Toronto Employment and Labour Law Blog: Thirty-Six Months Severance?​

Employers beware. The assumption that the maximum recovery on a termination of employment under the common law is one month per year of service to an upper limit of 24 months is a fast disappearing myth based on corporate wishful thinking. Court awards have exceeded 30 months, in one case for an employee of 28 years of service. Most recently a Judge opened that in the right circumstances he would consider awarding 36 months. Employment cases will inevitably produce the right circumstances as the working population ages and jobs are cut back.

Ms Black (not her real name) has worked for her corporate employer for 18 years. She is currently 61 years of age. She planned to work in her executive financial position until age 65 and had informed her employer of her intention. She is not subject to an employment contract. To her surprise, she is terminated without cause and told that she was out of her position because “it is your time". 

Ms Black informs her counsel that there are no equivalent paying jobs available to her at her age, in her field of work, and her employer is well aware of that fact. Accordingly, the employer knew or ought to have known that it was forcing her into early retirement because of her age. The company does not provide a pension or retirement plan for this particular employee but younger and newer employees are granted a pension plan.

Counsel enters into negotiations with the employer which offers 19 months lump sum, not subject to mitigation. Although counsel informs his client that such a proposal is within the guidelines of current case law he also points out that she may achieve more severance because of her age and the unavailability of equivalent employment. Her case may also rate damages for age discrimination. 

Ms Black’s case and many more like it to come will set new standards of the length of severance because the rationale for awarding a particular length of severance does not apply. You cannot estimate how long it will likely take the terminated employee to find replacement employment when such employment does not exist and the employee may be too old to go back to school in order to learn a new occupational role.

As shocking as it may seem, the judge’s willingness to award 36 months may be a realistic prediction about the future of severance. All the more reason for competent employment counsel to strongly advise their employer/clients to enter into contracts with new hires and think about providing fresh consideration to senior employees to encourage them to trade their common law rights for a fair employment contract. Just ensure that such employees receive independent legal advice before signing away the potential of a growing common law entitlement to notice and severance.

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