Overview
Your employees all have contracts. They may be written or oral. The employment contract is often most relevant at the time the employment is terminated. This is because severance pay is determined with reference to the terms of the employment contract. Where there is no written contract limiting severance pay, employees are entitled to reasonable notice on termination – up to 24 months of severance pay.
You can control this risk by implementing legally enforceable employment contracts prepared for you by employment lawyers.
Why does your business need employment contracts?
The employment relationship is a contractual one, whether or not a written employment contract is ever signed. Without a written contract, many terms of the employment agreement are implied by the law, regardless of what you think is appropriate for your business. Most importantly, if there is no written contract, you can’t be sure how much severance pay you owe your employee on termination of the employment. This is how wrongful dismissal lawsuits are born.
How much severance pay are your employees owed at law?
The answer depends on the law that governs the employment contract. There are three legal standards operating simultaneously in British Columbia for each person you employ:
- The Employment Standards Act;
- The common law; and
- The written employment contract, if there is one.
The Employment Standards Act provides a statutory minimum for most employees in British Columbia. This means it is only useful to tell you the minimum mandatory notice formula for your employees. When dismissing an employee without just cause (the majority of dismissals), you should always plan on paying the applicable amount given by the Employment Standards Act.
But there’s more.
You can only limit severance to the statutory minimum notice if you have reserved the right to do so, in writing, in a valid and enforceable employment contract.
This is something every BC employer needs to understand: if you don’t have a written employment contract that allows you to pay only the statutory minimum notice, and you dismiss an employee by providing only the statutory minimum notice, you are wrongfully dismissing that person and exposing your business to a lawsuit. This is because where there is no written contract, the common law (the law made by judges) implies a term into your employment relationship. The implied term is called “reasonable notice”.
In almost every case, reasonable notice is much greater than the statutory minimum notice. A wrongful dismissal happens when you fail to give enough severance pay. Paying only the statutory minimum notice, when reasonable notice is owed, is a wrongful dismissal.
Reasonable notice ranges up to 24 months of all elements of your employee’s pay. The more generous your compensation structure, the more reasonable notice pay your employee will be entitled to have if there is no written employment contract. Older, longer-term employees in positions of authority are entitled to the most reasonable notice. However, employees with relatively short employment (even a few months) can be owed six months or more of reasonable notice, and young, specialized employees are entitled to more as well.
The common law does not consider your company’s financial situation, or the fact that you are selling your business to retire, or the fact that the employee may not have been very good. If the employee is entitled to reasonable notice, the law will give it to them, and you will be liable to pay it.
This liability can be controlled easily with professionally drafted employment contracts that put lawful, valid limits on how much severance pay you owe your employees. The contract can do many other things as well, like help you place controls on absenteeism, employee discipline, and post-employment solicitation of your customers. Talk to us about the specific needs of your business, and we will prepare the contract that’s best for you.
Contracts are ideally introduced prior to hiring, but can also be implemented once an employee is already employed. It’s not too late to implement contracts that can save thousands of dollars in legal fees and severance pay, not to mention many hours of management headache.
At EmployRight, employment contracts form the basis of our services. Our priority is to protect your business by preparing and implementing contracts tailor-made for your business. Everything else we do stems from that foundation of clarity and control that the contract will provide.
This table shows the difference between severance owed to an employee under the Employment Standards Act, and reasonable notice for the same employee:
| Age | Length of Service | Duties | ESA Notice | Reasonable Notice |
| 30’s | 2 years | manager | 2 weeks | up to 6 months |
| 40’s | 10 years | supervisor | 8 weeks | up to 12 months |
| 50’s | 15 years | manager | 8 weeks | up to 20 months |
In summary:
- You cannot rely on the Employment Standards Act alone to calculate severance pay, unless your written employment contracts allow you to do so.
- If there is no written contract with valid termination terms, you must give your employee reasonable notice on termination, which includes ESA notice.
- You can control this cost by implementing professionally drafted employment contracts, which can serve many other useful functions as well.
Take control of your workplace today.
I want to implement professionally drafted employment contracts for my business.