Length of Service Key Factor in Determining Severance

The Canadian common law of employment establishes most employees’ entitlement to reasonable working notice of termination. If working notice is not provided, the employee must be paid the equivalent wages (this is commonly referred to as severance pay).

There are, however, some exceptions to this rule. For instance, employees have no entitlement to working notice (or severance pay) when the dismissal is for valid just cause reasons.

Also, when an employee is subject to an employment contract containing a valid severance formula, the common law is ousted. And, union members’ entitlements upon termination are usually governed by a collective agreement rather than by the common law.

The working notice period is intended to provide the employee with an adequate opportunity to locate equivalent employment. The length of the applicable working notice period is largely based on four factors: the employee’s age; length of service; type of position; and the availability of similar employment.

Arguably, the most important of those factors is the employee’s length of service. The calculation of the length of service, however, is often more difficult than it might seem.

This is particularly so when the employee has served the employer for two (or more) discrete periods. In those instances, the employee will tend to demand working notice (or severance pay) based on the combined length of the periods of service.

The employer will normally oppose that method of calculation, insisting that only the most recent service should be counted. The courts are often called upon to resolve this stalemate.

The courts will resolve the dispute by assessing the circumstances of the employee’s departure and subsequent return to the employer. Where, for instance, the employer has treated the employee as having maintained continuous service there will be little doubt about the outcome.

Most cases, however, are not so clear. The courts must sift through the circumstances to determine whether the parties intended for the prior periods of service to be recognized.

Judges will rely upon such indicators as the employee’s pay level upon her return to work. The pay rate may indicate the employer recognized the prior periods of service. Similarly, the level of the employee’s receipt of other benefits (such as annual vacation, bonuses, medical coverage, pensions, and service awards) may indicate the employer treated the employment as continuous.

Also important is whether the employer enticed the employee to return. This can be a strong indicator that the employer recognized the employee’s past service was of value and was to be recognized.

Many employers also have a policy indicating they do not recognize prior periods of service. To be effective, however, such a policy must be implemented in a manner which is contractually binding.

All of these indicators contribute to the court’s decision in a particular case. The easy, and inexpensive, way to avoid leaving the decision in a judge’s hands is to execute a binding employment contract. The contract should address how any prior periods of service will be treated. That way, the potential litigation over the length of service may be totally avoided.

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