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Can Severance Pay Be Reduced In Canada

Severance pay is given to long-term employees that have had their employment “severed.” It is meant to compensate an employee for losses such as loss of seniority. This type of pay is different than termination pay. In accordance with The Ontario Human Rights Code, termination payment may be given to employees in place of the required notice period an employee is entitled to upon the termination of their employment. Due to COVID-19, some long-term employees may have been laid off, or there may have been interruptions in their regular working schedule. How does this affect severance pay? Can severance pay be reduced due to the Covid-19 pandemic?

When Severance Occurs

Can severance pay be reduced? It depends on whether an employment relationship has been “severed.” Severance occurs when an employer:

  1. Dismisses an employee, including where the dismissal is due to the insolvency or bankruptcy of the employer;
  2. Constructively dismisses an employee, and the employee provides their resignation in response and within a reasonable time;
  3. Lays off an employee for 35 weeks or more, within a consecutive 52-week period;
  4. Lays off an employee due to the permanent closure of all of the business at an establishment; and
  5. Gives an employee notice of termination in writing, and the employee subsequently provides the employer with two weeks’ written notice of their resignation, and the resignation then takes effect during the statutory notice period.

Qualifying for Severance Pay

To determine if your severance has been reduced, you need to make sure you qualify for severance pay. An employee qualifies for severance pay under the following circumstances:

  1. The employee’s employment is severed;
  2. They have been employed by their employer for five years or more; AND
  3. The employer:
    1. Retains a global payroll of at $2.5 million or more; OR
    2. Severed the employment of at least 50 employees within six months due to the permanent closure of all or part of the business.

Amount of Severance Pay

To determine the amount of severance pay an employee is entitled to receive and whether severance pay can be reduced, an employee must follow the formula below:

  • Multiply regular wages for a typical work week by the total of the number of complete years of employment;
  • Multiply the number of complete months of employment; and then,
  • Divide by 12 for an incomplete year.

Can Severance Pay Be Reduced Due to COVID-19?

If you have been temporarily laid off due to COVID-19 and then recalled, your severance pay may be affected. However, your employment does not need to be continuous in order to be counted towards the minimum five years of employment required to qualify for severance pay.

When you are temporarily laid off, the “clock” on your employment is paused. This means the amount of time you were laid off does not count towards your overall total period of employment. However, when you are recalled, the “clock” on your employment is restarted. This means the amount of time you are employed after being recalled is added to the total amount of time of employment. This is the period used to calculate severance pay in the event your employment is severed.

It is always best to consult a legal professional if you have any questions or concerns about your employment or severance pay to ensure you receive the best package possible; especially in cases where you are left asking, ‘can severance pay be reduced?’

Contact Us

If you are an employer who is facing a wrongful dismissal claim, or an employee who believes you’ve been wrongfully dismissed, our team of experienced workplace lawyers at Achkar Law can help. Contact us by phone toll-free at  +1 (866) 508-2548  or email us at [email protected] and we would be happy to assist.

If you are a small or medium-sized company looking for full-service support with a same-day response, visit our CLO Program page for our strategic solutions.

Disclaimer: This blog is not intended to serve as or should be construed as legal advice and is only to provide general information. It is in no way particular to your case and should not be relied on in any way. No portion or use of this blog will establish a lawyer-client relationship with the author or any related party. Should you require legal advice for your particular situation, fill out the contact form, call (800) 771-7882 or email [email protected]