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.