowing newly minted job-seekers to avoid tough choices.

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However, many ex-employees watch their severance vanish, mistakenly doing nothing throughout the process and awaiting a payout at the end. This approach can sabotage the result.

Let us clarify severance. It is compensation given upon involuntary job loss, but there are two types: Statutory termination pay and severance guaranteed to an employee; and additional severance that employees can sue their employer to obtain.

The first amount is usually quite small and is generally owed to the employee no matter what.

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It is the second type that employment lawyers spend the majority of our time with, and the one we are discussing today. More accurately called “common law notice,” this type of severance can extend up to and beyond two years’ pay.

It is not an entitlement in every case and is generally contingent upon whether a written employment contract exists. Even with one, there are a bevy of reasons why it might not affect these rights.

Why should employers pay a hefty severance in the first place? It is because they can terminate employees without cause. Courts require employers to offer a financial safety net while former employees hunt for new jobs. It is up to judges to determine the appropriate size of that buffer.

In a nutshell, this is the employer’s duty in paying severance — to provide a landing pad sufficient that the employee can secure new employment.

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However, employees also have duties that often go overlooked. Reciprocal to the employer providing means for the employee to keep their heads above water while seeking new employment, an employee must look for a new job. In legalese, this is known as the employee’s duty to mitigate their damages.

In other words, in claiming for severance, former employees are legally obligated to make reasonable efforts to find new employment after being terminated. Failing to do so may result in reduced or even denied severance pay.

I find myself continuously returning to my advice that severance is a safety net, not a clean entitlement, because in many ways it has more in common with funds available in an insurance policy than it does with money in your bank account.

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If you have fire insurance and only half of your house was damaged, you do not have a right to access all of the funds in your policy for the undamaged half of your house.

Similarly, where an employee finds a new job over the length of time the severance would have covered, the employer is generally entitled to offset the income earned from what the employee is owed. If the employee immediately finds another job that pays as much or more as would have been owed in severance, the employee’s entitlement to it (beyond statutory amounts) disappears entirely.

Put plainly, employees are not entitled to collect both common law severance pay and employment income, either from their previous employer or a new one, for the same period of time. That is why employee side lawyers attempt to obtain severance upfront. It provides the possibility of a windfall which a court will never grant.

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Given all of the above, there are a few key points to keep in mind should you find yourself seeking severance:

1. Diligence in job search efforts: An employee is expected to actively search for new employment opportunities. This means sending out resumes, networking and participating in interviews.

2. Flexibility and reasonableness: Employees are expected to be flexible and reasonable with their expectations. This includes considering positions that are not precise matches for previous roles or positions with slightly lower pay.

3. Document, document, document: Maintaining thorough records of job search efforts can be invaluable when it comes to proving mitigation. Keep track of job applications, interviews and any job offers received. This documentation is crucial if your severance claim goes to court.

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4. Don’t delay: The duty to mitigate begins immediately after termination or, if you can show some mental distress from the dismissal, a short time afterward. While it’s natural to feel hurt and upset after losing a job, do not let those emotions prevent you from taking action — it can and likely will be held against you if the matter ends up in front of a judge.

5. Don’t ignore job offers: An employee who unreasonably refuses a suitable job offer may lose their right to severance pay outright from that moment. Simply denying offers in favour of waiting for a larger settlement is not a legal option.

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Remember, the end goal of severance is to get you back on your feet again. The purpose and desired outcome of our system around severance is not to create a windfall at your former employers’ expense — it is to ensure that former employees are not unfairly put into sticky economic situations by unilateral decisions made by their employers without fault on their part. It is this balance of duties that forms the hallmark of a robust legal system.

Howard Levitt is senior partner of Levitt Sheikh, employment and labour lawyers with offices in Toronto and Hamilton. He practices employment law in eight provinces. He is the author of six books including the Law of Dismissal in Canada. Eduard Matei is a partner with Levitt Sheikh.


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