Severance pay is given to long-term employees that have had their employment “severed,” and is meant to compensate an employee for losses such as loss of seniority. This type of pay is different than termination pay, which is given to employees in lieu of the required notice period an employee is entitled to upon the termination of their employment. As COVID-19 continues to affect employers and employees alike, some long term employees may have been laid off or there may have been in interruption in their regular working schedule. How does this affect severance pay, and can severance pay be reduced as a result of these interruptions due to COVID-19?
When Severance Occurs
An employment relationship is “severed” when an employer:
- Dismisses an employee, including where the dismissal is due to the insolvency or bankruptcy of the employer;
- Constructively dismisses an employee, and the employee provides their resignation in response and within a reasonable time;
- Lays off an employee for 35 weeks or more, within a consecutive 52-week period;
- Lays off an employee due to the permanent closure of all of the business at an establishment; and
- Gives an employee notice of termination in writing, and the employee subsequently gives the employer two weeks’ written notice of their resignation, and the resignation then takes effect during the statutory notice period.
Qualifying for Severance Pay
An employee qualifies for severance pay under the following circumstances:
- The employee’s employment is severed;
- They have been employed by their employer for five years or more; AND
- The employer:
- Retains a global payroll of at $2.5 million or more; OR
- Severed the employment of at least 50 employees within a 6-month period due to the permanent closure of all or part of the business.
Amount of Severance Pay
In order to determine the amount of severance pay an employee is entitled to receive, an employee must multiply their regular wages for a regular work week by the total of the number of complete years of employment and the number of complete months of employment divided by 12 for an incomplete year.
Can Severance Pay Be Reduced Due to COVID-19?
If you have been temporarily laid off due to COVID-19 and then recalled, your severance pay may be affected. However, your employment does not need to be continuous in order to be counted towards the minimum five years of employment needed to qualify for severance pay.
When you are temporarily laid off, the “clock” on your employment is paused. This means that the amount of time during which you were laid off does not count towards your overall total time period of employment. However, when you are recalled, the “clock” on your employment is restarted. This means that the amount of time you are employed after being recalled is added to your total amount of time of employment, for the purposes of calculating severance pay in the event your employment is severed.
It is always best to consult a legal professional if you have any questions or concerns about your employment or any severance pay you may be entitled to, to ensure you are receiving the best package possible.
Contact Us
If you are an employer who is facing a wrongful dismissal claim, or an employee who believes you’ve been wrongfully dismissed, our team of experienced workplace lawyers at Achkar Law can help. Contact us by phone toll-free at +1 (866) 508-2548 or email us at info@achkarlaw.com and we would be happy to assist.
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