Should I Sign My Severance Package in Alberta?

Short answer: not until you understand what you are signing and whether the offer reflects your full legal entitlement.

In Alberta, a severance package may look straightforward. It may include a payment amount, a deadline to respond and a release for you to sign.

But signing a severance package can have significant legal consequences.

In many cases, the employer is asking you to accept the offer in exchange for giving up the right to bring any further claims. Once the release is signed, it may be difficult or impossible to ask for more later.

The important point is simple:

A severance offer is not always the same thing as your full severance entitlement.

What Is a Severance Package?

A severance package is the offer an employer gives when ending the employment relationship.

It may include:

• termination pay;

• additional severance pay;

• continuation of benefits;

• vacation pay;

• unpaid wages;

• commissions;

• bonus or incentive compensation;

• pension or retirement contributions;

• outplacement services;

• a reference letter;

• confidentiality terms;

• non-disparagement terms; and

• a release of claims.

Some packages are simple.

Others are not.

The issue is not just how much money is being offered. The issue is what the employee is receiving, what the employee is giving up and whether the offer complies with the employee’s legal rights.

Do You Have to Sign?

Usually, you do not have to sign a release to receive amounts that are already required by employment standards legislation.

For example, earned wages and vacation pay are generally not optional. If they are owed, they must be addressed when employment ends.

The same is generally true for minimum termination pay required by Alberta’s Employment Standards Code, if the employee qualifies and no exception applies.

However, an employer may require a signed release before paying amounts above the minimum, or before providing enhanced severance.

That is why the distinction matters.

You should know which amounts are legally required and which amounts are being offered in exchange for the release.

The First Offer May Not Be the Full Amount

One of the biggest mistakes employees make is assuming the severance offer must be correct because it came from the employer.

It may be.

But it may not be.

In Alberta, the amount an employee is entitled to receive after a without-cause termination may depend on:

• the statutory minimum under the Employment Standards Code;

• the employee’s length of service;

• the employee’s age;

• the employee’s position and responsibilities;

• the employee’s compensation structure;

• the availability of similar employment;

• the wording of the employment contract; and

• whether common law reasonable notice applies.

The severance package may be based only on the minimum employment standards amount.

If the employment contract does not clearly and validly limit the employee to that minimum, the employee may be entitled to more.

The practical rule is this:

Do not evaluate a severance package by looking only at the number of weeks offered.

Alberta Employment Standards Minimums

Alberta’s Employment Standards Code sets minimum termination notice or termination pay requirements for many employees.

The general minimums are:

• 1 week if the employee worked more than 90 days but less than 2 years;

• 2 weeks if the employee worked 2 years or more but less than 4 years;

• 4 weeks if the employee worked 4 years or more but less than 6 years;

• 5 weeks if the employee worked 6 years or more but less than 8 years;

• 6 weeks if the employee worked 8 years or more but less than 10 years; and

• 8 weeks if the employee worked 10 years or more.

These are minimum standards.

They are not always the full severance entitlement.

That distinction is important because an employee may receive an offer that satisfies the statutory minimum but still falls short of what may be owed under common law.

Common Law Severance Can Be Higher

If your employment contract does not clearly and enforceably limit your severance, you may be entitled to common law reasonable notice.

Common law reasonable notice is assessed case by case.

Courts may consider:

• length of service;

• age;

• character of employment;

• level of responsibility;

• compensation;

• training and qualifications; and

• availability of comparable work.

This means two employees with the same length of service may have different severance entitlements.

A senior employee, long-service employee or employee in a specialized role may have a larger claim than the minimum employment standards chart suggests.

The better question is not:

“Did the employer offer the minimum?”

The better question is:

“Does the offer reflect my full legal entitlement?”

The Employment Contract Matters

Before signing a severance package, the employment contract should be reviewed carefully.

A termination clause may limit an employee to the minimum amounts required by employment standards legislation.

But not every termination clause is enforceable.

A clause may be unclear. It may fail to properly remove common law notice. It may conflict with employment standards requirements. It may not address all required components of compensation.

If the termination clause is not enforceable, the employee may have a claim for common law reasonable notice.

The practical rule is simple:

Do not assume your contract limits you just because your employer says it does.

What Are You Releasing?

Most severance packages require the employee to sign a release.

A release is a legal document that usually says the employee gives up claims against the employer in exchange for the severance offer.

The release may cover:

• wrongful dismissal claims;

• claims for additional notice or pay;

• bonus or commission claims;

• benefit-related claims;

• human rights claims;

• employment standards claims;

• claims relating to the employment relationship; and

• claims relating to the end of employment.

Some releases are very broad.

That matters because the payment may be limited, while the rights being released may be significant.

Before signing, the key question is:

“What claims am I giving up, and is the payment enough to justify that?”

Watch for Broad Release Language

Some releases go beyond severance.

A release may include terms about:

• confidentiality;

• non-disparagement;

• return of company property;

• cooperation after termination;

• non-solicitation;

• non-competition;

• intellectual property;

• repayment obligations;

• tax treatment;

• references; and

• restrictions on future statements or conduct.

These terms can matter.

For example, a non-disparagement clause may affect what the employee can say about the employer. A confidentiality clause may restrict what the employee can disclose about the settlement. A restrictive covenant may affect future employment or business opportunities.

The practical point is this:

A severance package is not just about money. It can also create ongoing obligations.

What Should Be Included in the Severance Review?

Before deciding whether to sign, the severance package should be reviewed as a whole.

Important questions include:

• What is the employee’s length of service?

• Was the termination without cause or with cause?

• What does the employment contract say?

• Does the contract validly limit common law notice?

• Is the offer only the statutory minimum?

• Does the offer include vacation pay?

• Are all wages and earned amounts being paid?

• Are benefits continued during the notice period?

• Are commissions included?

• Are bonuses or incentive payments addressed?

• Are pension or retirement contributions included?

• Are equity, stock options or share units affected?

• Does the release waive claims beyond the termination?

• Are there confidentiality or non-disparagement obligations?

• Does the package affect future employment?

A proper review should look at both sides of the deal:

What you are getting and what you are giving up.

Bonuses, Commissions and Incentive Pay

Bonus and commission issues are common in severance packages.

An employer may take the position that no bonus is payable because employment ended before the payout date.

That is not always the end of the analysis.

The relevant questions may include:

• whether the bonus or commission was part of regular compensation;

• whether the employee would have earned it during the notice period;

• what the bonus, commission or incentive plan says;

• whether the plan clearly removes entitlement after termination;

• whether the limiting language is enforceable; and

• whether the severance offer compensates for lost variable pay.

This can be especially important for sales employees, executives, managers and employees with performance-based compensation.

The practical rule is simple:

Do not assume your severance is complete if it ignores bonuses, commissions or incentive compensation.

Benefits Matter Too

Benefits can be an important part of a severance package.

The offer should be reviewed to determine whether it addresses:

• health benefits;

• dental benefits;

• disability coverage;

• life insurance;

• pension contributions;

• retirement savings contributions;

• vehicle allowance;

• phone allowance;

• expense arrangements; and

• other employment-related benefits.

If common law reasonable notice applies, benefits may need to be considered as part of the overall compensation loss during the notice period.

The point is simple:

A severance offer based only on salary may be incomplete.

What If the Employer Gives You a Deadline?

Many severance offers include a deadline.

The deadline may be short. It may say the offer expires in a few days.

A deadline does not necessarily mean the offer is fair, final or legally correct.

It also does not mean the employee must sign immediately.

Employers often use deadlines to encourage a quick resolution. But an employee should still take enough time to understand the offer, the contract and the release.

The practical rule is this:

Do not let an artificial deadline pressure you into signing something you do not understand.

What If You Need the Money?

Many employees feel pressure to sign because they need the severance payment.

That pressure is understandable.

But it is still important to know whether the offer includes amounts the employer already has to pay, and whether signing the release gives up a larger potential claim.

Sometimes the issue is not whether to accept anything.

The issue is whether the package can be improved, clarified or negotiated before signing.

Can You Negotiate a Severance Package?

Yes, severance packages can often be negotiated.

Potential negotiation points may include:

• more termination pay;

• longer benefit continuation;

• payment for bonus or commission losses;

• treatment of equity or incentive compensation;

• a positive reference letter;

• neutral wording about the departure;

• removal or narrowing of restrictive terms;

• changes to confidentiality or non-disparagement language;

• extension of the signing deadline; and

• contribution to legal fees.

Not every case will justify a larger package.

But many severance offers are starting points, not final answers.

What If the Termination Letter Says “Without Cause”?

If your termination letter says you were terminated without cause, the employer is not alleging serious misconduct that eliminates your right to notice or pay.

That usually means the main issues are:

• how much notice or pay is owed;

• whether the contract limits the amount;

• whether common law reasonable notice applies;

• what compensation should be included; and

• whether the release is acceptable.

A without-cause termination does not mean the employer did anything illegal by ending the employment.

But it does mean the employer must address the employee’s termination entitlements.

What If the Employer Alleges Cause?

If the employer alleges cause, the analysis changes.

A with-cause termination usually means the employer is claiming it does not have to provide notice or severance because of serious misconduct.

But just cause is a high standard.

The employer must be able to prove it.

If the allegation is weak, exaggerated or unsupported, the employee may still have a claim for termination pay or common law reasonable notice.

The practical point is this:

Do not assume the employer has cause just because the termination letter says so.

What If You Already Signed?

If you already signed a severance package, the situation becomes more difficult.

A signed release can be a serious barrier to pursuing more compensation.

However, there may be limited situations where a release can be challenged, depending on the facts. For example, issues may arise if there was significant unfairness, pressure, lack of understanding, misrepresentation or other problems with how the release was obtained.

That said, it is much better to review the package before signing than to try to undo it later.

The practical rule is simple:

The best time to review a severance package is before the release is signed.

What Documents Should You Gather?

Before reviewing or negotiating a severance package, gather the key documents.

These may include:

• the employment contract;

• any amendments to the contract;

• the termination letter;

• the severance offer;

• the release;

• recent pay statements;

• T4s or compensation summaries;

• bonus plans;

• commission plans;

• equity or stock option documents;

• benefits information;

• pension or retirement savings documents;

• employee handbooks or policies;

• performance reviews; and

• written communications about the termination.

These documents help determine whether the offer is complete and whether there may be a claim for more.

Common Mistakes to Avoid

There are several common mistakes employees make after receiving a severance package.

Do not sign immediately. Take time to understand the offer and the release.

Do not assume the employment standards minimum is the full amount. Common law reasonable notice may be higher.

Do not ignore the employment contract. The contract may be the key issue.

Do not focus only on salary. Benefits, bonuses, commissions and other compensation may matter.

Do not assume the deadline is final. It may be possible to ask for more time.

Do not overlook restrictive terms. Confidentiality, non-disparagement and post-employment restrictions can have real consequences.

Do not assume you can ask for more later. A signed release may prevent further claims.

What This Means Practically

Three rules are worth remembering.

Do not assume the offer is your full entitlement. A severance package may be based on the statutory minimum, while common law reasonable notice may be higher.

Do not sign a release until you understand it. The release may waive claims that are worth more than the payment being offered.

Do not look only at the lump sum. Benefits, vacation pay, bonuses, commissions, pension contributions, equity and future obligations may all affect whether the package is fair.

Speak With an Alberta Employment Lawyer

Before signing a severance package, the key question is whether the offer properly reflects your rights and whether the release is acceptable.

A severance review should consider:

• your employment contract;

• your length of service;

• your age and role;

• your full compensation package;

• the reason for termination;

• the enforceability of any termination clause;

• whether common law reasonable notice applies;

• whether bonuses, commissions and benefits are included;

• whether the release is too broad; and

• whether the offer can be improved.

 

Berjak Law handles employment law matters in Edmonton and across Alberta.

 

Berjak Law

10080 Jasper Avenue, Suite 301
Edmonton, Alberta

780-879-0200

This article provides general information about severance packages in Alberta and is not legal advice. Severance entitlements are fact-specific, and the effect of signing a release depends on the wording of the documents and the circumstances of the termination.