Severance Packages – How Much Should I Get?

I read an article the other day about the former CFO of Concordia University who received a severance package of $235,000.00 after working for only 90 days. Though this might seem like a lot of money for a short period of time, it may be very reasonable based on the former CFO’s legal entitlements.

So, how much severance should you receive if you were to lose your job?

If you are terminated on a ‘without cause’ basis (meaning that you are not responsible or have no fault regarding the termination), you are entitled to monetary compensation, which serves as a bridge between your lost job and a new future job. This ‘bridge’ of time is notice of termination and the monetary compensation during this notice period is essentially your severance package.

Your severance package is first determined by your written contract of employment. A contract of employment is akin to a pre-nuptial agreement in the employment law context. If your written contract of employment has a termination clause, then in most circumstances, what is written in the contract is what you will receive as severance at termination. That said, termination clauses must be drafted very carefully to be valid, so you should have it reviewed by an employment lawyer to determine whether the clause is actually legally enforceable.

If your written contract of employment does not have a termination clause, or if the termination clause in your contract is unenforceable or if there is no written contract of employment, then your severance package is determined by the common law. The common law is simply a collection of court decisions based on other dismissed employees, where a judge has determined how much severance these employees should receive.  Canadian judges use three main factors in determining notice of termination. These factors are the terminated employee’s:

1. Age
2. Years of Service, and
3. Type of position he/she held at termination and the availability of new, comparable employment.

Remember that notice of termination is essentially your severance package: it is meant to address the period of time between your lost job and a future new job.  Since it is impossible to know when you will find a new job, these factors provide an estimate of this period of time.

For example, if a 40-year-old Customer Service Representative looses his job after only 1-year of work, he will get a much lower severance package than another employee with the same age and position, but who has been employed by the company for 10 years. It will take longer for the 10-year employee to find new work because she may be rusty in her job search – hence the 10-year employee will need a higher severance package to cover her period of unemployment.

Similarly, a customer service employee will have more opportunities to find new employment than someone in a more specialized role, like a Professional or Managerial/Executive level employee because these types of roles are not widely available in the job market.

And someone who is young and early in her career, will have more flexibility to accept different positions and make lateral moves than another person who is nearing retirement.

So as you see, severance packages are as unique as the jobs people hold. Even though $235,000.00 may seem like a lot of money for only 90 days of work, it makes sense in light of the Chief Financial Officer’s high level position and her prospects for finding similar work.

Regardless of how much severance your employer has offered, you should have an employment lawyer review your termination package to determine whether it meets your legal entitlements and supports you financially in your period of unemployment.