Federally Regulated Employee Severance Pay
Federally Regulated Employees include those working for banks; transportation companies such as Canada Post Corp and Via Rail Canada; airlines and airports; and broadcasters and telecommunication providers. The government, which is a major employer, also has a significant number of federally regulated employees. As a result, these employees are protected under the Canada Labour Code and are entitled to specific termination entitlements in the event of a without cause termination. These entitlements vary based on an individual’s years of service and are governed by the Canada Labor Code.
The government has recently modernized the Canada Labour Code (the “Code”), implementing changes that will increase an employee’s termination entitlements in the event of a termination without cause. The amendments will take effect on February 1, 2024. They will increase the amount of notice (or pay in lieu) that an employer must provide to a non-unionized federally regulated private sector employee upon a without cause termination.
As a result of the changes, it is important that all Federally Regulated Employee severance pay review their existing employment agreements and ensure that they meet the minimum standards set out in the Code. If an employment agreement does not comply with the new requirements, it may be subject to challenge and could result in costly litigation for the employer.
How Are Delays Managed in Federally Regulated Employee Severance Pay?
Moreover, it is important for employers to consult with their employment lawyers about these amendments to the Code in advance of the effective date, so that they can take appropriate action to protect their interests. For example, the law currently provides that severance pay is taxed as income, so it would be beneficial to ensure that any bank employee severance package that an employer offers is designed to be payable in the form of an instalment plan or other arrangements that are exempt from the application of section 409A of the Income Tax Act.
In addition, it is important for any employer that makes a decision to lay off a number of employees (or terminate their employment) to understand that it is not permissible to do so unless it is explicitly addressed in the employee’s contract. If the employer attempts to introduce a change in pay, position or title, job responsibilities or schedule and this is not agreed to by the employee in advance of the layoff or termination, it may be a constructive dismissal which triggers severance payment and possibly additional damages.
Many banks continue to offer healthcare benefits to terminated employees for a set period following their departure. This extension ensures that employees do not suddenly lose access to healthcare services, which can be crucial for those with ongoing medical needs or families to support. Coverage may either be fully paid by the bank or partially subsidized, with employees covering the remaining costs.
Severance payments are generally paid in a lump sum, but can be offered as a two-year deferral in order to reduce the proportion of taxes that will need to be withheld on the amount. The deferral must be documented and executed on a timely basis, however, to be eligible for tax exemption. As a result, it is important that severance payments are carefully planned and reviewed with an employment lawyer in advance.
