EMPLOYMENT STANDARDS ACT PAYMENTS AND COMMON LAW DAMAGES – WHAT IS THE DIFFERENCE?
Termination can be one of the most traumatic experiences in one’s life. An added stressor in a termination meeting may be a demand by the former employer that the employee agree to terms of a severance package. The easy response is to sign on the dotted line, accept whatever the employer is offering, and move on. However, like most things in life, the easiest option may not always be the best.
Having practised employment law for more than 18 years, I can say without hesitation that the biggest mistake that a terminated employee can make is to sign the initial offer either because it is easy, or there is pressure placed on them by the employer to do so. The best advice I can give is to seek legal advice on the offer before you sign. If the offer is reasonable, it will likely be there after you have obtained advice. The more pressure that is put on you by the employer to sign, the greater is the likelihood that the offer is unreasonable. It is understood that seeing a lawyer is as much fun as going to see a dentist. However, in both cases they are necessary “evils”.
Many people assume that any severance package received is reasonable, and that their employer would never try to take advantage of them. Such theory ignores the fact that the employer is running a business and it makes business sense to pay less rather than more. Using that basic principle, it is rare that the opening offer will be its best offer. There is however a certain level that an employer cannot go below, which I will refer to as base payments. These base payments are referred to as statutory termination and severance pay pursuant to the Employment Standards Act (the “Act”). Termination pay is equal to one week per year of service up to a maximum of eight weeks, and severance pay is the equivalent of one week per year of service (or part thereof) up to 26 weeks. Severance pay under the Act is only paid if the payroll of the employer exceeds $2.5 million and the employee has more than five years of service.
An employer cannot offer less than minimum statutory payments or base payments. But what if the employer adds a few weeks to the “base” payment? To the layman, it may appear that the employer is being generous, when in fact it is not. To use an example, take a five-year employee who is entitled to severance and termination pay in the equivalent of 18 weeks. In that situation, the employee is entitled to 18 weeks’ pay at an absolute minimum and without signing a release. If the employer seeks a release of common law entitlements in exchange for 20 weeks, the employee would receive only two weeks over Employment Standards minimum payments and in exchange for giving up rights to common law damages which could represent 12 months’ pay or more. Common law entitlements to notice are based on several factors including the person’s age, position, years of service, and the availability of alternate employment taking into consideration the employee’s education and training. Unlike statutory notice, common law notice is not fixed but is based on what a Court believes is reasonable in the circumstances. In monetary terms, an employee could be leaving tens of thousands of dollars on the table.
It should be understood that Employment Standards minimum payments are payable without an employee having to sign any release whatsoever. In other words, the employer would be obligated, in the above example, to pay 18 weeks pay and the employee would retain the right to bring a civil claim.
It is therefore extremely important that an employee understand what minimum (base) payments they are entitled to. The closer the offer is to the base, the worse the offer. The quantification of common law damages is in most cases significantly greater than base payments and which can only be assessed by a qualified lawyer.