During volatile times where layoffs are rapidly escalating in light of trade wars, tariffs, and market turmoil, long-term employees are still entitled to certain protections under employment law. But where people may find themselves unemployed with no warning, or part of a collective layoff, understanding your rights surrounding severance packages, pension implications, and the potential pitfalls of accepting lowball offers is crucial. It could be the difference between a minimum and a maximum offer from your former employer. Especially for longer term employees, with years or even decades of time served at a company.
Severance Entitlements for Long-Term Employees
Under Ontario’s Employment Standards Act, 2000 (ESA), employees terminated without cause are entitled to both notice and severance pay, with the latter applicable to those with five or more years of service and where the employer’s payroll exceeds $2.5 million. That said, common law more often provides higher payouts.
To determine these, courts will assess factors such as age, length of service, position, and availability of similar employment—known as the Bardal factors—to determine reasonable notice periods. While a 24-month cap is generally upheld, exceptional cases have seen this extended.
For example, in Currie v. Nylene Canada Inc., a 58-year-old woman with 40 years of service was awarded 26 months’ notice due to her specialized skills and limited reemployment prospects. Similarly, in Milwid v. IBM Canada Ltd., a 62-year-old man with 38 years of service received 27 months’ notice, reflecting his long tenure and specialized role. You can be certain that neither would have received such generous packages if they had not had the support of a lawyer. In fact, most employers will provide as little as possible by way of compensation, hedging their bets that only a small few will contest the offer, or take the risk of paying for a lawyer as an investment in a greater package.
The Effect on Your Pension Plan
Many are surprised to learn that termination can significantly impact their pension benefits, especially for those in Defined Benefit (DB) plans. Under the ESA, employers must continue pension contributions during the statutory notice period. However, during the common law notice period, unless specified in an employment contract, employers are not obligated to continue contributions. And we know that where employers are not obligated, they are not likely to be generous or even fair.
Fortunately, courts have long recognized that employees should be compensated for the loss of pension accruals during the common law notice period, and will often factor this into settlements. Additionally, Ontario’s Pension Benefits Act provides for “grow-in” benefits, allowing certain employees to qualify for early retirement enhancements if their age plus years of service equal at least 55. This provision can significantly increase the value of severance packages for eligible employees, provided they know their rights and can fight for them.
Risks of Accepting Low Severance Offers
As mentioned earlier, employers are likely to offer severance packages that meet only the ESA minimums, which are often significantly less than what common law would provide. For instance, a 25-year employee might receive an offer based on the ESA minimums, equating to 8 weeks’ notice and 25 weeks’ severance pay. However, under common law, they could be entitled to up to 24 months’ notice, depending on various factors.
What’s more, accepting a lump-sum severance payment can affect pension accruals. In DB plans, pensionable service typically ceases upon termination, potentially reducing the pension’s value. This means that there are long term financial implications and hardships beyond that first year. Employees should ensure that severance packages account for this loss, either through continued contributions or additional compensation, and it is yet another thing to keep track of.
The Role of Legal Representation
Engaging an employment lawyer can significantly enhance an employee’s ability to secure a fair severance package. Lawyers can assess the adequacy of the offer, negotiate on the employee’s behalf, and, if necessary, initiate legal proceedings for wrongful dismissal. In Ontario, legal representation often leads to better outcomes, with many cases resolving through negotiation rather than litigation .
Moreover, legal counsel can identify additional claims, such as those arising from discrimination or bad faith termination, potentially increasing the employee’s compensation.
And for employees with 20+ years under their belt, which likely means lowered prospects in the job market, understanding the full scope of severance entitlements and the implications of pension benefits upon termination can be the difference between comfort and struggle. Given the likelihood that employers will offer less than what is legally owed, especially if they group you into a mass layoff, consulting with an experienced employment lawyer is a prudent step to ensure one’s rights are fully protected.
This article is for informational purposes only and does not constitute legal advice. For personalized legal guidance, please consult with a qualified employment lawyer.
Vice & Hunter LLP is a full-service law firm based in Ottawa, Ontario. We provide legal services to individuals, businesses, and institutions throughout Ontario. Our team of experienced lawyers offers a wide range of legal services, including employment law, litigation, real estate, and more. Contact us today to learn how we can assist you with your legal needs.
