Howard Levitt: Calculating severance is more art than science, so don't expect to get what your colleagues got

Severance entitlement usually depends on dozens of potential factors a court might consider

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Does it matter a whit what severance other employees in your company are paid?

I cannot overstate the number of times employees have visited our office complaining that some Curly, Larry or Moe (or perhaps Shirley) was offered far more severance than they were and, therefore, that they should be able to sue to recover those greater amounts.

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An even more common complaint is that their employer had historically offered lump-sum severance amounts but suddenly changed its approach to offering continuing severance lasting only until the employee in question found a new job. Can we not insist on the lump sum severance my company used to offer, employees ask?

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My invariable answer is that employers need not be fair and that neither generous nor parsimonious settlement offers to other employees have any impact whatsoever on what a different employee’s legal entitlement is — even if their circumstances are identical.

Severance entitlement cannot be determined by a formula or a severance calculator. It is as much an art as a science, looking at what might be as many as 120 factors courts might review in determining wrongful dismissal damages, with the major ones being re-employability, age, length of service and the status of the employee’s position. What others in the same company receive is totally irrelevant to another employee’s legal entitlement.

But a recent decision has cast some shade on that clear law. An employee in that case, in her statement of claim, alleged that “she was wrongfully dismissed and, based on the implied terms of her employment contract and the defendant’s policies and/or practices in place, she was entitled to a termination package that included 24-months compensation with no mitigation requirements.”

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Based on that pleading, the employee’s lawyer asked the court to order the company to produce the termination packages for all employees of this large company with more than 25 years of service (her length of service) over the previous three years. Not surprisingly, this is something an employer (and the affected employees) would have wanted to keep confidential.

But the Ontario court obliged this employee: “In light of the pleadings in this action, the disputed (information is) relevant. If the court finds that there was no just cause for the plaintiff’s dismissal, the termination packages provided to similarly situated employees and the defendant’s policy and/or practice determining termination packages will be relevant to the determination of the plaintiff’s damages,” the judge wrote.

Although the employees were to be identified only by initials, given that information relating to only long service employees were to be provided, the initials would be enough to identify them.

The impact of this ruling, of course, is to motivate any employee who learns that other employees at their company were offered more than they, to issue a Statement of Claim arguing that the practice and policies of their company required it to offer them the same, resulting in the company then having to produce what would normally be confidential severance packages of numerous other employees. (Full disclosure: I have been hired by the company involved to argue the appeal.)

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The truth is that few employers pay employees as much as their cases are worth in court. Most employees accept their offer rather than enter into legal conflict, let alone with their former employer who they might need a reference from some day.

What other employees are offered, or even settle for, is inherently legally irrelevant. Employers cannot argue that a history of successfully underpaying employee severance entitles them, at law, to continue to underpay others. In the same way, paying other employees more severance than a court would require creates no obligation to continue to overpay others going forward.

And even if an employer had a severance policy dictating how much severance it will pay, unless that policy actually forms part of a contract with the employee or the employer represented to the employee that they would be paid a specified severance upon termination, an employer is not bound by internal policies.

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One cannot say, frustrating as it is for both employees and employers precisely what severance an employee is entitled to. There is always a range depending upon how the case is presented, how likeable the parties are and the predilections of the judge who is drawn for that trial. Early in our legal history, courts would not interfere with an employer’s severance award, even if that judge would have decided the case differently, as long as the severance fell within that range of acceptable severance. That is the approach taken by courts of appeal to decisions of trial judges. But an employer is not a trial judge and no deference is owed to it by the court. Decades ago, the law changed so that courts are to be entirely indifferent to what employers chose to offer their employees. Each judge will make her or his own decision in each case. What the company paid others is immaterial.

The initial ruling in this case appears to suggest otherwise.

Howard Levitt is senior partner of Levitt Sheikh, employment and labour lawyers with offices in Toronto and Hamilton. He practices employment law in eight provinces. He is the author of six books including the Law of Dismissal in Canada.

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