Bonuses, commissions, benefits, pension contributions and equity can all be relevant to what a severance package should cover, and first offers frequently leave them out. This article sets out what to check before you sign.
Why more than salary can be relevant
Common law notice is meant to put you in the position you would have been in had proper notice been given. If your compensation included more than base salary, that principle is why the rest of it can matter. Whether a particular component forms part of your entitlement often turns on the wording of your employment contract or the plan documents that govern it.
What to check in your compensation
Base salary
The straightforward part, and the figure most offers are built around. Confirm the offer uses your current salary rather than an older one.
Bonuses
Annual, discretionary and performance bonuses are often the largest item left out of an offer. A lawyer would look at the wording of the bonus plan, whether bonuses were paid consistently in practice, and what the plan says about employees who are no longer active.
Commissions
If a significant share of your income was variable, this matters a great deal. Relevant questions include how commissions were earned, whether any were earned but unpaid at termination, and what your commission plan says about termination.
Stock options, RSUs and other equity
Equity plans usually address termination directly, so the plan document is the starting point. Look at what happens to vested and unvested awards and whether the plan sets a deadline to exercise anything already vested.
Benefits and insurance coverage
Health, dental, life and disability coverage generally have value beyond the paycheque. Find out the date your coverage ends, whether the offer continues it, and what the cost would be to replace it.
Pension and retirement contributions
Employer contributions that would have continued during a notice period are worth identifying, along with anything in your plan that turns on your termination date.
Car allowance and other regular allowances
Recurring allowances that formed a normal part of your compensation are worth listing, rather than treating them as perks.
Vacation pay
Accrued and unused vacation is a separate item from your severance offer. Check that it has been accounted for.
Pay particular attention to disability coverage
Of everything on this list, disability coverage is the one with the most serious consequences if it is overlooked. If coverage ends at your termination date and you later become unable to work, the gap can be significant. Find out exactly when your coverage ends, whether it continues during any notice period, and what your options are for replacing it.
What to do before you sign
Start by listing every element of your compensation over your last full year of employment, using pay stubs, bonus statements, your benefits summary and any equity plan documents. Then compare that list against what the offer actually covers.
Bring the offer together with your employment contract and any plan documents when you get advice, because the answer to most of these questions is in the wording rather than in general principles. Our guide to steps to take after losing your job covers what else to gather, and our article on how severance is calculated in Ontario explains how the length of the notice period is assessed. Our severance pay calculator gives a starting estimate.
Have your offer reviewed
Powell Litigation represents employees and employers across Toronto and Ontario in employment disputes, including severance reviews and negotiations. If your compensation went beyond base salary, it is worth having the offer and your plan documents looked at together. Consultations are available in person, by phone and by Zoom. Contact us or call (437) 222-2234.
Frequently Asked Questions
Does a severance package have to include my bonus?
It depends on the wording of your bonus plan and your employment contract, and on how bonuses were handled in practice. Bonuses are one of the most commonly omitted items in a first offer, so it is worth raising specifically rather than assuming the answer.
What happens to my benefits when I’m terminated?
Coverage often ends on or shortly after your termination date unless the offer continues it. Find out the exact date, particularly for disability coverage, and factor the cost of replacing it into your assessment of the offer.
Are stock options included in severance?
Equity plans usually deal with termination expressly, so the plan document governs. Check what happens to vested and unvested awards and whether there is a deadline to exercise vested options. Have the plan reviewed alongside the offer.
Do I get paid for unused vacation?
Accrued vacation pay is a separate entitlement from your severance package. Confirm that any unused vacation has been accounted for, and that it has not simply been folded into the severance figure.
My income is mostly commission. How is that handled?
An offer based only on base salary may substantially understate what you earned. What matters is how your commissions were earned, what your commission plan says about termination, and whether any commissions were earned but unpaid when your employment ended.
Legal Disclaimer
This article provides general information about Ontario employment law and is not legal advice. Reading it does not create a solicitor-client relationship with Powell Litigation. What forms part of your entitlement depends on your contract, your compensation plans and the circumstances of your termination. Have your offer reviewed by an Ontario employment lawyer before signing.