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Severance In A Recession  – Dutton Employment Legislation


A recession could also be coming in Canada, in response to Bay Road economists. If there’s a recession, there will probably be an increase in job losses. 

A query for employment attorneys is, does a recession have an effect on severance pay? Extra particularly, does a recession change how a lot severance somebody is owed? Is a person entitled to extra, much less or the identical severance throughout a recession?

An worker may assume that in a recession, it might take them longer to search out new employment and due to this fact they need to be awarded extra severance. 

On the identical time, employers might assume that in a recession, with the monetary pressures that come together with it, they are able to award dismissed workers much less severance than regular on account of society’s larger must hold employers like themselves afloat. 

Within the above examples, the worker’s assumptions could also be appropriate whereas the employers will probably be flawed. An worker could also be awarded barely extra severance throughout a recession whereas an employer’s severance responsibility will definitely be unchanged. 

Beneath the widespread legislation, severance (i.e. discover or termination pay) is awarded equal to “pay in lieu” of the interval it might take an worker to search out comparable employment, having regard to the (1) age of the worker; (2) their size of service; (3) their character of employment; and, importantly, (4) the availability of comparable employment.

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When contemplating “the supply of comparable employment”, what impact does a recession have in calculating severance? The reply, analogously, was supplied within the case of Lim v. Delrina (Canada) Corp. (1995), 1995 CanLII 7271 (ON SC), the place the court docket held:

“The dearth of accessible employment alternatives as a consequence of depressed financial situations in a specific business… will be thought-about in order to extend discover however to not lower it.”

That court docket in flip elevated the worker’s discover interval by one-third to keep in mind the depressed financial situations. 

Extra just lately was it confirmed that whereas severance will be elevated due to financial conditions, it can’t be decreased. In Michela v. St. Thomas of Villanova Catholic College, 2015 ONCA 801 (CanLII), the Ontario Courtroom of Enchantment answered whether or not an employer’s monetary circumstances are a related consideration in figuring out severance. 

The court docket discovered that “character of employment”, like all of the above-noted severance calculation components, is anxious with the circumstances of the worker, not with the circumstances of the employer:

“An employer’s monetary circumstances might be the motive for terminating a contract of employment – the occasion that provides rise to the worker’s proper to cheap discover. However an employer’s monetary circumstances aren’t related to the dedication of [severance] in a specific case: they justify neither a discount within the discover interval in unhealthy occasions nor a rise when occasions are good.” 

Thus, suffice to say that whereas an worker experiencing a difficult job search due to a recession could also be entitled to extra severance, an employer experiencing a difficult market due to a recession shouldn’t be allowed to lower the quantity of severance owed to terminated workers. 

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Learn Extra: 10 Details About Severance 🔟

A current instance of an worker who was awarded extra severance due to a recession was the Ontario Superior Courtroom case of Hampton Securities Restricted v. Dean, 2018 ONSC 101 (CanLII). There, the worker labored for one yr as a dealer, and her employment was terminated “within the depth of an financial recession”. The court docket went on to state:

“Depressed financial situations on the time of termination which make a brand new place tougher to search out, are a related issue to contemplate when figuring out the size of discover.”

In consequence, the court docket awarded the worker 4 months’ severance, discovering that though the “peculiar discover interval for somebody in [her] place can be three to 4 months. I’d have a tendency in direction of the upper finish of that scale given the depressed circumstances within the securities business on the time of termination”. 

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Conclusion: Extra Severance In A Recession

In abstract, workers terminated throughout a recession in Canada might count on to obtain a slight “recession bump” of their severance (about one month usually). On the identical time, naturally, employers can’t count on a slight “recession low cost” on their severance awards. Staff ought to beware nevertheless {that a} choose doesn’t all the time have to present a so-called recession severance bump in unhealthy occasions. Certainly, throughout covid, judges have been cut up on whether or not to award a covid severance bump contemplating equally poor financial and job search points at one time.