Severance Packages: Seek legal advice when you receive a severance package

It is surprising how many people have the misconception that large companies always do their research when they terminate employees or change significant terms of the employees’ contracts. It is equally surprising how often this proves not to be the case. Individuals working for these large companies often do not seek a professional opinion from an employment lawyer because they assume the company is acting legally.

Six financial planners worked for a large credit union in British Columbia. The Credit Union decided it wanted to change the compensation structure for the financial planners, have them sign non-competition agreements to limit their activity if they should ever leave the company and limit the pay in lieu of notice to which they would be entitled if they were terminated without just cause. After some failed attempt at negotiation, on March 20, 2000, the boss simply delivered a memo to the six financial planners. Attached to the memo was a contract of employment incorporating a new compensation plan, non-competition provisions and termination entitlements. The memo advised that the new compensation structure would take effect on April 1st and that the contract should be signed by March 27th.

Wisely, the six financial planners got legal advice and on March 27th delivered a memo back to the boss indicating that they did not accept the changes to their existing employment contracts. The memo also indicated, however, that they would be prepared to continue to work after April 1st under the terms of their existing contract. The memo concluded by stating that they would be contacting the boss shortly to see if he wanted them to continue to work after April 1st under the existing terms.

The six financial planners tried to arrange a meeting with the boss for the next day but he refused to meet. Apparently, the boss conveyed a message that he would make his decision on April 1st. In response to this, the financial planners sent another memo saying that waiting until April 1st to decide whether the employer was going honour the existing terms of employment was not acceptable and that they had no other option but to interpret the boss’s refusal to meet with them as an indication that the employer was not prepared to honour the existing terms of the employment contract after April 1st.

The memo concluded by stating, “Unless we have written indication from you to the contrary by the end of the business day, March 28th, 2000, we will proceed accordingly.”

The next day the boss handed each of the financial planners a letter indicating that the company accepted their resignation effective March 29th, 2000. They protested that they had not resigned but they were still escorted from the building.

The financial planners sued for wrongful dismissal. The employer said they quit. They said they were fired. The question before the trial judge was whether a reasonable person would interpret the threat by the employees to “proceed accordingly” as a resignation.

The trial judge noted that proceeding accordingly could mean that the employees would stay on after April 1st but sue for any shortfall in their compensation package as a breach of the only employment agreements they had signed. It might have meant that they would capitulate and agree to the new terms. The court found that the employer acted prematurely and that the employees had not in fact resigned. They had been dismissed without just cause and were entitled to reasonable notice.

Despite the fact that these employees worked for a large corporation, as it turns out, they were getting better legal advice than the boss. My guess is that this boss’s ego was what drove his reaction and that he did not even bother to contact the human resources department to see if he was acting legally.

Employees should not assume that just because a severance offer or a proposed change to the terms of their employment comes on nice company letterhead couched in formal language that seems to have been written by a lawyer that everything is being done legally and nothing can be challenged. Fortunately or unfortunately, employees do usually make that assumption and employers can count on the fact that seven or eight times out of ten the employer’s proposal will be accepted without question. This is often the case even when the severance package is poor or the change to the terms of the employment contract illegal.