DON'T USE THE SO-CALLED "RULE OF THUMB" TO PAY SEVERANCE TO SHORT-TERM EMPLOYEES

Some employers use the so-called “rule of thumb” to make severance offers to employees terminated without notice. 

Basically, one month severance pay for each completed year of service.

By implication, short-term employees, even managerial ones, would only be entitled to minimal pay in lieu of notice if terminated without cause.

This is not the law.

Indeed, length of service is only one factor a Court will assess in awarding severance pay (pay in lieu of notice). 

Furthermore, Ontario’s highest Court has also clearly rejected placing weight disproportionately on length of tenure, especially if it would potentially discredit or undervalue other factors, such as the employee’s level of responsibility, age and the nature of the position generally [Example: Minott v. O’Shanter Development Company Ltd., 42 OR (3d) 321 (ONCA); Love v. Acuity Investment Management Inc., 2011 ONCA 130 (CanLII)].

Particularly with a managerial employee, Courts now fairly consistently award significantly more for pay in lieu of notice. Higher management have been awarded six months’ pay in lieu of notice, for example, even though the length of employment was less than two years.

So, for short-term employees, particularly managerial positions, the “rule of thumb” should be carefully applied, if at all, these days. If the managerial employee is senior in age, the risk becomes even greater, as Courts are becoming increasingly intolerant of ‘forced retirement’ terminations. A severance offer should rarely, if ever, be weighted disproportionately on length of service. Rather, all of the factors typically evaluated by the Courts should be examined, such as the employee’s age, level of responsibility and possibly the employee’s reasonable ability to secure alternative and comparable employment.

Other cases in Ontario where the so-called “rule of thumb” has been rejected or, least, not applied:

  • product manager employed for nineteen months awarded nine months’ severance after termination without cause, in which the Court noted that the employer did not provide the employee with a reference letter and the manager had taken more than nine months to find alternate employment, even at a lower salary [Nemirovski v. Socast Inc., 2017 CarswellOnt 14948];

  • senior technical architect employed for less than three years awarded a five-month reasonable notice period [Raposo v. CA Canada Company, 2018 CarswellOnt 12044];

  • sales manager awarded a notice period of four months following the termination of her employment after less than one year [Nogueira v. Second Cup, 2017 CarswellOnt 16262]; and

  • general manager employed for less than two years awarded a three-month reasonable notice period, noting the employer was less than forty years of age and had found alternative, comparable employment within thirty days of the termination date [Bergeron v. Movati Athletic (Group) Inc., 2018 ONSC 885 (CanLII)].

Decisions on severance offers must be carefully considered, ideally with proper, qualified legal advice. 


Thank you for reading this - Jason Ward of WARDS LAWYERS PC.

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This WARDS LAWYERS PC blog is for general information only. It is not legal advice, or intended to be. Specific or more information may be necessary before advice could be provided for your circumstances.

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