Articles and News

Mutually-agreed severance entitlement “a must” in changing legal environment

JUNE 18, 2008

In employment contracts typically covering a range of issues in the employer-employee relationship, severance obligations in the event of termination of employment are paramount and especially now that courts are becoming even tougher.

Not so long ago an employee´s years of service, level of responsibility and personal circumstances were the only key factors in quantifying damages. And while there were occasional surprise judgments in wrongful dismissal suits, there was a degree of predictability as to the amount of court-awarded severance in “without cause” terminations.

The Wallace factor, now used to justify increase extra damages, has created new uncertainty for employers. Where employers act unreasonably in the handling of dismissals, courts are now quick to add severance to compensate for the resultant distress.

Punitive damages have been rare in wrongful dismissal judgments and, while Wallace factor damages may come close, these damages are not intended to constitute punishment. But punitive damages may become more commonplace if the Supreme Court of Canada rules these appropriate in the Honda case now awaiting a decision.

Now is the time to initiate employment contracts that narrow or eliminate any dispute when employment is terminated. Where employment contracts are already in place, it is wise to review severance provisions to determine if these still offer adequate protection in a changing legal environment.