Reviewing your First Severance Package

  • December 02, 2022
  • Jill Lewis, employment lawyer at Nelligan Law

If you are new to employment law, or practice general civil litigation, you will see your fair share of severance packages. In this article, I provide an overview of items not to miss when you review your client’s package and provide suggestions for your demand letter.

The below information is contingent on what the client’s entitlements are based on their statutory minimums, common law entitlement and whether there is an employment contract.

  1. Notice Period

Obviously the length of the notice period is extremely important. I won’t go into that analysis as it depends heavily on the factors of each client (known as the Bardal Factors), and whether there is an enforceable contract.

Things I often see about the proposed offer of notice and severance is that employers will clearly notify the employee of their statutory notice period (1 week/year up to 8 weeks) and this will be provided regardless of signing a release. But often the statutory severance (1 week/year up to 26 weeks) gets lumped into any “additional payment” being offered for the return of a signed release.

Ensure the client knows that they will receive both the statutory notice and the statutory severance, regardless if they sign a release. You can then point the error out to the employer in your demand letter and state “I trust this will be fixed immediately”.

  1. Deadline for Signing

Employees are always concerned by the deadline for signing. Obviously if the employee is not accepting the deal, the deadline is irrelevant. But employees are still fixated on this date. Offer to send the employer a brief letter stating you have been retained and will provide a substantive response to the termination letter shortly.

  1. Maintenance of Benefits

Benefits must be maintained for the duration of the statutory notice period and often employers will offer to extend benefit coverage for the full length of notice. It is rare for an employer to maintain short-term or long-term disability coverage as insurance companies typically won’t allow this.

If the employer cannot maintain group benefits, you can request a lump sum payment be provided in lieu. Employee counsel will argue that this amount should be calculated at 10% of the employee’s salary. Employer counsel will argue that it should reflect the premiums the employer would have paid during the notice period. Hopefully you can negotiate an acceptable outcome that is somewhere in between.

  1. Pension

Pension contributions should also be maintained during the notice period. Make sure you are aware of what type of pension plan the employee participates in (if any).

Defined contribution plan is an easy loss to calculate. If the company contributes $200 per month, then simply multiply this contribution by the number of months you are requesting in a notice period. Usually, these contributions are based on a matching system, so the employee may have to make their contribution for the same duration.

Defined benefit plan (“DBP”) is a bit trickier. The value of participating in a DBP is based on the employee’s months/years of service. If the employee has been participating for decades, and is close to a certain pensionable retirement age (review the pension plan), you may want to hire the services of an actuary to calculate the ultimate loss. This loss can be significant.

An easier way around this is to ask the employer to continue making pension payments for the duration of the notice period to maintain pensionable service.

  1. Bonus Payments

Ask you client how any bonus payments work— is it discretionary or does it consist as part of the salary, when does it get paid out, what is the company’s fiscal period?

The employee may have an upcoming bonus payment that represents the previous fiscal year. For example, the employer’s fiscal year is from September 30th to October 1st, so bonus payments are provided in December. If your client is terminated in November, you want to ensure the employer is providing the December payment for time worked. Then you may want to make another request for a pro-rated bonus payment for the duration of the notice period depending on the language of the bonus policy.

  1. Outplacement Services

Outplacement services offer career transition skills and knowledge such as resume review and interview preparation. Always encourage your client to access these services. Not only because it is a free service but because it demonstrates that your client is taking reasonable steps to mitigate their damages. If you get into litigation about the notice period, the employee will be expected to participate in such a program.

  1. Letter of Reference

You may want to speak with your client about the importance of a letter of reference. Many employers will only offer the “tomb stone letter”, which is just the employee’s title, length of service, and duties. A more personal letter could be something you negotiate with the employer.

  1. Life Insurance

Often, an employee will have 30 days to contact the company’s life insurance provider and convert his or her coverage into private coverage. This can be beneficial as they will not be required to perform a medical exam. You will always want to highlight this option for your client.

Each severance package is going to look very different depending on what the employee was entitled to while employed. Best practice is to request the moon and see what the employer is ultimately prepared to provide in return for a full and final release.

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