Severance Package - Forte Law

Employment Contract, Employment Law, Severance Package, Wrongful Dismissal

Severance for a Contractor? What, no way!

I hired this person to work in my business. They asked to be a contractor. They wanted the flexibility and the write offs. It didn’t work out and now they want severance. What?! I don’t owe them anything! … do I?

They hired me as a “contractor” but always treated me like an employee. Then they let me go with no notice. Can they really do that to me!?

These questions come up all the time and the lawyerly answer to both is “it depends.” Why? Because the law says that even if you have a “contractor agreement” with someone, you can owe them severance. So when is a “contractor” entitled to severance? We have to look beyond the agreement and examine the true nature of the relationship between the company and the “contractor” to answer this. It often boils down to whether the contractor was really running their own business or whether they were really working for the company. Key factors are:

Exclusivity – Was the contractor able to work elsewhere? Did they? How dependent were they on the income? The more exclusive and dependent the relationship, the more likely the person is to be entitled to severance.
Control – Did the employer control the contractor’s work and hours? The more control the company has over the contractor, the more likely the company owes the contractor severance.
Tools and Expenses – Who owned them? Who paid to repair them? Was the contractor reimbursed for expenses? Contractors normally supply their own tools and are not reimbursed for personal expenses –expenses that are not passed through to a client. True independent contractors are not entitled to severance.
Profits and losses – If the contractor completed the job quickly, did she get the profit? If it took too long, did she take the loss? If the contractor had little opportunity for profit or loss, they are more likely to be seen to be working for the company and owed severance.
Workers – Could the contractor hire its own workers to get the job done? If not, the contractor is more likely to be seen to be working for the company and owed severance.
Contract – What does it say? Did it reflect the true reality of the situation? We have even seen “contractor” agreements that refer to the contractor as an “employee” throughout!

Whether you are a company or a contractor, it is important to have a contract that reflects the true intentions and the reality of the situation. If you don’t:

as a company you can be surprised with liabilities such as having to pay severance to “contractors” and sanctions for not complying with Employment Standards, tax and other legislation; and
as a “contractor” you can be out of work on little or no notice with potential claims that you have to fight about instead of something fair upfront.

Whether you need a contact, or are involved in a claim, a knowledgeable employment lawyer can help.

Reasonable Notice, Severance Package, Wrongful Dismissal

Fired, now what

Wrongful Dismissal 101

Without a doubt, the most frequent questions that I get from employee clients are about their rights once they have received a termination letter. I have reviewed many, many severance packages for employees. I also work for employers to prepare termination letters and severance offers. This blog post contains some of the questions frequently asked by employees and my answers.

Q: I didn't do anything wrong, can my employer fire me?

Yes, employers can terminate your employment "without cause." Even if you are a stellar employee, an employer can still decide to fire you. There are exceptions to this, for example, if you are being fired because you are pregnant or another reason that engages human rights protections. When terminating "without cause" employers have to provide reasonable notice of termination, or pay in lieu of notice (a severance package).

Q: Is termination pay as required by the Employment Standards Act enough?

Not unless there is a (valid and legally enforceable) written contract between you and your employer that says they can terminate on providing only the notice set out in the Employment Standards Act, and no more. The Employment Standards Act establishes minimum standards, including for termination pay. Much more severance pay is often owed.

Q: Is my employer required to give me a reference letter?

There is no legal requirement for employers to provide a reference letter. This is something that can often be negotiated as part of a severance package. Even if there is no negotiation over severance, it never hurts to ask for a reference letter. Consider asking the manager or supervisor you worked with most closely. They are more likely to provide a reference letter than HR, and the reference will be more useful because they know your work.

Q: How much will it cost to get my severance package reviewed?

In many cases, I can review, assess and give solid advice about a severance package offer in an initial consultation for a flat fee. After consulting with me, you will either have peace of mind, knowing that the package is fair and reasonable, or you will know exactly why and by how much the package is short, and have a plan to negotiate improvement.

Employment Contract, Severance Package

Employment Contracts – Don’t try this at home, folks

I spend a lot of time talking about employment contracts. This is because employment contracts can define rights under employment law, particularly at the time of termination of employment. When an employee is fired, without cause, the answer to how much severance pay is owed can be very simple if there is a valid and enforceable termination clause in an employment contract.

Many written employment contracts have termination clauses that are invalid or not enforceable. The Ontario Court of Appeal has recently issued a decision finding that a termination clause was not valid in Wood v Deeley. This decision considered two common challenges to termination clauses.

1. contract was provided after the employee's start date

This is a common mistake that many employers make. For a contract to be binding, each party has to receive "consideration," or something of value. There are ways to cover this and put a new contract in place for a current employee, but I strongly recommend to employers that contracts be provided to prospective employees, and returned with a signature, before the start date.

2. contract does not meet the Employment Standards Act minimums

This is why the Ontario Court of Appeal refused to enforce the termination clause in Wood v. Deeley. If the amount of pay or notice in the contract could fall below the minimum termination notice required by the Employment Standards Act, a court will not enforce it. Unfortunately, this is not easy for a non-lawyer (or even sometimes for a lawyer!) to determine.

Don't try this at home, folks! When to get advice?

Employees should get legal advice when they are given a written contract to sign. An employment lawyer can help you understand what you are signing and may be able to help you negotiate a better contract. Employees should also get advice when their employment is terminated. Even if it looks like your contract states what you will get for severance pay, it may not be valid, and you could be entitled to much more.

Employers should get legal advice before they hire a new employee. An employment lawyer can help you put together an employment contract that is valid and enforceable, and give you advice on how to properly implement it. This is tricky for a non-lawyer to do right, but can actually be nailed down with a small amount of legal guidance. If you don't deal with that upfront, you can have an unpleasant surprise of a legal claim for a large severance package down the road.

Layoff, Severance Package, Wrongful Dismissal

Layoffs, Restructuring, Terminations, Oh My

When is Employment Terminated?

I answer many questions from employee and employer clients about what happens to the employment relationship when someone has been laid off, or let go due to a restructuring or shortage of work. This is never a happy time for businesses or workers. Employees want to know, have I been fired if the letter says it is a lay off? Employers ask, do we need to provide notice or severance pay if we are in financial hardship? The answer to both questions is in most cases, yes. This blog post applies only to non-unionized employees in British Columbia.

The letter says laid off. Have I been fired?

The answer to this question, in most cases, is yes. The essence of a job is that the employer provides work to be done and pay, and the employee does the work. In a lay off, the employer is no longer providing work to be done or pay, so in most cases, employment has ended.

Employers can lay off an employee, without effectively terminating employment, if:

the employment contract expressly allows for temporary layoffs;
layoffs are a well-known and longstanding industry-wide practice (for example, logging where work cannot be performed during a "break up"); or
the employee agrees to the lay off.

Even if one of these conditions apply, the layoff must be short-term and temporary. In the non-union context, Section 1 of the BC Employment Standards Act limits the length of temporary lay offs of a maximum of 13 weeks in any period of 20 weeks.

If you don't fit into one of these conditions, a lay off of any length is the same as a termination of employment.

We are laying off an employee because we need to downsize to stay afloat, do we still have to give notice or severance pay?

The answer to this, in most cases, is yes. Unless you fit into one of the three categories above, a lay off is the same as termination of employment "without cause." This means that reasonable notice of termination, or pay in lieu of that notice (aka severance pay), must be provided. Unless there is a bankruptcy or similar legal process underway, the financial situation of the employer does not impact the requirement to provide notice or pay severance.