employer fails to provide severance pay
Severance pay is a form of compensation that an employer provides to an employee who has been laid off, fired or who resigns from their employment. It is usually a package of money and benefits such as extended health insurance. It is sometimes paid in one lump sum or in installments over a period of time. It is not required to be provided by law but many employers offer severance packages either as part of their policy or as stipulated in their employment contracts.
It is also offered as a sign of good will and fair treatment to employees and the community. The main reason companies are compelled to offer severance pay is to soften the impact of an abrupt termination and to prevent future lawsuits by former employees who claim they have been unfairly terminated or suffered some other kind of harm as a result of being fired, such as discrimination, hostile work environment or pay violations.
Regardless of the reason for your separation from an employer, it is important to know whether or not you are entitled to severance pay. The first thing to check is your employment contract or the company’s employee handbook to see if there are any provisions pertaining to severance payments. It is also advisable to speak to an experienced employment lawyer who can review the circumstances surrounding your termination and determine if you are in fact eligible for severance payments.
What happens if an employer fails to provide severance pay
In general, if you have been with your employer for more than three months and have maintained continuous employment, you are entitled to severance pay Ontario equal to one week of wages for every year of service up to a maximum of eight weeks’ pay. This applies to both unionized and non-unionized employees.
Severance payments may be taxed depending on the amount of the payout and your income status. Typically, your employer will deduct income tax from the lump sum payment but will not make deductions for CPP, QPP or EI. However, your employer may choose to deposit the lump sum into your RRSP or RPP which will not be subject to income taxes.
If you are an un-unionized worker in Ontario, the Employment Standards Act (ESA) requires that your employer provide severance pay if it is closing or ceasing operations and you have been working there for at least five years. It is important to remember that the law differs by province and that you should seek legal counsel to determine if your employer is complying with the law in your jurisdiction.
In most cases, employers will only be required to provide severance pay if they are firing their employees for serious misconduct or if they are terminating their employment for a reason not related to such conduct (termination with cause). If you are not a unionized employee, your severance package will be determined by the terms of your employment contract and any other company policies. Our firm has successfully challenged the decisions of many employers that fail to adhere to their established policies and have recovered significant severance packages for our clients.