Duhaime's Law Dictionary


Severance Pay Definition:

An amount of money an employer owes to an employee in lieu of notice, in exchange for the employee's agreement to sever an employment contract forthwith.

An employer must give an employee reasonable notice of termination unless, of course, it is with just cause, in which event no notice may be required. In the minds of some judges, severance pay compensates employees for past contributions to the employer’s business.

Many - if not most - employers prefer to simply give the employee their salary for the notice period and send them home. Sometimes, the employer will bargain with the employee and give a bit less than might be owed in exchange for a peaceful termination of employment.

The amount that is owed the employee is based on a variety of factors such as seniority and age of the employee.

Some lawyers speak of severance pay as damages which, in essence, it is, or distinguish it as an add-on to termination pay.

In Mattocks:

"The triggering event (for severance pay) is ... termination of employment.

"Severance pay cushions economic hardship and provides some compensation for loss of employment....

"This payment is made whether or not the employee gets another job. The Legislature has recognized that termination of employment generally results in economic upset.

"Both termination pay and severance pay are intended to cushion the economic dislocation of the employee. Further, the factors taken into account in determining the length of notice in wrongful dismissal actions include length of service, character of employment, circumstances of hiring, and the prospect of future employment. These factors reflect the rationale for the obligation of certain employers to pay termination pay."

Lawyers refer mostly to the notice period or the reasonable notice period. If, in a certain case, 13 months is a reasonable notice period, then the applicable severance pay would be 13 months of salary or wages.

French: indemnité de cessation d'emploi.

REFERENCES:

Mattocks v. Smith & Stone (1982) Inc. 34 CCEL 273 (1990, Ontario Court of Justice)

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