Are you on or thinking about applying for long-term disability benefits? Has your employer offered you a severance package? If so, read this article before you sign anything. As you’ll learn, severance packages can have significant impacts on your long-term disability claim. So, do yourself a favour and take a few minutes to read this article so you can fully understand what you are getting yourself into.
This article is part of our Ultimate Guide to Long-Term Disability in Canada.
What is Severance Pay?
Before we dive into the details, it’s important to understand the basic fundamentals of severance — starting with what it is. The government of Canada defines severance as “the money your employer pays you when you lose your job through no fault of your own.” Meaning you were terminated “without cause,” not “with cause.”
The next thing you need to know is that severance is provided in exchange for reasonable notice. So, in Canada, if you’ve been dismissed without cause, you are entitled to a reasonable notice period. And if you aren’t given reasonable notice, you are entitled to pay in lieu of notice, otherwise referred to as severance pay. So, employers can choose to give you notice and let you keep working until the date of termination, or they can pay you for the months you would have worked.
How much severance pay could you receive?
Both the reasonable notice period and the amount of severance pay you could receive depend on a variety of factors. These include:
- Regulations in your province or territory
- Your union’s collective agreement
- Your employment contract
- The amount of time you worked there
- Why you lost your job
Additionally, every business offers different severance packages with different amounts, terms and conditions. For instance, some companies will offer severance as a lump-sum payment while others will provide it as salary continence or deferred payments. Furthermore, some severance packages will require you to follow specific conditions and terms, such as that you can never work for your employer again.
Another thing you should be aware of is that not every employee is eligible for severance. For instance, if you only worked at your job for a short period of time, or if you live in Ontario and your employer does not have a global payroll of at least $2.5 million, you may not qualify for severance pay.
Common Law Severance vs Statutory Severance
If you’ve been dismissed without cause, you may have heard the terms common law severance and statutory severance. What do they mean? And how do they affect your severance pay?
In Canada, there are two systems that are used to calculate severance pay common law and statutory severance.
The easiest way to distinguish between the two is to look at common law severance pay as the ceiling and statutory severance as the floor. What I mean by that is, under common law, you are usually entitled to receive much more compensation in comparison to statutory severance.
Common law severance
This is because common law severance is based on past legal cases that involve people in similar situations. So, if someone was in a situation like yours and received a certain amount, then you may get a corresponding amount. However, no two cases are the same. Courts will use a variety of factors to determine how much common law severance you could receive. These factors include:
- Age
- Length of employment
- Your salary
- The character of employment
- Experience and training
- Ability to find similar employment with regard to the employee’s experience, training and qualifications
While common law severance is the most common and default system used in Canada, there are some issues with it. Namely, that common law can be contracted out of. For example, an employment contract can say that no severance will be owed in the case that an employee is dismissed without cause. This created a lot of issues because employers were just putting these clauses in their contracts so they could avoid paying severance altogether.
Statutory severance
To combat this issue, every province created minimum statutory severances that have to be paid regardless of what the employment contract says. No employment contracts in Canada can say someone can’t at least get the minimum statutory severance.
However, it’s important to note that the minimum statutory severance is the minimum. Meaning they are significantly lower than what you would be entitled to under common law.
Oftentimes, people are entitled to much more than they think. Whenever you are offered termination or severance pay, it is vital to seek out legal advice to ensure that you are being compensated fairly.
Now that you know what severance is and how it works both under common law and provincial employment standards, let’s talk about what you’re here for — how severance pay can affect your long-term disability claim.
The Effects Severance Pay Has on Your LTD Claim
The first thing you need to know is that your relationship with your insurance company is totally separate from your employment relationship. So, if you are already approved for long-term disability and your employment relationship ends, in theory, that will not affect your right to disability benefits.
With that said, there are a few things you still need to be mindful of when it comes to severance pay.
Some release forms may sign away your rights to LTD.
Most severance packages come with agreements and release forms. The thing you need to look out for is when these forms include wording and clauses that basically sign your rights to LTD away. This means that once you sign the release forms, you could get cut off.
Contact a disability lawyer immediately if you are unsure about whether your release forms contain any language that could stop your long-term disability payments. Here at Resolute Legal, we go through forms like this with a fine tooth comb to make sure you keep your rights to LTD. Call us at (888) 480-9050 to book your free consultation today.
Insurance companies may be able to offset your severance payments
The next thing you need to consider is depending on how your severance payments are structured. This is because depending on how they are structured long-term disability insurers may be able to offset your payments by the amount you received. So, if you got paid 100,000 in severance pay, it is possible that the insurance company could not pay you until you surpassed that amount.
Not all insurance companies can offset severance. It will all depend on how the severance is structured and the wording in your release forms and insurance policy. In some situations, a lawyer can help with this. They can advise you on whether there are ways to minimize the offset.
Accepting a severance may disqualify you from getting LTD benefits.
The last thing you need to consider is that accepting a severance package when you haven’t yet applied for LTD can disqualify you from getting benefits. Some plans require you to be an employee at the time that you submit the application. So, if you sign a severance package before applying for LTD, you may not be able to get benefits. This will apply as well, even if you already have a short-term disability claim. You would still need to submit your long-term disability application before signing the severance package.
Can an Employee on Disability Leave Ask for a Severance Package?
Many people on disability leave will come to us and say they don’t want to ever go back to their former employer. And they want to know if they can initiate a severance agreement. Unfortunately, however, the answer to that is generally no. You do not have a right to a severance package and generally speaking, employees cannot be the ones initiating any type of severance agreement.
As discussed earlier, severance is related to employment that is terminated by the employer. And the idea behind it is when employers terminate an employee, they need to give reasonable notice. This reasonable notice can be fulfilled by allowing the person to keep working or by terminating them right away and paying them out the money they would have received.
So, this is not something that can be initiated by an employee because you can’t terminate yourself. You can resign. But if you resign, you are not entitled to severance.
The exception: constructive dismissals
The only way you could ever request a severance package is if you have been constructively dismissed by your employer. Constructive dismissal refers to situations where an employer has not directly fired the employee. But the employer has changed the terms of employment, which forces the employee to quit.
Signs of constructive dismissal:
- Your employer has reduced your pay without your consent
- They changed your job duties
- Your employer demoted you
- If the employer suddenly requires you to move to a new location and it’s a fair distance away
If it is determined that you were constructively dismissed, then the employer will owe you the same amount of notice of termination or severance. Thus, in this situation, you can initiate a severance package. However, you should never go down this road without speaking to a disability lawyer. Constructive dismissal cases can be extremely dicey.
Final Thoughts: Talk to a Disability Lawyer
If you are thinking about accepting a severance package while on long-term disability, you should absolutely get legal advice first. As discussed in this article, there are a lot of things that can go wrong in regard to severance and long-term disability. So, in order to ensure you are well-protected, you should talk to a lawyer who has experience with disability and employment law. They can look over the agreement and make sure there isn’t anything that could harm your claim.
Resolute Legal specializes in disability and employment law. We have loads of experience working with clients in situations just like yours. Give us a call today at (888) 732-0470 if you have any concerns about your severance package. We offer free consultations, so even if you just have a question, don’t hesitate to reach out.
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