Fired without cause? Here's what they owe you.

With the recent spate of layoffs occurring again, it seems timely to address the issue of severance pay in lieu of notice. An employer is entitled as a matter of law to dismiss an employee at any time, even without just cause. However, if they do so, they must compensate the employee by providing him or her with reasonable notice, or severance pay in lieu of such notice. If you find yourself rowing along in this boat, this article will help you address what items should be included your severance package.

The Supreme Court of Canada recently affirmed that 'in the event an employee is wrongfully dismissed, the measure of damages for wrongful dismissal is the salary that the employee would have earned had the employee worked during the period of notice to which her or she was entitled'. What is to be included in that 'salary'?

Firstly, the actual wages that the employee would have earned during the severance period are awarded. This will be the person's base salary or what they would have earned on average if they are paid on an hourly basis.

If they traditionally receive a bonus, then they are entitled to a proportionate share of that bonus based on the length of the severance period. If the bonus is considered discretionary or voluntary on the part of the employer, then it is doubtful a court would award it.

The employee is also entitled to their accumulated vacation time as well as any vacation time that accrues during the period of reasonable notice.

If the employee incurs costs relating to finding alternate employment, then these costs can also be claimed. These costs will include retraining, travel and moving expenses. Arguably, if one is forced to sell their home to move, then you can also claim the realtor's fees relating to selling your home.

If the company provided a vehicle and the employee was permitted to use it for personal reasons, then the cost of leasing a similar vehicle during the notice period can also be claimed. Conversely, if it were to be used only for business purposes, it could not. A similar argument would apply to a company cell phone.

Further, all benefits paid will also be deemed to be salary. These include health plans, disability benefits, life insurance, club membership fees, stock options, director's fees and loss of employer contributions to pension plans or RRSP's during the notice period. If the employee buys a replacement plan during the severance period this expense will also be included in any award of damages. If no substitute plan is purchased, then any expenses incurred during the notice period can also be claimed, for example dental expenses or prescriptions.

If the dismissal was particularly harsh in terms of its circumstances, such as where the dismissal was based on unfounded allegations of dishonestly or incompetence, the severance award may include a component of additional damages to punish the employer for its conduct.

The key to any successful negotiated resolution of a dismissal claim lies in knowing what you can and can't claim for. While the forgoing list is fairly extensive, it is not exhaustive. Each situation will depend on the unique employer/employee relationship in question.

By Tom McCartney
December 31, 2002

This document is intended to be used for information purposes only.
Due to the ever changing nature of law, you should consult with one of our lawyers if you have specific legal questions.

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