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When the boss shows you the ... Exit
...how much will you get?
The National Post March 18, 2006
The most significant chunk of cash your boss has to sacrifice to get you out the door is severance pay. Exactly how severance is calculated is a mystery to many. Sure, former Royal Canadian Mint president David Dingwall got $417,780, and Paul Hastings, CEO of Vancouver biopharmaceutical company QLT, was reported to have walked away with US$3.2-million. It must be added that while both men received severance, neither was technically fired. Mr. Dingwall says his departure was involuntary though the then-ruling Liberals said he wasn't coerced. Mr. Hastings resigned from his job, though news reports said that the desire for his leave-taking was mutual. What isn't debatable is that both men reaped sizable severance packages.
But what would you get?
Every province has employment standards laws that outline the minimum required to send you off. And minimum they are. In Ontario, for example, an employee who has been on the job from between one to three years is entitled to two weeks notice, or two weeks of severance pay at his or her regular salary.
In reality, thank God, provincial minimum payouts are often meaningless because they're superseded by common law. That means that if your case ends up in court, the judge awards payment by looking at similar cases in the past, comparing positions, your age, years of service and the reasons you are being let go. The judge will also consider how easy it will be for you to find a similar job. Court decisions are typically much higher than the legislated minimums.
If the boss is thinking about giving you the boot, he will probably consult an employment lawyer to see what severance payout would be considered fair. Technically, the company could give you advance notice instead of severance, but Toronto employment mediator and arbitrator Barry Fisher says most employers would rather cough up the cash. "It's like saying to your husband that I'm leaving you in six months" he says. "Most employers who've done it greatly regret it."
Mr. Fisher developed the Wrongful Dismissal Database to help lawyers and employers figure out what severance is reasonable. (The database is available on CD from Carswell Publishing or you can do a one-off search for from Taran Virtual Associates, a legal research company. More information is available on Mr. Fisher's Web site at http://barryfisher.ca.) According to the database, a 60-year-old senior executive with 10 years of service receives an average of 15.5 months of notice.
If you are a 50-year-old middle manager, who has been with the company for 25 years, you would probably get something in the neighbourhood of 17 months of severance.
However, if you are a 30-year-old software developer who has been on the job for three years, you'll get a much smaller amount, around three months pay. And a clerical employee with a company for less than a year would receive around two weeks of pay.
If you are a member of a union, your severance is almost certainly outlined in your collective agreement. In such a case, common law doesn't apply.
If your employer can prove you are being fired "for cause," say you stole some laptops, sexually harassed some colleagues or were completely incompetent at your job, you are not likely to see a cash goodbye. Employers can also get around severance costs by having new employees sign contracts determining exit payments in advance.
There are other charges added to the company bill if the company wants to get rid of you. In business-speak, these are "replacement costs." According to Monika Morrow, vice-president of Right Management Consultants in Toronto, a good rule of thumb is that recruiting a new employee costs 20% to 30% of the incoming person's annual salary.
And there are additional, hidden costs during the transition. "For the first three months, a new employee isn't at 100%," says Ms. Morrow. "There's lost productivity during the change as other staff focus on the people who are leaving. They could be worried about their own jobs, and their focus is off the work they need to do. Another potential cost could be the company's reputation in the marketplace. That can make it harder to recruit new employees."
So, the bill to fire and replace the 30-year-old software developer who has been on the job for three years and makes $45,000 a year could amount to $22,500 in severance and recruitment costs, plus thousands of dollars in lost productivity during the transition.
Axing the 50-year-old middle manager with 25 years of service, who made $70,000 a year, could cost the company $116,666, plus lost productivity costs.
If you're a long-time employee who's been at the company since the days of the ditto machine, you might think the cost of putting you out to pasture is looking pretty steep. But don't feel too smug. The other side of the equation is, how much does it cost the company to keep you?
"If an employee's performance isn't up to standard, it can cost [the company] from a customer standpoint," says Ms. Morrow. "You can lose customer market share. An employee can cause conflicts that take a lot of time to resolve. If other people can't work with them, there's a risk of other people leaving."
Of course, you can also find yourself out on the street through no fault of your own -- a steep rise in the Canadian dollar or the opening of a new widget factory in the South Seas.
In any case, if the numbers don't work out in your favour, and you find yourself walking through the door with a farewell cheque in hand, you might want to stop by the Royal Canadian Mint or QLT and see whether they're hiring.
ADVICE FOR THE NEWLY DUMPED:
If you suddenly find yourself shown the door, the first thing you should do is contact an employment lawyer for advice on whether the severance package you're being offered is a windfall or pittance. Whatever you do, don't sign anything at the termination interview.
Employers tend to offer the minimum requirements as set out in employment standards legislation, so a consultation with a lawyer for $200 to $300 could result in a larger sum of money down the road. Some lawyers will do a consultation for free, but be warned: They may be more inclined to suggest you go to court so that they can get your business.
The boss will know you're serious when he or she sees the law firm letterhead, and the company will be more likely to sweeten the pot. "Once a lawyer is involved there is tremendous pressure on the employer to settle the case," says Howard Levitt, an employment lawyer with Lang Michener LLP in Toronto. "If it goes to court, the losing party pays a portion of the winning party's fees. So there's an incentive to settle right away," he says.
"If the company knows they've underpaid an employee, they'll have to pay the proper amount in the end, plus their own lawyers' fees and part of the employees' fees. Also, once it's in court, everybody finds out about it and it becomes a matter of public record," Mr. Levitt says.
Frank Smith (not his real name), who was recently pink-slipped, enjoyed an unexpected benefit from the process of challenging his severance package. "I got a [slightly] better package, and the lawyer did pay for himself. But I also got some satisfaction from the fact that my employer, who I believe unfairly dismissed me, had to go through further effort and expense to close the file on me."